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Version 1
January 2015

Table of Content
1.! Introduction to the playbook ....................................................................................... 3!
2.! The competition ......................................................................................................... 3!
3.! Process ...................................................................................................................... 4!
1.1! Due Diligence ....................................................................................................... 5!
1.2! Due Diligence Interview ........................................................................................ 7!
1.3! Valuation ............................................................................................................ 10!
1.4! Deliverables ........................................................................................................ 10!
1.5! Negotiation ......................................................................................................... 13!
1.6! Q&A .................................................................................................................... 15!
2! Soft Skills .................................................................................................................. 16!
3! Versioning ................................................................................................................. 17!
4! Appendix ................................................................................................................... 18!

1. Introduction to the playbook

The aim of this playbook is to offer a guide to the VCIC competition to CBS students.
During our journey from CBS competition to Global Final, we had to learn the hard way
by ourselves and we wished we had known some things before. This playbook is
therefore aimed not at giving you pre-digested answers and solutions, but at providing
tips about the various aspects of the competition. It has to be integrated with other
resources ( being one of them) and willingness to spend time and effort.

2. The competition
The Venture Capital Investment Competition (VCIC) was established by the University of
North Carolina Kenan-Flagler Business School for MBA students.

The VCIC allows

MBA students to play the role of venture capitalists, researching and evaluating
entrepreneurs and their business ideas to make investment decisions.
The first leg of the competition, hosted at CBS, provides a few short days of research
before a one-day competition to determine a winning team. The winning team advances
to the regional finals. The team that wins at the regional finals advances to the global
finals, held each year at UNC in Chapel Hill, North Carolina.
The VCIC creates an opportunity for all MBA students, from those interested in
entrepreneurship and venture capital to those who have no professional interest but
want to engage in a fun opportunity to learn about a different field.
Some participate in the VCIC competition for the fun of a one-day game; some enjoy the
learning opportunity the VCIC creates. And, of course, some participants play to win.
Part of the key to getting the most out of the VCIC experience is knowing into which
category you fit and finding like-minded classmates to complete a well-rounded team.
In the pages ahead, we attempt to lay out details of the competition and the most
important aspects to consider in organizing and playing the game. Our hope is to make
the experience as enjoyable, educational, and professional as possible, and to raise the

level of play at CBS in order to make the advancing CBS team as well prepared and
competitive as possible against the teams from rival schools.
Remember that the VCIC is meant to simulate a real VC/entrepreneur experience, but it
is also a game. Teams must always balance the most realistic opportunities and
decisions with the ones that are most likely to advance their game. Not every gamewinning decision is the one you would make if this were not a competition, and not every
decision you would make in real life will help you win the game.
Good luck, play hard, and have fun!

3. Process
In this section we will touch upon the process of the game. This is intended as a
complement to the VCIC experience as highlighted on website. Please note
that each school/leg schedule may vary, although the basic pillars of the process remain
the same: Due Diligence, Research, Due Diligence Interview, Valuation, Deliverables
and Negotiation.

1.1 Due Diligence

The Due Diligence represents the first phase of the competition, and it starts when the
teams receive the business plans. The goal of the due diligence is to get as much
information as possible about the startups that you are investigating. This will allow you
to both be able to choose the company you want to invest in and to be prepared for the
due diligence interview.
Here we will focus more on the due diligence activities prior to the due diligence
interview happening during the day of the competition (for this, refer to section 1.2).
Considering that you will have to perform the due diligence on 3 to 5 startups in less
than 2 days, you have to be as efficient and effective as possible. Here are some tips:
Everyone on the team should have a basic understanding of the startups, so each of
you should start by reading all business plans.
To assess the startups you can use the structured methodology developed by the
Keiretsu Forum

( The methodology defines 8

categories to be analyzed and gives a score of 0 (weak), 1 (good), or 2 (strong) to the

venture. You can find the 8 categories in the attached file (see Appendix 1).
Remember, this is an iterative process, the more you find out about a company the
better your overall assessment will be. Also, consider that you can use the Keiretsu in
the attachments that you will have to deliver to the judges.
After the first round of reading business plans and first assessment through the
Keiretsu table you should be able to start eliminating companies you dont find
particularly interesting. Remember, though, that you still have to meet all the
entrepreneurs and ask relevant questions, as this is part of the judging criteria.
Therefore spend the right amount of time to prepare for the interview, but not more.
For the remaining startups you can consider to assign the further research to the
team member most expert in the particular industry/field the startup operates in. This
helped us save a lot of time.
Define times when you will reconvene and go through the overall assessment
together to check whether a startup can be eliminated or if you need any additional



The due diligence must be backed up with good research. The most important items to
be researched are:
Idea: Check how unique the idea is. Sometimes your basic experience/knowledge
can guide you through this, but remember that most good ideas might not resonate
with you immediately. Therefore, try to ask the following questions:

Are there other startups that have the same/similar idea?

