Recently, I was reading the limited partner quarterly updates for a fund where I’m an investor. In the update, the author highlighted that the fund had reviewed 1,000 potential deals last year and invested in four companies. At a ratio of 250:1, it’s clear that there are many more startups trying to raise a Series A than there are Series A investments (see the Series A crunch talked about four years ago).
Here’s how the investment process might work at a venture fund:
- 250 deals reviewed
- 25 one-on-one pitches (where the entrepreneur pitches a single partner)
- 5 full partner pitches (where all the partners hear the pitch)
- 2 term sheets
- 1 investment
Raising money is much harder than most entrepreneurs expect. With funds seeing so many opportunities, but only being able to invest in 1-2 companies per year per investor, it’s clear that most entrepreneurs will feel rejected when out raising money.
What else? What are some more thoughts on the ratio of deals reviewed to investments made?