From first meeting to term sheet

Ada and Ben have their list, their one-liner, and their deck. Next week they have their first meetings with seed funds. Most of these funds will say no. Before you read why, guess how selective a VC firm is.

Predict first

In 2015 and 2016, a survey asked 885 VCs about their process. For each deal that a firm closed, how many companies did it meet?

Type a guess before you continue. A guess first, even a wrong one, makes the answer easier to remember.

The survey is from 2015 and 2016, but the shape still holds. A raise is a series of steps, and at each step most investors leave. This lesson shows the steps, from the first meeting to the term sheet, and what you must do at each one.

The first meeting: the goal is the next meeting

The YC seed guide says that the goal of a first meeting is the next meeting, not the close. Start with your one-liner, tell the story, and keep time for questions. YC adds: “If you can get the investor to talk more than you, your probability of a deal skyrockets.” Questions show interest.

Close each meeting with a request for the next step. Paul Graham’s rule is simple: “Never leave a meeting with an investor without asking what happens next.” A good close sounds like this:

What do you need to see to commit? Who else at the firm must meet us? Can we put that on the calendar this week?

If the answers are vague, assume the worst. For a Series A, the YC Series A guide recommends a pitch of 15 to 20 minutes, then 40 to 45 minutes of discussion. At seed, the same balance applies: less talk from you, more questions from the investor.

On the same day, send a short thank-you email. Answer the open questions, and confirm the next step that you agreed on. If the reply has no date, treat it as a vague answer.

Read the signal

What did the investor really say?

Each line is what an investor said after a first meeting. Sort each line.

“Can you come back on Thursday at 10 to meet two of my partners?”
“This is really interesting. Keep us posted as you make progress.”
“We like the team, but we need to see more traction. Let us stay in touch.”
“Before our next call, please send five years of projections, every customer contract, and all board minutes.”
“We can send you a term sheet by Friday.”
“Our offer expires in 24 hours.”
“Our angel group charges founders $2,500 to pitch.”
“We only give references from our own list.”
“Can we speak to two of your customers next week?”

Sort each statement. The first choice counts, and the reason shows when you choose.

How a VC firm decides

At a VC firm, the first person you meet is often an associate or a partner. If a partner likes the company, that partner becomes your champion. The champion writes an investment memo and brings you to the investment committee, often called the partner meeting. Most firms hold this meeting each week, and there you pitch to the full partnership.

Firms decide in different ways:

Partner checkbook: one partner can write a check alone.
Formal vote or score: the partners vote or give scores.
Consensus or supermajority: most or all partners must agree, often for large checks.

Origin Ventures asked 15 venture funds about their process. It reports that VCs “say no to 99% of deals”, and that most refusals come before a vote. Thus your champion must win an argument in a room that you are not in. Give the champion the material for the memo: the market size, why now, why you, the traction, and the main risks with your answers.

Due diligence and the data room

Due diligence is the investor’s examination of your claims and of the legal condition of the company. In the same survey of VCs, the average firm spent 118 hours on due diligence for each deal and called 10 references. Early-stage firms called 8.

At seed, due diligence is lighter. The YC seed guide gives a warning: “If an investor is asking for too much due diligence or financials, they are almost certainly someone to avoid.” But the basics must be clean. A data room is a shared folder with the documents that investors ask for. A typical seed data room holds these documents:

The certificate of incorporation and the bylaws
The cap table, and all SAFEs and convertible notes
Founder stock agreements and 83(b) elections
IP assignment agreements from each person who wrote code or made designs
Board consents
Bank statements and a simple profit-and-loss statement
The primary customer contracts
A metrics dashboard and the deck

Prepare this folder before the first meeting, not after the term sheet. Suppose that a contractor wrote Northwind’s core code without an IP assignment. A signature corrects that problem today. If the lead investor finds it during due diligence, the close can stop for weeks. The lesson on setting up the company explains IP assignment.