How user-friendly, easy to use, is the product/service?

How easy is it to copy the idea?

Are the big players in the market using substantial resources to work on the
same idea?

Useful resources: Google, Tech Magazines, Techcrunch.


Team: Researching the team is often neglected, yet it is very important because a
great team can make a mediocre idea fly, whereas a mediocre team will probably
screw up the best idea. Therefore check the background of the team:

Is its expertise diversified (technical, sales, strategy, leadership, etc.)?

What is the team members track record (successful ventures in the past,
former positions, etc.)?

Are the team members fully devoted to the ongoing venture, or are they
occupied with other tasks as well?

Have there been any last-minute-changes in the team. Has someone jumped

Are they currently looking to fill key roles (e.g. CTO, COO, etc.)?

Useful resources: Linkedin, Venturebeat, Crunchbase.

Business plan, numbers: The business plans provided are in general rosy
presentations of best-case scenarios. You should perform a sanity check on the
business plan:

Does the rationale make sense?

How realistic are revenue projections? (Always be careful with expressions

like The market size is 10 Billion $. If we only catch 1% of it, we still have
100 Million $ in revenues.)

Try to calculate revenue projections based on data, not on alleged overcautious estimations. Example: try to find industry reports about the specific
industry/market. Break the numbers down to the ventures target group.
Make a sensitivity analysis (pessimistic, realistic, optimistic).

Perform a sanity check of the revenue model. Are customers really willing to
pay for the product/service?

Is the target group big/juicy enough?

Think about possible exit scenarios, if not given by the company. If they do,
check, whether they are realistic.

Use the amazing databases you have access to via CBS library.

Useful resources: Global Market Information Database GMID, Marketline, Statista,

Company and competitors. You should have a good understanding and knowledge of
both the company and its competitors:

When was the company founded?

Who has already invested in it?

Is there a board of directors? How big is it? Who is sitting on the board?

Is there an advisory board? Who are the members (background research!)?

Is there any information that the entrepreneur doesnt share with you (e.g.
hidden convertible notes, etc.)?

How far is the venture? Any milestones reached yet?

Do the same research with competitors

Useful resources: Companys website, Techcrunch, Crunchbase, Venturebeat.

1.2 Due Diligence Interview

By the time you get to the due diligence interview with the startups you have probably
made up your mind on which company you likely want to invest in. But that doesnt mean
you can afford to neglect this round with any startup and focus only on your company of
So to start off the Due Diligence you want to pay utmost attention to prioritizing your
questions. You have to ask all the specific questions that you need the answers to but
remember that time is limited and you need to cover all topics. DO NOT get stuck in an

argument or a discussion, ask your question, listen to the answer and move on. And if
the entrepreneur is taking too much time on particular questions, feel free to politely
interrupt and move on. The competition is for you not for them!!
Below is the list of some generic questions you want to ask and a couple of resources
you might find helpful in framing good questions. Sometimes you may run out of
questions, so be prepared to play off each other by being attentive and responsive
during the Due Diligence. The idea with these generic questions is that they act as good
icebreakers before you deep-dive into the company with your specific questions and can
be used as fillers if you are running out of questions:

What is the market potential for your company's product or service? What is the
revenue potential for the industry, and what is its growth rate?

How did you calculate market potential? How do you determine industry sales and
growth rate?

What makes your business different or unique?

Why would someone be "compelled" to purchase your product or service? What

specific needs does it address?

How do you know that your business has high-growth potential?

What is it about your management team that makes them uniquely capable of
executing on this business plan?

What are the primary risks facing this opportunity?

Who are your competitors; what gives your company the competitive advantage?

Does the company have proprietary intellectual property in the form of patents,
trademarks, copyrights, etc.?

When will your company break even in terms of profitability and cash flow?

How do you plan on acquiring and keeping potential customers?

What drives customer satisfaction for this industry and for the product? And, how do
you know?

Who is the end-user of the product or service offering?

What alliances or partnerships have you entered (e.g. joint ventures, marketing






partnerships, software agreements, etc.)?


What is the anticipated lifecycle of your product or service offering? What are your
current and future plans for R&D investment?

How do you plan to expand your team?

What are the possible exit scenarios?

What is the planned "Use of Proceeds"?

What are you looking for in a Venture Capital partner?

What was your last valuation?

