The VC Investment Process by RBL1 Ventures

Sergio Marrero
Dec 30, 2019 · 8 min read

At RBL1 (Rebel One) Ventures we aim to make the investment process as transparent and smooth as possible for founders as well as thorough. Our primary responsibility is to make sound investments on behalf of our limited partners — our funders — in order to maximize our return on investment, but we realize the fundraising process can be a burden for founders. This blog post is written for founders seeking funding from RBL1 (Rebel One) Ventures to outline the steps of our investment process, to describe each step, and to share the anticipated timeline in setting clear expectations and easing the fundraising burden.

For the detailed overview, keep reading!

Our process has six major stages, sourcing, deal screen, due diligence, investment committee, and deploying capital (closing the deal). The process can take anywhere from 2 to 12 weeks. RBL1 (Rebel One) Ventures is unique in that if we pass on an opportunity to invest in a startup one quarter, a founder can re-apply for funding the following quarter.

We also show a sample yield for our process above. Getting venture capital investment is extremely competitive. For each investment we make we will be reviewing anywhere between 100–400 startups in the relevant sector.

Sourcing

We identify startups from a range of sources including accelerators, incubators, universities, angel groups, our advisors, our investor network, and our investment team’s personal connections. A startup can also go to the RBL1 (Rebel One) Ventures and fill out this form to request investment. Once the information is submitted, a team member from our investment team will review the information and we will respond in a few weeks. We will request a meeting if we feel your startup may be a fit for investment. We review every submission. Please be patient if you are waiting an extended period for a response. We do value you and your time. All the wait means is we have not reviewed the submission yet!

If a founder communicates with a RBL1 (Rebel One) Ventures team member, the team member will ask the founder to fill out our intake form to initiate the review process.

Deal Screen

If we request an initial meeting to speak you have made it passed the first part of our review process. At this point, your startup is assigned a lead. A lead can be an investment team member, a RBL1 member, or a venture partner. In your first meeting we will let you know who the lead is. Your lead is your primary point of contact when communicating with RBL1 (Rebel One) Ventures. As it relates to investment matters with RBL1 (Rebel One) Ventures, after your initial meeting please do not message multiple team members, advisors, partners, or friends of team members about the process. It primarily causes confusion. Your lead is your guide and your advocate!

Initial Meeting

The initial meeting will run from 30–45 minutes. The point of contact from the startup will fill out an intake form before the meeting and will share their pitch deck with the lead. Filling out the intake form makes efficient use of the founder and the leads time. In my previous post I share a detailed list of questions a lead may ask during the meeting. Being prepared to be direct, clear, and concise in answering questions will make the best use of our time together. The lead uses a standardized approach to collect information across startups to mitigate bias in the investment review process. It is tedious, but it helps in being consistent in, your venture, and fulfill our duty of investing responsibility on behalf of our limited partners.

The lead may be using the RBL1 (Rebel One) Venturesinvestment evaluation guide to make sure they are capturing key information during the meeting. It has the same questions from our previous blog post.

Example of the investment evaluation guide by RBL1 (Rebel One) Ventures located here

Internal Review

So after we collect all this information, what do we do? We compare your startup and investment opportunity to other ‘deals’ we are reviewing. We aim to make several investments every quarter and our job is to select the most competitive investments. In comparing deals, we are asking ourselves the following questions:

Do they have initial revenue? How does this compare to other ventures?

Are they actively raising? Do they have any notable institutional investors? Do they have a lead investor? Are their defined terms for the round?

Is there check size in our typical range of investments?

What stage of development are they in? Is the market >$1B (price of product x number of potential customers in the U.S. per year)?

Is there product launched? Is there clear evidence of a repeatable sales process?

What is there capital efficiency ratio = Revenue received / capital raised (higher is better)? What is there multiple = valuation or cap / current revenue (lower is better)? How does it compare to other investments?

Does the startup clearly align to RBL1 (Rebel One)’s Goals?

Do the founders identify as underrepresented?

Are you based in an Opportunity Zone?

After the lead has reviewed 10–50 startups for the week, 1–2 of the most competitive ventures are selected to present for discussion at the weekly partner’s meeting.

