One of the unique requirements of the VMS fund (“VMSF”) is that every investment requires at least one sponsor. A sponsor is a senior level manager from within Constellation who is willing to endorse the investment. VMSF will require one sponsor who has worked with the new company’s leaders to endorse the team and / or one sponsor who is familiar with the potential market to validate the product idea. In many cases, there will be a single sponsor, familiar with both the team and the market, who will provide the endorsements. The sponsor will often provide coaching to the company and participate in the diligence process. In the case of an entrepreneur sourced from outside of CSI, the sponsor’s operating group will have to deploy some of their business’ capital alongside VMSF. In the case of an entrepreneur sourced from within CSI, the sponsor’s operating group will not have to deploy their business’ capital alongside VMSF but may do so if the entrepreneur is supportive of the idea. Note that the sponsor is not a co-founder and will not have a full-time job with the new company. The sponsor’s role can be broken up into their responsibilities pre and post investment. I describe each in more detail below.
For an internal investment (an investment backing a CSI employee/entrepreneur), help with product and market diligence is appreciated but not mandatory, however an endorsement of the entrepreneur is mandatory. For an investment in an external start-up, assistance with diligence is required. If there are separate sponsors for the management team and the product idea, they should each aid in their area of expertise. The ways in which a sponsor can help with diligence are to:
- Verify the market size and competition for the proposed investment
- Assist the VMS team with the creation of an IM and model.
- Assist with customer references.
- Explain any assistance that existing CSI businesses might be able to provide the new company (e.g. a sales referral arrangement on an arms-length basis).
- Consider investing their BU’s own capital alongside VMS. This is optional for internal investments (investments in companies with CSI employees as founders), but is mandatory for external investments.
- In the cases where the sponsor will invest their own capital, they should lead the approval process within their operating group.
The sponsor’s role does not need to end with the investment. For internal investments, sponsor’s have the choice whether to provide aid post-investment. For investments in external start-ups this is mandatory. The types of aid a sponsor can provide post-investment include:
- Taking a board seat in the new company
- Executing any part of the pre-investment plan that required assistance from other CSI businesses
- Providing coaching and advice on an as-needed basis to the new management team (as long as the new team are willing)
- Help with valuation and diligence for future funding rounds.
Since every investment is unique, the sponsor’s role will undoubtedly differ for each investment. We hope the guidelines above give an indication of what is usually expected from a sponsor. Feel free to
Reach out to email@example.com with any further questions. (All information stays between you and Karl).