Of course, during your research you should have a generic idea of what the answers to
these questions might be, that is why they are only ice breakers and used to set a
friendly tone and build a rapport with the entrepreneur. DO NOT dwell on minor details
for any specific questions and move on to the important ones ASAP.
We bring here also two examples from our experience:
1. In the European North round we had decided not to invest in one company, so
we gave less importance to the Due Diligence interview with that company by
asking only generic questions and showing a little less energy and interest in the
company. That almost cost us the win in the round; therefore, no matter what
company you have decided to invest to, the judges evaluate all Due Diligence
2. At the global finals we were able to engage in all the Due Diligence sessions and
we got a feel of the entrepreneurs but really did not anticipate that the
entrepreneur we picked would have been a hard negotiator.
Lessons learned: Be aware, energetic and interested (genuinely, if possible) in all the
Due Diligence rounds. Secondly, be proactive and try to anticipate possible problems
with entrepreneurs in future rounds. There has to be compatibility between the VC and
the entrepreneur to make a winning combination. In section 2 we will discuss more in
detail about the soft skills and emotional intelligence you will need to be successful in the
Useful resources:

1.3 Valuation
The valuation of the company is a crucial step determining the ownership percentages of
all equity holders, i.e., entrepreneurs, previous investors, and you as VCs.
Consequently, debates around valuations can become rather emotional, especially since
for startups precise valuations are hard to come up with (since future cash flows are
even harder to predict than for mature companies). Coming up with a precise valuation
is therefore tricky but there are some more or less commonly accepted ways of doing it.
First a word of warning: Since future cash flow predictions for startups are subject of
considerable uncertainties, dont try a valuation based on discounted cash flows.
Instead, most commonly valuations are done using multiples. You can find various








( maintains one of the more detailed lists. In

most cases, the best you can do will be a revenue multiple for the sector your startup is
active in. Considering that revenue multiples are the least accurate ones and keeping in
mind how religious entrepreneurs can become when discussing valuations, you should
make sure that you are able to provide a rationale on why you arrived at a certain
valuation, and you should be prepared to negotiate the valuation when combining them
with other terms on your term sheet.
In this context, your revenue estimate should be a bottom-up calculation based on
various statistics, e.g., how many customers will the startup be able to attract per
location and how much revenue will an average customer generate per transaction, as
opposed to top-down measures like we will be able to capture at least 1% of a xx bn$
market .

1.4 Deliverables
Your deliverables will consist of three parts (you can find the first two here
1. An executive summary for the judges provides the cornerstones of the deal you
are proposing to the chosen company, reasons why you chose the company and
some of your reservations, and a brief comment on the other companies in the
competition and why you didnt select them.


2. The term sheet for the entrepreneurs with which you will start the negotiation.
3. An appendix providing some additional material on how you arrived at your
conclusion potentially backing up your numbers for the valuation of the chosen
company. The appendix is limited to three pages.

Executive summary

The executive summary is more or less self-explanatory, and you can follow the
template prepared by VCIC. It will only be given to the judges. Keep it simple and make
sure that you already started drafting it prior to the competition day so that you are not
losing too much time on it during the final hours of the competition.

Term sheet

The term sheet will be given to the entrepreneurs and forms the basis for the
negotiation. For the sake of the competition, setting up a good term sheet means
walking the thin line of having easy-to-understand terms (entrepreneurs are often not too
familiar with technical terms and you dont want to present them with a term sheet where
they dont understand a word) and being able to prove that you know what you are doing
(the judges want to know if you understand the different dimensions of the term sheet
and what they mean). Its part of the game and process for you to learn what all the
buzzwords actually mean, so we just brief you here on a high-level structure.
We fared rather well trying to keep it simple, and during the negotiation itself you
probably will be able to use some of the buzzwords and in case your entrepreneurs are
not familiar with them you can explain them then.
Content-wise, for the design of the term sheet there are no fixed rules (though a
template is provided as an option) and it depends very much on the individual situation
of the startup and what you as VCs will be able to add.
Still, a key term will be the valuation. Test the entrepreneurs view on the value of their
company already during the due diligence and make sure to have a bottom-up valuation
to explain your numbers convincingly when asked, or rather allowing you to adjust the
entrepreneurs perspective in case they are far off your valuation.


