The Invest stage focuses on completing your first couple of "Rockstar" deals that will show notable progress within 12 months or less. These early investments establish your track record as an active investor while demonstrating your investment Thesis in action. You should already have some strong deal flow sources identified before entering this stage, allowing you to move quickly on promising opportunities.
Your primary objective is to identify and invest in companies that perfectly match your Thesis and have the potential to become fund-returning investments. Focus on optimizing your deal flow to surface the highest-quality opportunities, using systematic evaluation processes to identify true Rockstars, and executing investments professionally. Each investment should reinforce your positioning in your chosen market segment while contributing to your emerging track record.
Activity 2.1: Source Dealflow
Sourcing consistent, high-quality deal flow that matches your investment Thesis represents the foundation of successful venture capital investing. At this stage, you should optimize your existing deal flow sources to identify potential Rockstar investments that align perfectly with your fund's focus. The goal is to ensure that 100% of the opportunities you evaluate match your Thesis, allowing you to focus your time and energy on the most promising prospects.
Effective deal flow optimization requires systematic sorting and tracking of incoming opportunities using professional tools that help you identify the best matches for your investment criteria. Focus on quality over quantity, prioritizing opportunities that demonstrate strong founder-market fit, significant market opportunity, and clear alignment with your areas of expertise and network.
How to optimize deal flow for Rockstar identification:
Activate existing sources: Reach out to your established deal flow sources including accelerators, other investors, and industry contacts to inform them about your active fund and specific investment criteria.
Implement systematic sorting: Use a CRM tool like Decile Hub to categorize and track all incoming opportunities, ensuring you can quickly identify deals that match your Thesis.
Filter for Thesis alignment: Establish clear criteria that ensure 100% of deals you pursue match your stage, sector, geography, and other investment parameters defined in your Thesis.
Identify Rockstar potential: Look for companies with exceptional founding teams, large market opportunities, strong early traction, and the potential to generate fund-level returns.
Track and analyze patterns: Monitor which sources provide the highest-quality opportunities that match your criteria to focus your relationship-building efforts on the most productive channels.
Activity 2.2: Conduct Diligence
Conducting thorough due diligence through a comprehensive Deal Memo ensures you make informed investment decisions while building credibility with entrepreneurs and co-investors. The Deal Memo serves as your primary evaluation tool, capturing all relevant information about the opportunity and your analysis of its potential. This systematic approach helps you identify true Rockstar investments while maintaining professional standards.
Building a complete Deal Memo requires collecting all available information about the company and loading it into your CRM system for organized analysis. Start with a standard Deal Memo template that covers the key evaluation criteria, then customize it to address the specific factors most relevant to your investment focus and the particular opportunity you're evaluating.
How to build comprehensive Deal Memos:
Collect all available information: Gather the company's pitch deck, financial projections, term sheet, website content, press coverage, and any other relevant materials about the opportunity.
Load information into your CRM: Upload all collected materials into a system like Decile Hub where you can organize and analyze the information systematically.
Customize your Deal Memo template: Start with a standard template that covers market opportunity, team assessment, product analysis, and financial projections, then adapt it to your specific evaluation criteria.
Complete your analysis: Work through each section of the Deal Memo, analyzing the company against your investment criteria and documenting your findings and conclusions.
Finalize and review: Complete your Deal Memo with a clear investment recommendation and rationale, then review it thoroughly to ensure accuracy and completeness before proceeding.
Activity 2.3: Invest
The investment process transforms your Deal Memo analysis into an actual portfolio company through professional execution and Investment Committee approval. This activity requires finalizing your evaluation, securing approval from your fund's Investment Committee, and completing all necessary paperwork to execute the investment. Professional execution during this phase builds credibility and establishes your reputation as a serious investor.
Successful investment execution involves presenting your Deal Memo to the Investment Committee, addressing any questions or feedback they provide, and then managing the legal and administrative processes required to complete the investment. Each step should be handled professionally and efficiently to maintain positive relationships with entrepreneurs and demonstrate your fund's operational capabilities.
How to professionally execute investments:
Finalize your Deal Memo: Complete all sections of your Deal Memo with thorough analysis and a clear investment recommendation supported by your research and evaluation.
Submit to Investment Committee: Present your Deal Memo to your fund's Investment Committee for review and approval, highlighting the key factors that support your investment recommendation.
Address feedback and questions: Respond promptly and thoroughly to any questions or concerns raised by the Investment Committee, providing additional analysis or clarification as needed.
Secure investment paperwork: Once approved, work with legal counsel to prepare and review all investment documentation including subscription agreements and other required legal documents.
Complete the investment: Execute all paperwork, coordinate wire transfers, and fulfill any other requirements to officially complete the investment and add the company to your portfolio.
Building Your Investment Track Record
Successfully completing your first investments in Stage 2 establishes several critical foundations for your fund's long-term success. These early portfolio additions demonstrate your ability to identify and access high-quality opportunities within your stated investment Thesis. Each Rockstar investment validates your market positioning and provides concrete examples of your investment strategy in action.
Your Deal Memo process becomes increasingly refined with each investment, developing into a systematic approach that ensures consistent evaluation standards and professional decision-making. The relationships you build with entrepreneurs during this stage often become sources of future deal flow and market intelligence, expanding your network within your target investment area.
The professional execution of your investment process establishes your reputation in the market as a serious, well-organized investor. This credibility becomes valuable for accessing competitive deals and building relationships with other investors who may provide co-investment opportunities or introductions to promising companies.
Moving Forward
With your first Rockstar investments completed, you're ready to move to Stage 3: Operate, where you'll focus on building your fund's long-term success through network expansion, continued capital raising, and ongoing portfolio development. The track record you've begun in Stage 2 becomes the foundation for demonstrating your capabilities to future Limited Partners and investment opportunities.
Remember that the Invest stage continues throughout your fund's life - you'll constantly be sourcing new opportunities, conducting diligence, and making investment decisions. The processes you establish in Stage 2 create the systematic approach that ensures consistent quality and professional standards across all your investment activities.
The investments you make in this stage require ongoing support and monitoring, which becomes a key focus in Stage 3 as you balance new investment activity with portfolio company assistance and value creation efforts.
Ready for Stage 3? Continue with our detailed Operate stage guide to build long-term fund success.
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