Having a well organized CRM is the foundational layer to be an efficient VC. It’s also the first layer to having a data-driven approach because you need to ensure that you can track start-ups well in first place if you want to use the data to your advantage to find new ones.
Even though having an organized CRM is key it’s often something that’s left behind. Often it was set-up in the beginning of the lifetime of the funds. The pipeline can be the result of an old process that isn’t used anymore, leaving the pipeline messy with unclear steps.
The first thing to do if your an Analyst, Associate, Partner or Head of Ops is to make sure the pipeline to track deals is clear. It will help the team know at all time where a deal is in the process, everybody will be able to easily access informations and no deal will be lost because.
So the question is: How to build an efficient pipeline for a VC Fund?
In this article we will walk you through a comprehensive step by step approach to create the most effective VC pipeline. Of course we will try to keep it simple and short.
#1 Lay down your process
Every VC has it’s own way of working. It’s really important that the whole team have the same process in mind so everyone know what to do and when to do it when a deal is in the pipeline. Your way of working might reflect the values your fund is holding. The process can be simple and straightforward if you value moving quickly on a deal which is super important if you’re investing early stage. Or you might have a more detailed process because you want to ensure at each step that the deal meets a certain number of criteria.
So first lay down the process on a white board, paper or any medium that you like. Map all the actions that you and the startup are taking before deciding to invest. Draw a line and map the actions as shown below. It’s very important to make a difference between the actions you’re taking and actions the startup is taking. The goal of this step is to be as precise and detailed as possible. It has to map every situation that could happen when tracking a deal before investing.
NB: If needed, we suggest you to have two different pipelines. One for pre-investment and one after investment decision was made. The second pipeline can allow you to track the deal during due-diligence after the Term Sheet was signed.
#2 Define the key Milestones
Now you need to select the actions that are important and really fits in a pipeline.
Each day, week or month as a VC you discover hundred of startups. Let’s assess that every startup that you discover isn’t going to be a deal.
The goal of a pipeline is to have an overview of the on-going deals that might be a good fit for investment. The goal is to focus on deals that can bring value, those which are important for the fund.
So you can easily remove all the first steps. A new startup when you discover it, is a lead not a deal. Same when you reach out. Your CRM often have lead status (or something similar) that allow you to track a company or a contact by creating lists of leads depending on their status. You better do this because the number of leads at this point might be consequent and you don't want a your Pipeline to be clutterred.
You need to identify on your map where a startup becomes a real opportunity for your fund. In our case, it would look this:
#3 Define the steps of your Pipeline
Once you’ve cleared the first steps and identified where you want your pipeline to start, let’s define together the steps you need to create.
To do so, we’re going to only keep the actions on your process that meet certain criteria. What you want to track in your CRM is all actions that are required, factual & inspectable and startup centric. Let’s break down what it means:
- Required : The action cannot be skipped for the deal to be approved by the investment committee.
- Factual: Meaning the action has to be linked to an action that the analyst does.
- Inspectable: The action can be tracked in the CRM. Otherwise, if it can’t be tracked how do you know it happened?
- Start-up centric: That exist for your contact (often the CEO of the startup you’re looking to invest in).
Once it’s done your mapping should look a little bit like this:
#4 Create your Pipeline
Great news, you now have everything you need to create your pipeline!
Using the steps you’ve defined as essentials you can create the steps in your pipeline. To be more effective name each step with a past tense.
Example: « Schedule a First Call » becomes « First Call scheduled ». « 1st call founder » becomes « 1st Call completed ». And so on and so forth.
The goal for you when looking at your pipe is too quickly understand what actions have been realized and what actions are needed to move the deal forward.
For this, you also have to define exit criteria for each step. Quick definition: An exit criteria is a criteria that must be met to move the deal.
Example: Between « Additional questions » and « 2nd Call » you might want to know if (1) the startup was already financed a first time (2) how much they’re looking to raise and (3) if there’s already a lead investor.
NB: in CRMs like Hubspot, certain criteria can be labeled as mandatory to move the deal to a next step.
#5 Few tips
So now you’re supposed to have a pipeline, with clear steps, easily under stable by everyone and that matches perfectly the process of your fund.
To go a little bit further, here are a few automations that you can easily set-up for your pipeline to be more effective:
- Create a workflow that require you fill in a reason for each deal that is « Closed Lost »
- Special for Hubspot: use Forms instead of a Note using a template during your calls. The Form on Hubspot can have a workflow that directly update properties using the answer in the form. This will allow you gain some time and never forget to automate properties.
- Create a workflow « « If meeting is scheduled, then add to pipe ». You just have to make sure that this workflow will create new deals in the right step (the first step of your pipeline). Also make sure it doesn’t create a deal for each meeting newly booked.
- Create a workflow « Update property » for your lead status so the status evolves when you create a deal and the contact doesn’t appear anymore in your leads lists.
We really hope, this article helped you set up your CRM! If you need any help because your process is a little bit more complex than expected or you don't find a proper way to architect your pipeline you can email us at titouan@luphy.io 🚀