Another way to offset an unexpected valuation is by arranging for preferred stock with a
liquidation preference for you. In this case, you as a VC will be preferred in case a
startup is liquidated and you can, for example, receive a multiple of the nominal stocks
value (e.g. a 2x return) and/or be allowed to additionally convert your stocks into regular
stocks and thereby be able to profit twice. Using such preferences needs to be done with
care so as not to appear too much like a barracuda as well as bearing in mind what
other preferences other investors might already have.
Board structure is another often-debated issue. As an investor you usually want to
protect your investment by having a say on the board (at least one seat) and ideally you
wouldnt want the entrepreneur to have a majority because then they might be able to
highjack your investment. Ways around this are to have independent board members or
in case of syndication, the investors together have a majority.
In case there are additional key hires to be made, make sure you have an option pool
ready for these people. Here you need to be empathetic: If you are under the impression
that the startup needs a different C-suite person to make things happen, prepare a plan
on how to communicate it without being too blunt.
Finally, there are a number of terms impacting governance, e.g. impacting on who can
sell what shares to whom and under what conditions, under what conditions can an
entrepreneur leave a company, etc.
In conclusion, the categories on your term sheet will be: Valuation, option pool, closing
conditions, board structure, liquidation preference, dividends, anti-dilution, preemption
rights, tag along rights, drag along rights, or stock repurchase conditions.
Detailed explanations of these terms can be found on the Internet, and everyone on the
team has to be familiar with all of them (if the judges get the impression that some team
members might not know them they can quiz team members on specific terms after the




You have a total of three pages to provide additional information on your choice that will
only be available to judges. We always had the impression that the judges do not read
the appendix but probably expect it to be there and at full length. And just in case they
actually do read it, unfortunately, it will have to make sense. Still, you will want to spend
as little time as possible on the appendix because you will be busy enough preparing the
term sheet and negotiation after the due diligence sessions.
We tended to use our first page summarizing the basic evaluation of all companies
following the one used by the Keiretsu Forum (see Due Diligence section), another page
on building the valuation and the third page on other considerations briefly mentioned on
the executive summary sheet.

1.5 Negotiation
The negotiation leg of the competition is the most stressful and nuanced portion of the
game. As you sit across from the entrepreneur, you must sell your firm and explain why
youve chosen their company for investment. On the other hand, you must also be
detailed in substantiating your valuation and concerns when the entrepreneur asks for
more. Your team must show that it works together, yet you must also lead with your
teams strengths. You must stand firm for what is important to your side, while still
showing progress and an ability to find suitable compromise toward finalizing a deal. It is
a delicate and challenging balancing act. Plus it lasts for less than 15 minutes.
Additionally, different judges view the negotiation differently. The VCIC instructions (and
the local and regional competitions) state that the negotiation accounts for two-thirds of a
teams score. In the global final, many judges throw out the earlier work and judge all
teams that advance to the negotiation round as starting with a blank slate. In addition,
some judges view a successful negotiation as one where the team advocates for
themselves and holds firm, while others value conciliation and compromise. It is tough
to play to all audiences, and the most successful teams are the ones who adjust within
those 15 minutes to what is in front of them most like how a real VC would.


In addition, some judges value teamwork, with every member playing a role in the
negotiation, while others think that smart teams allow their best negotiator to represent
the team. It is important to both show team unity and cohesion while still playing to your
teams strengths.
So many factors play into how the negotiation should play out, in the eyes of the judges,
that laying out a successful blanket strategy is impossible.

Depending on the

entrepreneur, the right strategy could be outright conciliation or it might be ending the
negotiation early and walking away. The winning team will stay alert and know exactly
which card to play at the right time.
With all those nuances and factors to consider as the negotiation proceeds, there do still
remain some universal points every team should keep in mind when approaching their
Sell the entrepreneur to themselves. You chose them for investment, and its
important to say why. What is it about the entrepreneur and their idea that caused
you to select them? Doing this effectively creates the rapport that forms the early
foundation for a successful negotiation;
Sell your firm to the entrepreneur. Each team must enter the negotiation with the
view that an entrepreneur will have several options, and so you must motivate them
to want to work most with you and your team. What does your team and VC profile
bring to the table that will best propel the company you chose to the next level and a
valuable exit?
Dont become adversarial. The negotiation represents the moment the VC and the
entrepreneur decide to work together, and the VC will likely take a seat on the
companys board. Your negotiation must show ability and desire to work together.
This is not done with overt conflict;
Know your alternatives. A team must know on which elements of their term sheet
they are willing to compromise, and on which they plan to stay firm. A team must also
establish a walk-away point, at which they are ready to walk away from the
negotiation if they reach an impasse. In our experience, we could have done much
better at global finals if we had been more prepared on this;


Dont pad the term sheet. Many teams feel the need to pad a term sheet so there is
room to move during negotiations. Unfortunately, there isnt time to play with all the
levers on the term sheet, so a smart strategy is to shoot right down the line with a fair
term sheet, allowing the negotiation to hone in on the one or two points that will frame
the negotiation discussion;
Do your research. It is essential to enter the negotiation prepared. Every moment in
the VCIC leads up to those final 15 minutes. For example, your due diligence session
with the entrepreneur should include time to ask about what items on the term sheet
(other than valuation) and aspects of an investment partner are most important to
them. That will allow you to sell to those points during the negotiation;
Have fun. Yes, its quick and stressful, but getting rattled, frustrated, or angry will not
only ruin the experience, it will sink your chances of victory.

