The VC Process

A smiling man in a blue suit talks on a smartphone outdoors, with several American flags and a large, columned building blurred in the background.

So what happens if you reached out to a VC, and they want to take a first intro meeting? And what can you expect for the steps that follow after? Let’s dive in!

While every venture firm has its own internal process, rhythm and quirks, most follow a similar general process when evaluating a startup. Some may overlap or move faster depending on the size and stage of the round, the urgency of the market opportunity, and the firm’s conviction. But this overview can help demystify what’s really happening behind the curtain.

The process below is more or less a standard procedure for VCs (and should be expected for large raises). Smaller investment funds, family offices, or Angels that only have two or three people making decisions will likely move much faster without as many rounds of formal diligence review. The one consistent aspect to VC engagement is this: expect this process to take longer than you think it should. Don’t take it personally. Unless you have a de-risked project at the exact stage of development an investor is looking to invest in, they will not participate in your raise, especially in the current funding environment for biotech/medtech.

1. Intro / Initial Screening Call
Your first touchpoint might come via a warm intro, a conference meeting, or a cold email that somehow caught attention. The early conversations are often with an associate or more junior VC, though sometimes a partner joins directly.

Their Goal: They are assessing team fit, overall potential, and whether your company aligns with the fund’s thesis and stage focus.

Behind the Scenes: The person who took the meeting with you will present your company at their internal weekly or bi-weekly “Deal Flow Meeting”, where all incoming deals are discussed. The team discusses the opportunity, decides if they want to continue diving in, and who will do so (your internal lead). In this deal flow meeting, they will also discuss key questions they will want to find the answers to until the next deal flow meeting.

“ Keep your pitch tight and tailored, answer questions clearly. Know the fund’s focus and be clear how your company fits into their investment strategy and portfolio. Find out what intrigues them about this space or your company, where they see potential. Ask about their first check size, and their process for decision making.

2. Deep Dive Calls
The internal deal lead, typically a partner or principal who acts as your internal champion, will reach out to schedule next conversations. They might send you a list of questions beforehand, or ask specific questions during the call.

Their Goal: They are trying to confirm that this is an interesting space for them, want to learn more about your company and how you think, and also see how well you answer questions (or even react under stress), getting a “feel” for you as a founder and for your team.

Behind the Scenes: Your company and the conversations you have are discussed at every deal flow meeting, where the lead is sharing the progress you are making. GO / NOGO discussions at every deal flow meeting are advancing or halting the process. Are they still curious? Is this presenting as a good opportunity? What else do they want to know? If all signs are green, they will want to dive in deeper.

“ Approach these calls with curiosity and excitement, build a relationship with the leads. Also notice how it feels for you – could you imagine working with these people for the next several years? Are they respectful, curious and supportive already at this stage? How is conversation flowing? This relationship also has to work for you.

3. Data Room Access
As a next step, they will ask to access your data room, so they can start their internal due diligence process in more detail. They may or may not ask to have a Non-Disclosure Agreement (NDA) in place for this. For more guidance on how to build your data room, see Section 3.1. In the data room, the VCs will look for strong evidence that strengthens their conviction around you and your company. Likely, there will be more calls in which they will ask detailed questions that have come up during the review.

Their Goal: Developing a detailed understanding of your company and business strategy, understanding where you’re really at regarding your science and any remaining technical risks, and getting to a point where they are excited about your solution and want to push ahead.

Behind the Scenes: The internal deal team is diving into your company, checking that all important elements are in place, and building even more conviction that this is a good investment target. The data room read-outs/learnings are presented at a deal flow meeting, and depending on the green flags/red flags found in the data room, receives a GO/NOGO decision to advance to the next step.

“ Make sure your data room is ready from the beginning, well-structured and easily accessible

4. Creation of the internal “Investment Memo”
Your internal deal lead, supported by analysts and associates, prepares a detailed internal memorandum paper that summarizes your business and their analysis of it. This is then sent to the Investment Committee (IC) as a pre-read for the investment decision meeting.

