How a deal actually happens (from the VC side)


Many founders think raising money is about having a great pitch. Send your deck, wow them in 30 minutes, get a check.

I wish.

After sitting through dozens of investment decisions as a VC, I can tell you the investment process is way more structured, way more layered, and way more competitive than most people realize.

So let me walk you through exactly what happens behind the scenes, from the moment a VC sees your name to the moment money hits your account.

It starts with dealflow

Dealflow is VC-speak for the pipeline of investment opportunities a fund receives. These come from everywhere: events, pitch competitions, referrals from the fund’s network, cold emails, LinkedIn messages, you name it.

A single investor might receive dozens, sometimes hundreds, of pitches every single week. So the filter they apply is steep.

From all these companies, maybe 20% will fit the fund’s investment criteria. Those are the ones where the investor will actually open your deck, read through it, and try to understand more. From those, maybe 5 will seem interesting enough to suggest a call.

The first meeting

This is usually around 30 minutes, often with an Analyst or Associate. Their job is to filter. Does this company fit the fund’s thesis? Does the traction match their criteria?

The goal of this meeting is to set the context, get to know each other, and present an overview of the business. It’s what decides whether the VC wants to keep going or not.

I went into much more depth into how an actual meeting happens in my last newsletter. If you missed it, you can check it from here:

Materials and analysis

If they’re interested, expect them to request additional materials. With certainty: a financial model (24 months is sufficient) and your cap table. They might also ask for a dataroom. Even if they don’t, it’s always good to have one ready so you can share it and move the process faster.

After you share everything, they start analysing, going through the docs, and building internal conviction. The better structured the information you provide, and the faster you respond, the smoother this goes.

Internal discussions and follow-up meetings

The investment team meets, often weekly, to decide which startups to advance. If you get past this phase, expect multiple follow-ups: second, third, sometimes fourth meetings as they dig deeper into your business.

If until now you were in contact with a non-partner only, at some point you’ll also meet one of the partners. This meeting will be longer and more detailed.

At each step, expect to receive ad hoc questions or requests for materials. Make sure to send them as fast as possible.

The investment memo

So, one partner likes you. Now they need to convince the other partners that it’s worth investing in you.

The first thing they do is prepare an investment memo. This is an internal document which summarises all key aspects of the business and builds the internal business case. The better your materials, the faster and better this memo will be.

After it’s done, it gets circulated among all partners. If there’s conviction, you’ll likely be invited to present, most probably in person, to all the partners. Expect very tough questions. They want to challenge you!

Around 3-5% of the original pool of startups that had a first meeting get to this point.

You can check some actual investment memos by Bessemer Ventures (a top global VC) here:

https://www.bvp.com/memos

The term sheet

Alright, the partner meeting went well. You receive a term sheet.

A term sheet is a non-binding document that outlines the key conditions of the investment: size, valuation, dilution, board rights, and more. You’ll probably spend some time negotiating the terms.

The good news is: after you sign the term sheet, your chances of actually receiving the investment are 90%+

Due diligence

As soon as you sign the term sheet, you’ll undergo proper due diligence. This includes legal DD (always), and in some cases financial and technical DD.

Legal DD means analysing your existing contracts, IP, trademarks, and corporate structure. Financial DD will only happen if you have financial history. Technical DD is often done by a third-party firm to analyse your technology, since VCs are rarely deeply technical.

In 99% of cases, this is mostly formal. Unless you have some well-hidden skeletons in the closet, you’ll move to the next step.

Investment Committee & Money in the bank

The Investment Committee, usually all partners, takes the final decision after a green light from the DD process. Some firms require an unanimous agreement, others require a majority. After the decision is made, they sign an investment resolution and wire you the money within 2-5 business days.

The stats

On average, only about 1-2% of startups that enter a VC process end up receiving a term sheet. That means to have a real shot, you need to reach out to at least 100 qualified investors, and by qualified, I mean ones that actually fit your stage, sector, and geography.

Every VC has slight variations in their process, but this is the typical path.

And it doesn’t end there

Getting the money is not the finish line. It’s the beginning of a long-term partnership.

Expect that investors will want regular reporting: a lighter update on a monthly basis, and a more detailed one quarterly. They might also enforce formal board meetings, at least quarterly, and will want to participate in budgeting and key strategic decisions.

So, be prepared. You’re not just getting capital. You’re getting a partner who will be involved in your business for years to come.

If there’s one thing you take from all this…

There’s a whole process that happens, regardless of what you do, that you cannot control. So, focus on what you DO control:

  • answer promptly
  • have everything prepared upfront
  • have well structured and easy to analyse materials

And to wrap it up...

Good luck!

Geri

Gergana Stoichkova | VC Compass

Thanks for reading! Let's connect!

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