The Hillfarrance VC Process

Rob Vickery

There are a myriad of posts, journal, and articles preparing founders for how they could start raising money from venture capital funds.

We want founders to know early on if Hillfarrance Venture Capital is a fit for them, so we thought we would share our very own internal process for allocating capital to startups.

At Hillfarrance, we want to offer Founders an investment review and due diligence process that has three goals:

  • To give you a clear answer on our interest within seven days and, if a “no” to provide you with three reasons as to why. 
  • If it is a “yes”, we will give you a range of approaches to help us get to a smooth and quick close. 
  • To do all of this with humility and transparency on both sides.  

We have four steps in our process:

Step 1

The first step on the journey of raising capital from Hillfarrance is the initial engagement. We invite founders to send their pitch decks and contact details to pitches@hillfarrance.com for review and consideration. Once received, we will aim to get back to you within seven days if there is a fit, and we will proceed to Step 2. 

Step 2

30 min chat. Mostly held via video conferencing, this is our first meeting with you and our chance to hear your story. We encourage everyone at this point to construct a short pitch deck to accompany your meeting. You can find a template for a pitch deck here.

Step 3

Face-to-face meeting. Each Monday morning, we meet as a team and discuss all of our active deal leads and decide which ones we want to proceed with or decline. If your pitch is a fit for the team, we will take the time to meet in person with you and have a more in-depth conversation about your company. We will also look to have a product demo at this point as well.

Step 4

At this point, we will be ready to either a) want to proceed to start full diligence OR b) pass on this current investment round. 

If it is option a) then we have a few ways to approach the topic of fundraising:

If option b) we will always aim to send you some commentary or feedback on why your business wasn’t a fit. We will always try to find time to speak with each company in person; however, sometimes, it may be via email.

Model 1: Accelerated process

This model provides founders with a lead term sheet earlier in the process that they can use to collect further investor commitments, and Hillfarrance will complete their due diligence during and after the term sheet has been offered.

Risk to the founder: moderate. It is all dependent on how much data you share on your business and how quickly you can get it together. The significant advantage of this model is that you can get a lead term sheet from us within a short time. 

Risk to Hillfarrance: moderate. We will invest resources (time and money) into completing the due diligence with the potential outcome that it might fail, and we will have to walk away from the investment. The signed term sheet offers some comfort that we will not be gazumped by another fund in the process.

  • Initial DD completed – lite version 
  • A yummy dinner somewhere lovely on our tab. 
  • A Hillfarrance term sheet offered 
  • The term sheet is agreed and signed – the founder can make a personal announcement to other investors that they have a lead investor, and deal terms are set pending DD. 
  • We have sixty days to complete formal, deep-dive due diligence. If DD fails, then we may retract the term sheet or renegotiate terms. 
  • We kindly ask that no public/media announcements about our involvement as a potential lead investor are to be made until the round closes. We know that NZ is a market that sometimes struggles with keeping secrets so we won’t be too nervous if it gets out!
  • DD completed – we start syndicating the deal amongst our network. 
  • Once the deal is fully subscribed, we will all fund on the same day.

Annual capacity: circa 4 per year. We anticipate two will successfully close, and the remaining two will not complete due diligence. 

Model 2: Old School. 

The Old School model represents the tried and testing process of venture capital – we offer a term sheet (if it is still needed by the entrepreneur) after we have completed our due diligence.

Risk to the founder: High. You will have to provide everything we need without any form of security that we will invest. You can mitigate this for yourself by working with other funds at the same time to see if they can move faster than us or offer better indicative terms. The most common outcome from this process, from our perspective, is that our DD is not completed to our satisfaction, and we walk away from the investment. 

Risk to Hillfarrance: High, but we are used to it. We will allocate time and resources to intimately understand your business, all with the knowledge that we may not be able to satisfy yours/our requirements to close an investment. 

  • Formal DD begins from Day One. This includes:
    • Thorough tech review of product, design principles and QA processes. 
    • Customer review 
    • Data sovereignty review 
    • Team interviews 
    • Company financials deep-dive
    • Sales pipeline review 
    • External market review by HF team etc. 
      • this can take anywhere from 2 weeks to 3 months, depending on how much data is available by the founder 
    • A yummy dinner somewhere lovely on our tab. 
    • While this is happening, the founder will hopefully be canvasing the investor market to find an additional funding sources. 
    • Upon completing our DD and after we both agree that we want to work together, we will create a formal term sheet. 
  • Once signed, we will begin syndicating the deal with other investors
  • Once the deal is fully subscribed, all parties will fund on the same day. 

Annual capacity: Unconstrained – this is what we have spent decades doing. 

Model 3: Studio

The incubator model is designed to give rockstar founders who are at the beginning of the ideation phase to raise capital to start early development and commit to their startup plan.

Risk to Founder: Low to moderate. The main risk is that you will need to leave any current job to dedicate 100% to your startup idea. We may make up that shortfall with funding to cover your major living and business set-up expenses. 

Risk to Hillfarrance: Moderate. Our initial investment is smaller than usual; however, there is a sizable risk that your idea may not reach fruition. We mitigate this by spending a lot of time with you and your vision to ensure it fits our value framework. 

Our process for a Studio investment:

  • Upon completing a thorough period of review and discussion, we incubate you for six months and may fund your living expenses for that period. This is contingent upon:
    • Having absolute clarity of vision and the confirmation of jointly agreed deliverables 
    • 90-180 day plan 
    • Audacity of vision 
    • Team future structure is becoming defined 
  • A yummy dinner somewhere lovely on our tab. 
  • We construct a pre-seed term sheet during the incubation period and fund your business.
  • Depending on the sensitivity of the technology/situation, you may not be able (or want to!) to share what you are working on with the rest of the market. 
  • We may syndicate a round of funding with other investors during that time.
  • No public announcement will be made about our involvement with your company. 

Annual capacity: due to the resources needed, we can only do two of these per year 

Model 4: Scout

The scout fund is designed to help empower New Zealand’s next generation of VC’s to make investments on our behalf into geographies and markets that we are still learning about. This investment is driven by the individual scout and you will need to make contact with them to start the discussion.

Our Scout fund is centred around 12 scouts that are located up and down the country, all of whom are making investments on our behalf into companies and sectors that are often not within our immediate purview. The scouts are also typically interested in companies that are in an earlier stage of their lifecycle. You can find more info on our scout fund here: https://hillfarrance.com/scouts/

A yummy dinner somewhere lovely will hopefully be on offer courtesy of our scouts!

Annual capacity: unlimited

Summary

In all models, if the deal is not fully funded or our due diligence is not entirely satisfied then we may look at a smaller round and potentially renegotiate terms. 

Also, we will never charge you a fundraising or incubation fee, nor will we ever take any additional equity in exchange for our value-added services. The latter is what we believe all investors should be doing as par for the course.

Our ultimate goal is to structure investment terms that both sides feel good about and are excited to sign. Both of these emotions are of paramount importance to us.

We hope you find this useful.