Introducing our Fund Selection Framework: The 10 Ts
Sprout’s mission is to provide our community with the opportunity to invest in top-tier venture capital funds.
Over the past 12 months, we have spoken to over 150 funds. We have watched presentations, read decks, combed through data rooms, and attended investor days. Every fund has its own style of presenting the story in the best light, and demonstrating a compelling reason to invest.
So, how do we differentiate between the good and the great of the VC world?
Introducing The 10 Ts, Sprout’s proprietary framework to diligence potential fund partners.
The 10 Ts framework has been developed as a robust and repeatable approach to diligence any fund regardless of geography, size or focus.
What are the 10 Ts?
Thesis: What is the funds thesis? Is it sector, geography or stage specific? Is it well defined, differentiated and interesting? (read our blog)
Target selection: How does the fund identify pipeline opportunities and do they have a competitive advantage in generating differentiated deal flow?
Team: What is the size, background, experience and diversity of the team?
Track record: Does the fund (or key team members) have a strong track record, including distributions paid back to LPs (not just paper returns)? Has the fund successfully proven its investment thesis over time?
Terms: What is the life of the fund, the management fee and the nature of the LP payout structure (carry hurdle and waterfall)?
Target return: What is the target net return, and is this ambitious enough for our community (both in terms of net multiple and IRR)?
Timeline: When does the fund expect to close and do we have sufficient capacity to engage our community in advance of this date?
Tag along: Does the fund provide co-investment rights to their LPs and, if so, what stage and what are the terms associated? (Learn more about co-investment here)
Ticket: How much is the minimum ticket into the fund for a normal LP, and how inaccessible is this fund to our community?
The Secret Sauce: What is the fund’s reputation in the market? Have they backed any Unicorns or notable names? Have they won any awards? What are their ESG credentials?
How do we put this into practice?
- Initial scoring system: We compile a weighted scorecard based on the above criteria, leveraging hard data and empirical evidence on fund performance. The next stage will be to explore the fund details further, with a specific focus on the data room.
- Investment Committee paper: For funds that progress to this stage, an investment committee paper will be prepared and presented to the Sprout team who will decide whether the fund has passed the diligence process. If so, we will move to confirm our partnership with the fund and make this opportunity available on the Sprout Platform.
Sprout’s aim is to bring the best funds to our community, whilst giving venture capital funds a swift response from our due diligence processes. The 10 Ts framework enables that.
— Capital at risk. T&Cs Apply. Nothing in this article constitutes investment advice. —