Startup Fundraising 101: Venture Capital Investment Process in 6 Stages

Planning to raise VC funding in the upcoming months but still have no idea how it works? No need to fret. Let us guide you through every step of the VC investment process and introduce how QuotaBook can help you along the way.

Seeking Financing from a VC💰

In general, there are six stages from the first meeting before the wire transfer of the funding.

  • Note: This article was written to provide a general overview of the VC investment process. Please note that every VC firm might have different internal processes.

Three groups are involved in the investment process.

  1. Startups 🧑‍💻

  2. Investors — VC / Investment principals 🕵️

  3. Investors — Portfolio / Fund management teams 🏦

A summary of the activities at each stage is provided below. It’s best to have all the relevant information ready at hand for an easy ride without having to dig through your inbox every few minutes.

The entire process — from the first meeting to the final contract and (most importantly) wiring of money — may sometimes take over a year.

Now let’s take a closer look.

1. First meeting with investors 🤝

Nailed the first meeting with your investors? Congratulations!

Once the VC starts to review your company as a serious potential investment opportunity, they will then discuss the company valuation and investment size. These two factors may change the company’s shareholding percentages a great deal.

📈Run easy investment simulations on QuotaBook, modeling different scenarios to find the best case for your business.

You can check how securing an investment change the number of shares, percentage of ownership and export the results as an excel sheet. Find how an exit simulation will affect the outstanding capital contribution and total proceeds by stakeholder.

2. Review 📑

After your successful meeting with the investors, the investment team will request a host of documents for evaluation and review. This is part of a process to convince their colleagues at the firm and may take over several months.

As the investment team reviews multiple startups at once, this request & review period may take longer than expected. You can see the interest level of investors through this period by checking which investors viewed the documents in our Data Room feature.

📊 Upload and manage relevant materials by round in Data Room. You can share data with multiple investors and monitor which investor has viewed the uploaded materials. Check the interest level of investors real-time on access logs.

💡 Tip: Keep track of questions or any requests that investors have at the meeting. This will be helpful in updating your pitch materials and preparing for certain data that investors are interested in.

3. Evaluation 🔍

When principals are sure about your company and so are their colleagues, they will proceed with initial Due Diligence. The management side of the VC will prepare a due diligence checklist, and the investment team will request the related information from you.

Due Diligence is a thorough process to investigate the overall health of the company. The investment team will ask a series of questions and a range of documentation. Investment principals will continue to discuss internally if your company is the right fit for investment. Make sure you are prepared to deliver the best, yet honest impression of your company.

💡 Through Due Diligence, investors will evaluate not only the business and legal foundation of the company but also the speed and the way in which company carries out their business.

Due Diligence, still confused? No worries — QuotaBook will soon update features in which investors can request documents they need, so that the startup respond immediately.

4. Investment committee 💼

Now the investment team will work hard to pitch your company to the senior members of the firm at the investment committee.

The deal team will prepare an investment memo to circulate and a presentation to convince the main decision-makers of the firm prior to the IC meeting. This process is at the heart of winning an investment. You must be prepared to meet the investors’ requests promptly and proactively.

📈 Once again, you can manage these flooding requests through the Data Room feature. Invite investors over, share necessary documents quick and check access logs to see if everything was delivered properly.

When ready, the investment committee will approve or reject investment opportunities and identify areas of improvement on company value and risks.

When the committee says “yes” to the investment opportunity, they will conduct extra Due Diligence. You might also receive a term sheet to negotiate the nuts and bolts of the deal. A term sheet is not a guarantee for the investment, but it signals that the investor is serious about this investment.

The second Due Diligence involves a more technical overview of the company through accounting professionals. They will review all the relevant documentation and may visit the company site in person.

💡 Every VC firm has works differently in terms of the IC and agreement negotiations. It’s always best to communicate with the investors to make sure you are on the same page with them.

💡💡It may take more than three weeks from planning a company visit til drafting a final report. Note that these onsite visits or additional Due Diligence do not mean that the investment has been finalized.

5. Final Contract & Wire Transfer 💵

On the day of the shareholder agreement, you will prepare all the necessary documents to sign and seal the deal with the investors. They are now legally ready to be your new shareholders!

But it’s too early to loosen up yet.

On a very rare occasion, investors may delay wire transfer even after the deal has been closed. It is best to be on alert and check every box down the list.

Once you checked the investment has been wired, the long process is complete. Make sure to update data on QuotaBook by adding new stakeholders and issuing shares (once the investors have wired funds).

QuotaBook Makes Equity Simple, so You can Focus on Business.

👉 Click here to request demo today, try first 3 months free.


※ Legal disclaimer

Make Equity Complete — QuotaBook is a global equity management platform with a mission to create an ecosystem for private companies and their investors and employees. Leaving spreadsheets and manual works behind, every stakeholder can connect online and sync crucial data on equity such as cap table or employee stock options. It is the leading platform used by top startups and VCs in Asia, backed by Y Combinator.

This piece is written for information purposes only and is not intended as financial or legal advice. QuotaBook does not assume any reliability for dependence on the information provided above.