You are building a

working relationship, and that must have an element of poise, professionalism, and
We hope this information is helpful in devising a negotiation strategy that works best for
your team. Though the strongest teams will best react to the surprises that await them
when they are face-to-face with the entrepreneur, the advice listed above will increase
your chances of positioning yourself best to take advantage of the opportunities the
negotiation portion of the competition presents.

1.6 Q&A
After the negotiation, you will have a 10-minute Q&A session with the judges. How each
judge perceives this session may vary a lot and so there is no unique strategy to adopt.
You should expect that you will be asked about: the rationales of your choices in the
executive summary and term sheet, how and why you made certain choices/moves
during the negotiation, and the meaning of VC jargon that you used in the term sheet. Be
prepared to state and defend your position.
In addition, you should expect that if someone in your team has been less active during
due diligence interview or negotiation, she/he might be asked to answer questions
during this phase, meaning that everyone on the team should always be aware of what
is going on.


2 Soft Skills
Soft skills play a crucial part in the game. You can have the most prepared team on VC
jargon, due diligence research, valuation, etc., but without the necessary soft skills you
wont win.
While being able to present yourself as a kick-ass VC fund, you will need to demonstrate
the following:
! Establish the rapport (also called the Bambi Eye effect): During both the due
diligence interview and the negotiation phase, the establishment of a good and
collaborative rapport is essential. This might mean, for example, using the first minute
out of 15 (and trust me, thats a lot) for an introductory joke or small talk. The reason
behind this is that you are trying to establish collaboration through a VC deal: you
wouldnt want to work with somebody you dont like, would you? In addition,
entrepreneurs have a voting right for the Entrepreneurs Choice award, and they are
more likely to vote for a team with whom the interview went smoothly.
! Empathy: This goes along with establishing the rapport. As no person is like another,
you should be able to immediately perceive how to start a conversation and establish
the rapport. What could work for someone might not work for someone else.
! Assertiveness: Every decision you take as a VC fund should have a strong rationale,
so you should be firm when you have a discussion with entrepreneur and judges.
However you dont want to sound too aggressive when expressing your views and
therefore remember to use an assertive way of communicating things. This is
especially needed during the negotiation phase and in the Q&A with judges as you
will have to defend your decisions but at the same time not being perceived as an
! Cohesive: Remember you are a team. The decisions you make should reflect the
team, even if there is disagreement among the team members. The worst that could
happen is during either due diligence interview or negotiation somebody on the team
disagrees in front of the entrepreneur and the judges with what has been said.


3 Versioning
We would like to improve this document competition after competition. Therefore we
keep here a table of versioning to keep track of what has been changed over the yeas.




Jan 2015

VCIC winning team of MBA

class of 2014

Version Highlights
First document version


4 Appendix
Appendix 1 Keiretsu Table

Company X
0 = weak; 1 = good;
2 = strong




Product, value proposition for customers, clear

problem, seriousness of problem, willingness to


Scalability, ability to capture margins & value, sales

cycles, uniqueness, disruptiveness, position in
value system, viral multiplier elements
Market potential, growth, value system and
margins, market trends, competition
Revenue, growth, customers, markets, sales
model, KPIs. Early stage: R&D progress or other
relevant KPIs
The right team for the next 1-2 years: Team
background, track record, competencies. Strong
vision, willingness to listen and change
Barriers-to-entry, technology advantage, patents,
ability to dominate, hard to imitate, disruptiveness,
innovation level
Exit candidates, ability to acquire, IPO possibilities,
potential exit multiples. Current and potential
exposure possibilities
Capital structure, valuation, terms, control
mechanisms, investment case (IRR), financial risk,
capital amount

Business model
Exit routes

Add scores for total score 0-20.

Note: multiply traction and team by 2x


Appendix 2 Summary of useful resources

! website offers a lot of useful resources you should have a look at prior to
the event. Here some links:
! Corporate Finance Book, chapter 32
! Book: Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad
Feld. This book is suggested for teams that want to dig more into details, probably a
best fit for the winning team at CBS in preparation to the next round.
! Websites:








! Database you have access via CBS: GMID - Global Market Information Database,
Marketline, Statista, Orbis.
! Aswath Damodaran multiples