Frequently Asked Questions
What investment criteria do you use to select investments?
The Fund's focus is on technology and life sciences opportunities that are rapidly scalable and where our initial seed funding will get the company to an important inflection point (i.e. justify a substantial increase in valuation). We look for companies with strong management, differentiated and defensible technology and large addressable markets. We think in terms of a potential exit offering at least 20x (preferably much higher) return within 5-7 years.
What are the deal terms?
We typically participate seed-stage financing rounds in the $1-3M range (including investment from both the Fund and its syndication partners). We prefer to lead rounds, but will follow credible lead investors on a case-by-case basis. We are valuation sensitive, believing that valuation should reflect the significant risk inherent in seed stage deals, and expecting meaningful ownership (20% or more) by the seed investment syndicate. We invest in multiple security types, including preferred equity and convertible notes. We request a board seat for rounds that we lead.
What is the application and due diligence process?
Companies who wish to be considered for investment must first submit an online application to the Cove Fund via the Apply button on the home page of our website. If your application is selected, you will meet in a Prescreen session with the Cove Fund Managers, who may invite you to present to our full membership in its monthly Investor Meeting. This presentation comprises 12 minutes for the presentation itself (uninterrupted) followed by 12 minutes for Q&A. If there is sufficient interest, you will proceed to due diligence, and the Fund will assign a deal team from its membership to perform due diligence and negotiate terms of an investment if appropriate. At the start of due diligence, you will need to fill out our Due Diligence Questionnaire.
The due diligence and negotiation process typically takes 4-6 weeks, and if it is concluded successfully, the deal team will recommend the investment to the Investment Committee (a subset of members) and the Managers for final approval.
The schedule for Prescreens and Investor Meetings is posted on our website. To be considered for invitation to a Prescreen, you should submit your application at least two weeks in advance of the Prescreen date. Typically companies who make it through the Prescreen are invited to present at the subsequent Investor Meeting.
We expect to consider hundreds of companies per year, and to invest in only a handful of them, so please keep in mind that the selection process described above is quite rigorous. We encourage any company that meets our Fund charter to talk to us and to apply, and we believe that any company that goes through the process will be the better for it, but we also want to set realistic expectations on what it takes to actually receive an investment from the Fund.
If we are selected, how long from submission of our application to funding?
Typically it takes 2-3 months from the time of application to the time of funding. This duration is highly dependent on how well prepared the company is for due diligence. More often than not, we work with companies throughout the process to shore up gaps in their business plans, and we are happy to do so, but it does take more time.
What can the Cove Fund investment dollars be used for?
Funds can be used for any business purpose that is consistent with the business plan presented to the Fund and approved by the company's board.
How much does the Fund invest in each company and are there opportunities for additional funding in subsequent rounds?
Cove Fund II uses a "seed and feed" approach, with an initial seed investment generally less than $500,000 from the Fund itself (normally as part of a larger syndicated round). The exact amount of the Fund's investment and the overall round depends on the company's business plan, and the objective is to raise sufficient funds to achieve a significant valuation increase before the company's next financing. The Fund will consider follow-on investments on a case by case basis, but cannot invest more than 10% of the Fund's total capital in any single company.
Other than Capital, does the Cove Fund provide any additional types of support?
The Fund is an active investor with a significant pool of resources based on its member engagement model. We believe that our investment marks the beginning of a partnership with the company, and that we can improve outcomes by contributing in meaningful and productive ways. We support our portfolio companies in multiple areas, including governance (usually through a board seat), mentoring and coaching, and introductions to potential customers, employees and service providers. On the flip side, we understand that our management teams know better than we do how to run their businesses (otherwise we would not have invested in them), and are careful not to micro-manage or place undue burdens on our companies.
will you sign an NDA?
As a matter of policy, the Fund does not sign NDAs, and companies should not include confidential information in their presentations at Prescreens and Investor Meetings. We do limit access to information disclosed in due diligence, and in certain cases (e.g. a technical deep dive) one or more of our due diligence team members may sign an NDA. Post-investment, our board member representative will sign an NDA as is standard practice.
If my company is turned down, can we reapply at a later date?
If your business plan has changed substantially and addresses the reasons for the initial turn-down, we will be willing to consider your company again.