Investment Process
Arts Alliance follows a standard evaluation process that is designed to quickly identify deals that meet our investment criteria, and equally to respond rapidly to those that do not. As part of this process, we seek to make the most of both entrepreneurs' and our own time by setting clear expectations and giving thoughtful feedback at each stage of our investment process. Though each situation is different, as a general rule of thumb, entrepreneurs should expect to spend two to four months raising capital from start to finish. However, at Arts Alliance we are usually able to reach the negotiation stage within six to eight weeks. The following is a detailed breakdown of our investment process, beginning with an overview of what we look for in an investment.
Evaluation Process
First Contact
If you believe your business meets our investment criteria, we welcome the opportunity to review your proposal. Please send us your executive summary at info@artsalliance.co.uk. We will read your email and either ask you for more information (see below) or respond to you with a decision. Please read on to find out what we need in order to evaluate your proposal.
Executive Summary
As a first step, we need you to provide us with a concise executive summary of your business plan. The executive summary should be 2 - 5 pages and should clearly present the business or idea, market opportunity, competitive landscape, management team and funding profile. We will respond to your summary within two weeks. At that point we will either request further information in the form of a business plan, arrange a meeting, or let you know that we are not interested in pursuing the opportunity.
Business Plan
If we determine that a project fits our basic investment strategy, we pass the proposal to the next stage of our evaluation process. Here we evaluate the full business plan and examine the team, vision, strategy and business opportunity more closely. We may also make arrangements to meet with the management team. We will use our best efforts to respond within two weeks of receipt of the full business plan.
Meeting Management
This stage is an iterative process that often leads to a series of meetings. In meeting management, we seek to achieve an optimal understanding of goals through a series of question and answer sessions. Depending on the project's complexity, this may require several meetings with the CEO and key members of the management team. After the first meeting, we immediately become very involved and view additional meetings as brainstorming sessions where we work with you to test and challenge the opportunity. During this stage you will meet with the entire Arts Alliance investment team.
Preliminary Due Diligence
If we are confident about your project and like what we see in your management team, we move to the evaluation stage of the process. At this stage we commit significant resources towards analysis of the business opportunity. Specifically, we ask for personal and professional references for the management team; assess the potential market size and competitive landscape through market research and industry references; analyse and challenge the financial model and key assumptions; and dig deeper into technology issues with a technical due diligence team.
Negotiation
After several weeks of evaluation, we are usually ready to enter the negotiation phase. We start negotiations with clear goals for valuation, deal structure, and rights and controls. We understand and appreciate that differing perspectives at this stage may prevent further progress, but we always try to maintain good spirit in our discussions.
Final Due Diligence
Once we have agreed on the terms and conditions of our deal, we enter the final due diligence stage. At this stage we complete our technical, legal, accounting and business review in order to obtain confirmation of all the information collected in previous steps.
Legal Process
As with all venture capital investments, Arts Alliance's legal counsel will work with the company's counsel to draw up the required legal documents. The term sheet agreed upon in the negotiation and final due diligence phase will cover most of the legal points, making the final documentation a clearer process. Nonetheless, it should be expected that it will take a minimum of three weeks before documents can be signed.
Investment Criteria
We are extremely selective. We often pass on investment opportunities not because we do not believe they could be successful businesses, but because they do not fit our investment strategy or criteria, or we do not think they could grow to be large enough to produce the returns we are seeking for our investors. When we make investments in companies, we are looking for a combination of certain traits. These traits serve as guidelines, not absolute rules. Read on to find out if your business might be a good fit with our investment objectives. Strong management team
We look for well rounded management teams which have shown considerable "hustle" in building a business or getting the project off the ground. The key members of the management team will possess core skills, have sector experience, the ability to attract top-quality talent to their team and have demonstrated a track record to execute against a plan. Large market opportunity
We are concerned with both the size of the total available market for a product or service as well as the timing of that market’s development. The potential market must be large enough to allow for the construction of an enterprise with potential annual revenue of €100 million or more unless high margins make a niche market attractive as well. Given the limited funding available to any young company, we favour businesses that address markets that are ripe and ready as opposed to those that are several years away. Timing is key! Solid business model
Arts Alliance will look for business models that make economical and practical sense in the long term. The business model must take advantage of barriers to entry to preserve attractive margins and point to clear, measurable paths for successful execution and long term profitability. Dramatically better product or service
In order to be compelling to users, the proposed product or service must simplify and improve the user experience. It must be an order of magnitude better than the status quo or alternative offerings in the marketplace. We find that often times the best investment opportunities are companies that are delivering a vastly improved user experience at a time when a market is about to take off. Market leadership
Arts Alliance looks for companies that will be market leaders in their industry. Historically we have favoured first or early-mover companies that benefit from barriers to entry such as brand, network effect or client entrenchment. Our view however has evolved because in today’s environment of rapid technology innovation and evolving market realities (e.g. broadband penetration, mobile proliferation, global outsourcing), second and third generation plays can quickly turn early movers into incumbents. We are constantly looking for companies that will challenge the status quo to become the new market leaders. Multiple exit routes
Because our goal is to generate a superior return on investment, we look for companies which we expect to be an attractive acquisition to a number of public companies as well as being able to be an independent public company itself. We expect that Portfolio Companies will be sold or go public within three to seven years. The Softer Stuff
In addition to these specific guidelines, we also look for less easily defined qualities. We believe these "softer" qualities are key elements of building successful businesses that are sustainable over the long term. The following thoughts summarise what we look for. This should be read as motivational perspectives, more than business plan guides. Ethics and leadership
We look for entrepreneurs who have a strong set of personal values to guide them through their business growth. And we look for companies where there is a good sense of ethics and a balance of work and play. Supportive environments are critical to a company's sustained growth, motivation and success. Exemplary management is critical to cultivating that kind of environment. Science and creativity
We believe that rigorous economic analysis and due diligence go hand in hand with an appreciation for creativity. Creative inspirations have been start-up fuel for an untold number of industry giants. In the fast-moving marketplace and frontier culture of technology, qualities like creativity, spontaneity, flexibility and vision are priceless. We look for these ingredients, but also like to see disciplined and rigorous execution. A successful company's growth derives from a healthy balance of inspiration and execution. Innovation
Truly innovative companies do not stop with technical breakthroughs. They push through to the user experience and deliver the customer something new and compelling. Innovation comes from companies in which vision and leadership have created a unique customer experience, using the chosen technology platform to create something which no other media could replicate.