The Chicago Venture Capital Competition (CVCC) is the only venture capital case competition at the University of Chicago open to undergraduate students. Students (in teams of 5) represent mock VC firms, and evaluate real startup pitches and business models. Students then draft an investment contract (commonly known as a term sheet) with the startup they would like to pursue and investment in, and explain their logic to the competition’s judges, who are real VCs. The teams with the best logic will move on to a negotiation round, where students will attempt to negotiate the terms of the investment with the startup’s founders.
CVCC is the first stage of the Venture Capital Investment Competition (VCIC), which has regional, national, and international stages. As a result, we follow VCIC rules. The winning team from CVCC has traditionally represented UChicago at the Midwest Regional Competition (2018 regionals hosted by Michigan State University | 2019 regionals hosted by Miami University of Ohio | 2020 regionals hosted by the University of Chicago).
The competition date will be Saturday, October 19th, 2019. Teams must be strictly 5 students in size. Please see vcic.org/students/rules for additional rules. 1-2 days prior to the date of the competition, we will e-mail you investor pitch decks (presentation slides) for the participating startups as well as a short biography of your mock VC firm and fund size. You should review the pitch decks in-depth and do any preliminary research into the startup’s market, product, and team before the competition.
It may be beneficial to watch the tutorial videos VCIC has posted here: vcic.org/students/videos
The best preparation you can do is to read Chapters 1,2,3,4, & 5 of Feld-Mendelson’s Venture Deals, which covers everything we’ll be doing at CVCC in great detail.
Day of the Competition
Pitches (30-45 mins)
At CVCC, all teams will arrive at a Booth Conference room to hear the startup pitches (usually ~30-45 minutes). You should take notes during each pitch, and think about questions you might have. Laptops are permitted for communicating with your team and taking notes. For the sake of confidentiality, we’ll ask you to sign Non-Disclosure Agreements (NDAs) for the competition.
Diligence Sessions (~10 mins each)
“Diligence” is a fancy term for research. In diligence sessions, your VC firm will meet as a team with the startups (one at a time, rotating approximately every 10 minutes). This is your opportunity to ask questions that will help you gauge whether you will move forward with your investment. VC judges will sit in on your diligence rounds, paying attention to the questions you ask and the rapport you build with the startup.
Remember that venture capital is a highly relationship driven field. You should take the time to build rapport with the startup—they are interviewing you just as much as you are interviewing them. Immediately asking pointed questions without building rapport is where many teams have failed in the past. It’s also not a great idea to have all your laptops open during this time, as 5 laptops create a physical barrier between you and the entrepreneurs and can make the meeting feel more tense. Keep details like that in mind, and you’ll do well.
You should approach each diligence session knowing exactly what answers you want to get from it. Are your concerns with revenue growth? Regulatory concerns? Insufficient product-market fit? Overly general questions that don’t help drive an ultimate investment decision are not a good use of your time.
Striking the balance between asking specific questions and building rapport is difficult but important.
Finally, judges will likely pay attention to how you work as a team. It helps to know beforehand who will be asking which questions, and what order you’ll be asking them in so that you don’t step over each other.
Lunch Break & Term Sheet Drafting (< 2 hrs)
At this point, you will have had a diligence session with each startup and will be more informed on their respective business models. You’ll have had three sources of information on each: the pitch deck (and any market research you’ve done beforehand), the pitch, and the diligence rounds. The next step is an investment decision.
You’ll choose one startup to invest in, and draft a term sheet. We’ll cover term sheet specifics in Part II. A general rule of thumb is that a term sheet has two levers: economics and control.
Economics refers to the return the investors will ultimately get in the sale of the startup or a liquidity event (i.e. an IPO). Economics primarily refers to how you value the startup (% stake at $_______), but also includes other investment levers (i.e liquidation preferences). We’ll cover these more in-depth in Part II.
Control refers to the mechanisms that allow the investors either to affirmatively exercise control over the business or to veto certain decisions the company can make. Having a board seat on the startup is a common method VC firms use to exercise control.
The key to a good term sheet is to not be too aggressive with the above two levers, but to still take a large enough stake that you can make a strong return on your investment. Striking the right balance is essential.
Once you’re done drafting your term sheet, you’ll submit it to us via e-mail.
In the partner meeting, you will present your term sheet and decision logic to our judges, who are real VCs. They’ll likely grill you on how you arrived at your decision, the content of your term sheet, and your valuation methodology. You should be prepared to defend each, and it helps to assign team members to tasks accordingly. One team member might prepare to present briefly on the investment decision and logic, and other team members might prepare to defend specific tenets of each. Again, you should try to determine this beforehand so that you appear coordinated and professional. You will be judged on your term sheet and your ability to defend your logic.
Final Round Selection
Once the judges have had partner meetings with all teams, they will announce two teams for the final round negotiations. If you make it to this stage, you’re doing really well!
Negotiations (~10 min)
The two teams will each have a chance to negotiate their term sheet with the entrepreneurs. Remember that your investment should strike the right balance between economics and control. If you were not aggressive enough in your investment, it’s likely the startup will immediately accept your term sheet. If you were overly aggressive, you will probably fail to persuade the startup to take an investment from your firm.
Most teams that reach this stage are reasonably close to the right balance. You’ll have about 3-5 minutes to present your term sheet and logic, and use the remaining time to negotiate the terms with the startup’s founders.
Smart teams will use the rapport they’ve built in the diligence rounds to effectively communicate the terms with the startup. You’ll be judged on your interpersonal skills, and how you negotiate with the entrepreneurs. Judges will be present for each team’s negotiation, but the competing team will be asked to wait outside during negotiations.
Judges will use about 3 minutes after the negotiation sessions to ask teams about their logic in the negotiations and to offer feedback.
Winning Team Announcement & Networking
Between the final two teams, the judges will pick a winner. But stick around to network with our judges and fellow students, especially if you’re looking to work in venture capital as an undergrad. You should ask the judges how they might have invested, and any feedback they might have for you personally. It’s a really great opportunity to meet VCs and get specific feedback for future case competitions.
Regionals and Post-Competition
VCIC has amended the rules for the 2020 regionals. Previously the “no repeat” rule prevented last year’s regional competitors from participating again, so we would send the winning team from CVCC to the VCIC regionals. However, that rule is no longer in effect, enabling the 2019 VCIC regional team to be eligible for the 2020 competition. We are discussing with UCIE how to be fair to all participants in selecting our regional team to represent UChicago. Please stay tuned for announcements on this.