For founders, securing investment from a venture capital fund can often feel like stepping into a black box - pitch in, term sheet out. But behind the scenes, there’s a clear and structured process that drives whether a fund chooses to invest. Understanding what happens internally can help you prepare, build stronger relationships with investors, and keep momentum moving towards a successful close.
Here’s a breakdown of what typically happens within a VC fund once a founder pitches to a VC fund:
1. The Investment Memo
Once you’ve had a few good meetings with the deal team, likely including an in-person pitch and some follow-up Q&A, the fund moves into a more structured internal process. The first major step is the creation of the investment memo, which acts as the internal case for investment. It’s the document that ultimately determines whether the fund proceeds to formal approval.
Think of it as the VC's internal business case for backing your company.
What is the investment memo?
The investment memo is a comprehensive document prepared by the deal team that distils everything the fund has learned about your business commercially, financially, operationally, and strategically. It pulls together findings from initial diligence and investor meetings into a single narrative, structured to help the Investment Committee assess:
- Why this company?
- Why now?
- What is the risk-return profile?
- What does the fund’s involvement look like in practice?
Although you won’t see the memo directly, the questions you’re asked throughout the process, and the data you provide, will heavily influence its content.
What goes into an investment memo?
A high-quality investment memo typically includes:
- Executive summary – A concise overview of the business, the team, and the investment rationale
- Market analysis – Size, growth, trends, and how your business is positioned within the competitive landscape
- Business model – How you make money, customer acquisition strategy, pricing, and unit economics
- Product or service – The offering, what makes it defensible, and how it delivers value
- Traction and KPIs – Historical growth, commercial milestones, churn, LTV:CAC, and other relevant metrics
- Team and leadership – Backgrounds, capabilities, gaps, and succession planning (especially if the business is scaling quickly)
- Financials – Historical financials, current burn rate, forecast assumptions, and path to profitability or next funding round
- Deal structure – Investment amount, valuation, equity stake, board composition, and key terms
- Exit potential – The likely routes to liquidity, comparable transactions, and valuation multiples
- Risks and mitigants – Any concerns raised during diligence and how they’re being addressed
Memos are often supported by financial models, cap table analysis, market research, and references from customers, advisors, or sector specialists.
How founders can help
This stage is a good sign. It means the fund is taking your business seriously. But the strength of the memo depends on the quality of the information you provide. Founders who are responsive, well-prepared, and open during early-stage diligence make life much easier for the deal team, and give the memo a better chance of standing up to IC scrutiny.
You can help by:
- Providing clear, accurate data (ideally via a structured data room)
- Anticipating questions on market size, margins, and growth assumptions
- Being transparent about risks or challenges—these will come up anyway
- Framing your vision and goals in a way that aligns with the investor’s return expectations
Ultimately, the memo is how your story is told internally so the more clearly and confidently you can present your business, the more compelling the case for investment becomes.
2. Investment Committee Review
Once the investment memo is complete, the deal progresses to a formal review by the fund’s Investment Committee (IC). This is often a pivotal moment in the decision-making process. The IC is typically made up of senior members of the fund, partners and other decision-makers who are ultimately responsible for approving new investments.
What does the IC want to see?
By this stage, the deal team will have already invested significant time understanding your business, engaging with your team, and conducting early-stage diligence. Their job now is to present the opportunity to the IC, clearly laying out:
- The business case: What problem you’re solving, why now, and what gives your team a right to win
- Market opportunity: Size, growth trajectory, and competitive dynamics
- Financial profile: Current performance, projections, and underlying assumptions
- Deal structure: Proposed terms, how much is being raised, and how it will be used
- Risks and mitigants: Key areas of concern and how they’ve been addressed
It’s common for IC members to challenge assumptions, pressure-test the financial model, or ask questions about customer concentration, margins, go-to-market strategy, or founder succession planning. This is where transparency matters. You’re not expected to have a perfect business but you are expected to know where the vulnerabilities are and have a plan for how to manage them.
How involved are founders at this stage?
You might not attend the IC meeting itself, but your input is critical. Ahead of the meeting, the deal team may come back with final clarification questions or requests for updated materials. Being responsive, open, and collaborative during this time helps build trust and can often be the deciding factor when IC members are weighing whether to proceed.
What happens after the IC meeting?
If the IC votes to proceed, the deal team will move to the next phase issuing a term sheet. If the committee has concerns, they may request further diligence or propose specific conditions (such as changes to governance, additional investor rights, or clarity on use of funds) that must be addressed before progressing.
In some cases, the IC may decide not to move forward. If that happens, the deal team will usually provide feedback, which can be valuable input for future funding conversations.
3. Term Sheet
If the Investment Committee gives the green light, the fund will issue a term sheet - a non-binding document that outlines the headline terms of the proposed investment. It’s a crucial stage of the process, setting the commercial framework and governance expectations that will shape your relationship with the investor.
In most UK venture deals, the term sheet is based on the BVCA Summary of Terms, which offers a standardised structure reflecting typical market positions. The BVCA model is designed to create alignment between founders and investors while offering transparency on key rights and obligations from the outset.