Partner’s Review

The partners meeting is held weekly and typically lasts from 2–4 hours, sometimes longer. RBL1 (Rebel One) Ventures’ partners meetings are on Tuesdays — other venture capital firms traditionally hold these meetings on Mondays. The leads on the investment team present the top investment opportunities to the partners. At RBL1 (Rebel One) Ventures, to standardize the process, the lead populates a startup snap shot for the startup they are presenting with the key information on the venture.

Example of the startup snapshot by RBL1 (Rebel One) Ventures

Each top startup is discussed for about 10–20 minutes. Partners share initial feedback on the investment opportunity leveraging their previous experience from reviewing deals. Together they identify key risks and additional information needed to move the investment forward. The lead collects the feedback and notifies the startup if RBL1 (Rebel One) Ventures is passing, needs time to conduct internal research or analyses, or is moving the startup to the next phase — Due Diligence. About 10–15% of the startups discussed during the Partners Meeting will move to the next phase.

Due Diligence

Due diligence is the ‘startup research’ phase where RBL1 (Rebel One) Ventures is conducting a full assessment on your startup. Depending on how much information was collected during the initial meeting, the due diligence process last from a week to 10 weeks with our target timeline to complete due diligence being 4–6 weeks. During this time the lead makes sure the following activities are completed:

Review Website

Review Pitch Deck

Conduct Initial Meeting

Use Product and/or Service

Populate Deal Flow Intake Form

Conduct Customer Interview

Review Term Sheet

Interview Existing Investors

Review Financial Model

Conduct Waterfall Analysis

Conduct Competitor Analysis

Populate Impact Assessment

At any point in the due diligence process the lead can pass on the investment opportunity. The purpose of conducting this research is to assess the risk of the investment. At any point in the process if it is discovered that information provided by representatives of the startup were misrepresented or results were embellished, RBL1 (Rebel One) Ventures will automatically pass on the investment opportunity. Integrity is of the utmost importance throughout the entire process. RBL1 (Rebel One) Ventures considers the founders and portfolio companies we work with partners in creating a world better. Trust and honesty with our partners is the foundation of our work together.

While the lead is completing all due diligence activities, they are organizing the information collected into a single presentation in preparation for the next stage. Assuming the lead does not pass on the investment opportunity based on the information they found during the due diligence process, the deal will move to the next stage — the Investment Committee. At any given time 50–60% of startups that enter the due diligence phase will make continue on to be presented to the investment committee.

Investment Committee (IC)

Once due diligence is complete the analyses are packaged into a single memorandum called the ‘IC Memo’. At some other investment firms this is a PowerPoint presentation. The lead schedules a 90-minute meeting and at this meeting presents their findings from due diligence to the investment committee. The investment committee is made up of the RBL1 (Rebel One) Ventures partners and may include independent directors, subject matter experts, and guest investors.

After discussions and review of the IC deck the partners will decide if an investment should be made. The decision can either be a ‘hard pass’, a ‘soft yes’ pending follow up due diligence, or a clear ‘yes’. If there is follow up due diligence the lead will complete the pending due diligence items and schedule an ad hoc meeting with the partners to review for a final decision. If there is a clear ‘yes’ the startup continued to the next phase — closing the deal. About 70–80% of startups that make it to the investment committee phase receive investment.

Closing the deal

Once the investment decision has been made by the partners, the lead communicates that decision to the startup. At this point, if the investment is a clear ‘yes’, assuming we are ‘following’ in the given round (meaning there is a lead investor with pre-defined terms), the final term sheet is reviewed one final time and wiring information is requested. At this point, if we are leading the investment, the partners decide the final terms and issue a term sheet to the startup.

The final amount of investment relative to the allocation will be determined between the founder and assigned partner of RBL1 (Rebel One) Ventures. RBL1 (Rebel One) Ventures has an investor network that enables emerging fund managers and accredited investors to invest along side the fund which is why the exact final allocation may be determined at the end of the process after the investment committee.

Once the final term sheet is reviewed and signed by a partner the funds are wired to the startup. All research and due diligence completed is archived for future reference.

Going forward

While this is the end of the investment process, it is the beginning of the startup’s journey with RBL1 (Rebel One) Ventures. We stay in touch to get quarterly updates and provide strategic support, connections, business advice, advise on measuring and improving your impact, among other benefits.

We hope this post is useful in helping your team navigate the process in obtaining investment from RBL1 (Rebel One) Ventures!

Best,

Sergio Marrero

Rebel One — RBL1

Accelerating founders innovating for a better world.