It will come as no surprise that the investment memo includes topics such as:

Unmet need and market opportunity
Target market growth trends and size
Description of solution
Product/science differentiation/competitive analysis and defensibility
Go-to-market strategy and timeline to exit
Management team quality and potential
Financial model and expected capital needs
Risks (technical, regulatory, clinical, market) and mitigation plans
Return potential within fund timelines (often 7 – 10 years)

Their Goal: Making a case to their investment committee to why this might be an interesting opportunity for the fund, sharing in-depth information with the committee for a fruitful discussion during the investment meeting.

Behind the Scenes: The internal deal team is working on a 5 to 50 page investment memo document (depending on fund standards and complexity) that analyzes all different aspects of your company. This is often a pretty stressful time internally, and when questions are coming up while this document is being written, VCs are happy about fast turn-around times to get their questions answered, or your availability to jump on calls quickly.

“ The investment memo is for internal use only, but your answers in pitch meetings and diligence calls can shape its content.

5. Investment Committee (IC) Review
Most VC firms require a formal or informal review of the deal by their investment committee, often including partners not directly involved in your deal. You may or may not be invited to pitch directly as part of the IC meeting.

Their Goal: Getting IC approval for the deal.

Behind the Scenes: The IC discusses the deal during the IC meeting, and reach a YES / NO decision to proceed with the investmen

“ Ask your champion what to expect at their IC meeting, and when it’s happening. You can tailor your updates to help them prep, or plan some last-minute availability for them.

6. Due Diligence Process
After a formal IC approval, the deep due diligence process starts. Many firms use a standard template/excel sheet of topics and documents to dive into. This often includes details on your technology, IP, regulatory plans, business model, customer pipeline, hiring plans etc. The firms may also work with external vendors that specialize in the due diligence of a single topic, eg. reviewing your tech architecture.

Their Goal: Diving deep into your company, reviewing all relevant docs and aspects mentioned according to their internal due diligence check-lists.

Behind the Scenes: The due diligence is performed according to the check-list, partners are updated frequently about the status and progress of this process.

“ Make sure you make time to meet with due diligence vendors and the deal leads, so this can advance as fast as possible. If specialized expertise is needed, eg. on the tech side, you may want to pull in the relevant people in your team to these calls.

7. Term Sheet and Deal Negotiation
If you’ve passed due diligence, you’ll receive a “term sheet”, a short document outlining the proposed investment amount, valuation, ownership, governance terms, and any preferences (e.g. liquidation). You find more information on this topic in Section 3.7. Negotiations at this point are important, not only to define the terms of a deal, but they also serve to build the relationship. How is the other side reacting to push back? Does the conversation style and flow still work for you? What values are important to the other party during a negotiation, and what are they willing to give up for that? Ideally, you will have several term sheets on the table so that you can compare terms and decide who you feel most comfortable spending the next few years working with.

Their Goal: Getting to a deal that works for them, and understanding your negotiation style or behavior in stressful situations

Behind the Scenes: During this stage, if you have several interested investors a syndicate is formed. This syndicate is led by your lead investor, with whom you are discussing the deal terms, and the other parties follow.

“ Have a clear understanding from the beginning on how a good term sheet would look for you, what your non-negotiables are, and where you’re willing to give in a bit. It’s a good idea to work with experienced advisors during this phase, so they can guide you in the negotiation phase

8. Final Due Diligence
After the term sheet is signed, diligence continues, usually focusing on any legal, IP or regulatory loose ends. For early stage companies, this is typically a confirmatory step.

9. Final IC Approval
Some firms require a final vote before closing. If all checks out and no new red flags came up during negotiations or the due diligence finalization, the IC gives the green light to finalize the deals.

10. Legal Documentation & Closing
Your legal team and theirs now draft and review all final financing documents. This includes the Stock Purchase Agreement, Investor’s Rights Agreement, updated Cap Table, and more. The lawyers do the heavy lifting at this point.

11. Funds Transferred
Once everything is signed, the funds are wired into your company bank account, and you’re officially off to the races with your new investors. Make sure to take a moment to celebrate and to say thank you to everyone that has supported you in this process!

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