A typical term sheet includes:
- Valuation – The pre-money and post-money valuation of the company
- Investment amount – The capital being invested in the round
- Capital structure – Details of the share classes being issued and the cap table post-funding
- Liquidation preferences – How proceeds are distributed in the event of an exit
- Anti-dilution protection – What happens to investor shareholding in future down rounds
- Founder vesting and leaver provisions – Terms for equity retention and treatment of departing founders
- Board composition – The structure of the board and investor representation
- Consent matters – Key business decisions that require investor approval
- Information rights – The investor’s right to receive regular updates and financials
While the term sheet is not legally binding (aside from confidentiality and exclusivity provisions), it sets expectations and serves as the basis for the final legal documents. Founders should take this stage seriously, and work with experienced legal advisors to understand the implications of each clause and ensure the terms align with both short-term goals and long-term vision.
4. Third-Party Due Diligence
After the term sheet is signed, the investment becomes “subject to due diligence”. This is the final phase of risk assessment before legal documents are signed and funds are transferred. At this stage, the VC fund brings in external advisors to carry out formal due diligence across several areas of the business.
This process typically takes 2–4 weeks, depending on the complexity of the company, how well-prepared the data room is, and how responsive the founder team is. It’s not unusual for multiple workstreams to run in parallel, and clear communication between all parties is essential to maintain momentum.
What are investors looking for?
While the term sheet sets out the commercial intent, due diligence helps the investor confirm that there are no hidden risks that could affect the value or viability of the deal. The scope usually includes:
Legal Due Diligence
Conducted by a law firm instructed by the investor. This involves a detailed review of:
- Corporate structure and share ownership
- Key commercial contracts (customers, suppliers, partners)
- Intellectual property ownership and protection
- Employment arrangements and founder agreements
- Regulatory compliance and licences
- Litigation history or disputes
- Any existing debt, security, or guarantees
Founders should be ready to explain how their cap table is structured, how IP has been developed and protected (especially in tech businesses), and to confirm whether any change-of-control provisions exist in customer or supplier contracts.
At Avery Law, we support many founder teams through this process, including preparing the data room in line with investor expectations and helping you respond efficiently to diligence queries.
Financial Due Diligence
Run by specialist accounting or financial advisory firms, this process tests:
- Historical financial statements
- Forecasts and assumptions
- Key performance indicators (KPIs)
- Revenue recognition policies
- Cash runway and working capital position
- Any unusual items or off-balance sheet liabilities
They may also benchmark your numbers against peers or industry norms. If your projections are aggressive, be prepared to explain the drivers behind them.
Technology Due Diligence (for tech-led businesses)
Tech diligence is typically led by sector-specific consultants and covers:
- Code quality and architecture
- Scalability and security
- Product roadmap and innovation pipeline
- DevOps processes
- Dependency on third-party tools or platforms
- Cybersecurity risk and data protection compliance (e.g. GDPR)
This is especially important for SaaS and deep tech businesses. Early-stage founders often underestimate how closely their tech stack will be scrutinised especially if it’s a core value driver for the investment case.
Due diligence isn’t about catching you out, it’s about validating the investment. Founders who are organised, transparent, and proactive tend to emerge from this phase with a stronger relationship with their future investor and fewer surprises down the line.
5. Final Approvals and Completion
Once due diligence is complete and all parties are satisfied, the deal moves into the documentation and closing phase. This is where the legal paperwork is finalised, signatures are gathered, and funds are transferred.
Most UK venture capital funds use the BVCA model documents as the foundation for investment agreements. These include the subscription agreement, shareholders’ agreement, articles of association, and any ancillary documents such as service agreements or investor consents. Using these standardised documents helps reduce negotiation time and legal spend, while maintaining a fair and balanced approach between investors and founders.
However, “standard” doesn’t mean “one size fits all.” There are often deal-specific adjustments depending on the company’s stage, existing shareholder structure, or the number of new investors coming in. Founders should work with legal counsel who know these documents inside out both to protect their position and to keep the process moving efficiently.
We recently published a breakdown of the 2025 BVCA model document updates, which highlight important changes founders should be aware of, particularly around drag rights, leaver provisions, and investor consents. If you're preparing for a round, it's worth reviewing those updates here: BVCA Model Documents February 2025 Updates – What They Mean for Founders and Investors
Once documents are agreed and signed, the funds are transferred and the investment officially completes. From that point forward, the real work of scaling, now with a new partner on board, begins.
6. Post-Investment: Building the Relationship
Raising from a VC isn’t the finish line, it’s the start of a partnership. Most funds will appoint someone to your board and will work closely with you to help drive growth. That support might look like:
- Introductions to future investors
- Help with hiring or building out a leadership team
- Strategic input at board level
- Connections for international expansion
Founders who actively engage with their investors, ask for help when needed, and make the most of available resources tend to get the most out of the partnership.
Final Thoughts
Understanding how the internal VC process works can help you approach fundraising more strategically. Knowing what’s coming, and how to support it, can make you a more compelling partner and help you get to “yes” faster.
At Avery Law, we regularly support founders through venture funding rounds. Whether you're reviewing a term sheet or getting ready for due diligence, we’re here to help you navigate the process with clarity and confidence.