The lead investor and the party round

The lead investor sets the terms, usually writes the largest check, and brings in other investors. CRV says that leads usually commit 40% to 60% of the round, and it calls the lead’s commitment “the critical first domino”. When a credible lead commits, the other investors move quickly.

A party round is a seed round with many small checks and no lead. It can close fast. Elad Gil explained its weak point in 2010: “No one has enough skin in the game or individual bargaining power to set terms.” It has three more disadvantages:

No investor owns sufficient stock to act as a champion on your board.
The cap table becomes long and complex.
Series A investors can read a round with no lead as a negative signal.

Suppose that ten angels invest $100K each, and Northwind closes a $1M party round in two weeks. In month 14 the company has problems and needs a bridge. No angel owns sufficient stock to lead it.

Example · step 1 of 5

Northwind and one seed fund, from email to term sheet

1
Warm introduction
A founder that Rowan Seed backed forwards Northwind's three-sentence email to a partner.

Work it out

Leads usually write 40% to 60% of the round. Northwind raises $3.6M. What is the smallest lead check in that range?

Momentum, FOMO, and an oversubscribed round

Investors watch other investors. After one respected investor commits, the other investors decide faster. FOMO means “fear of missing out”. It makes investors decide faster when other investors commit. Paul Graham suggests a small trick: name a smaller target at the start. If you want $500K, say at first that you raise $250K. When $150K is in, you are more than half done, and the round looks like it fills quickly.

A round is oversubscribed when investors offer more money than the round has space for. Then you have three choices: make the round larger, raise the cap for the later checks, or give each investor a smaller allocation.

Target:              $2M at a $16M post-money cap  → $2M ÷ $16M = 12.5% sold
Take all the demand: $3M at the same cap           → $3M ÷ $16M = 18.75% sold

More money is not free. It costs 6.25 more points of the company. Use the method from when to raise and how much. Take more only if it buys a faster path to the milestones.

Work it out

Northwind targets $3.6M at a $20M post-money cap, and $5M of interest arrives. If it takes all $5M at the same cap, what part of the company does it sell?

The term sheet

A term sheet is a short document with the primary terms of the investment. Usually only its confidentiality and exclusivity terms are binding. The exclusivity term is the no-shop: for a set period, you do not look for other investors or a buyer. The module on term sheets shows how to read one.

Watch the deadline. An exploding offer is a term sheet with a very short deadline. Its purpose is to stop you before other offers come in. In the same survey of VCs, the average deal took 83 days to close. For a round on SAFEs, the time from the agreed terms to the wire is usually 1 to 2 weeks.

Check the investor: references

The investor examines you, so you examine the investor. A reference check is a call to a founder that the investor backed. CRV recommends 5 to 7 reference conversations of three kinds:

Founders from the investor’s own list
Founders that you find yourself, in the investor’s portfolio
At least one founder whose company had problems or closed

CRV calls that last call “the highest-signal conversation available during due diligence”. Ask the question that CRV calls the “diagnostic version”: “Would you take money from this specific partner, not the firm, again without hesitation?” The partner who sits on your board matters more than the brand of the firm.

Watch for these red flags in an investor:

A refusal to give references outside its own list
Heavy due diligence demands at seed
An exploding offer
Changes to the terms after the term sheet, called retrading
Uncommon terms, such as participating preferred stock or a liquidation preference of more than 1x
A commitment that depends on a different investor
A request for a fee to pitch, or for a success fee for an introduction

How often uncommon terms appearas of Q3 2025

Term that favors investors	Share of rounds
Participating preferred stock	7.3%
Liquidation preference of more than 1x	5.7%
Cumulative dividends	5.1%

Source: Carta, State of Private Markets, Q3 2025. Most rounds have none of these terms. If your term sheet has one, ask why, and read the lesson on liquidation preferences.

Quiz · question 1 of 5

Test what you learned

What is the goal of a first meeting with an investor?

In this lesson you will learn