Stages in the Venture Capital Investment Process

Deal Origination in which potential investments come to the attention of venture capitalists.

Screening is a step in which the venture capitalist reaches an initial decision to investigate further the investment (or not). The initial screen is a cursory glance at the business plan to determine whether or not the proposal fits within the investor's areas of expertise. If warranted, the investor reads the plan more thoroughly as part of the generic screen to assess potential of the product or idea to obtain first impressions of management.

Evaluation, during which the venture capitalist conducts detailed analysis of the venture. Criteria that venture capitalist apply are:

• assessment of concept;
• assessment of the principals; and
• assessment of returns.

Due Dilligence, if warranted, is the second phase of the evaluation step. This step may include formal market suite studies, reference checks, consultation with third parties. The investor outlines basic contract terms and discusses pricing.

Negotiation is a step in which the investor and the principals iron out the framework for a deal. The deal closes once the parameters are acceptable to both parties.

Post-investment activity relates to how the venture capitalist monitors the firm and takes part in major decisions. This phase largely involves monitoring, control, and intervention only as needed.