You got the term sheet. You’re celebrating. And then reality hits: that piece of paper is not the money in your bank account. What happens after you get a VC term sheet is a months-long process of legal docs, due diligence, board formation, and way more paperwork than you expected. Most founders think the hard part is over. It’s not.
The term sheet is a binding agreement on economics and control. But it’s not funding. Not yet. There’s a whole gauntlet between signature and wire, and deals do collapse post-term-sheet. Not often. But it happens. Usually because founders don’t understand what comes next or because they miss deadlines that seemed flexible but weren’t.
The First 48 Hours: Don’t Actually Celebrate (Yet)
You’ll want to tell everyone. Don’t. Not yet. Tell your co-founders, tell your lawyer, tell your spouse. That’s it.
Within 24 hours, you need a lawyer. Not optional. If you don’t have one, the VC will recommend three. Pick one who’s done venture deals before. Your startup lawyer, not your employment lawyer. Not a general practice guy.
The first thing the lawyer does is read the term sheet line by line and flag issues. Liquidation preferences. Board seats. Pro-rata rights. Anti-dilution clauses. Drag-along provisions. Most of these are standard. Some are aggressive. Your lawyer’s job is to separate the two.
The VCs aren’t screwing you on purpose with a term sheet. It’s boilerplate that’s been used on 500 other deals. But it’s designed to protect their downside, not your flexibility. Know the difference.
The Diligence Phase: The Part That Takes Forever
Diligence typically takes 30 to 60 days. Sometimes 90. This is where the VC digs into everything.
Technical diligence. They’ll send engineers to review your code. They’re looking for tech debt, security issues, and whether you actually own the IP you claim to own. If you have a legacy system held together with duct tape, this is when they find out.
Financial diligence. They’ll audit your books. Cap table. Convertible notes you forgot about. Equity promised to employees that’s not documented. Weird vendor contracts. All of it.
Customer diligence. They’ll call your top customers. Not to poach them, but to verify the deals you told them about actually exist and that customers are actually happy. They’ll ask how much customers actually pay and whether that’s locked in.
Legal diligence. They’ll check incorporation docs, tax filings, compliance with regulations, any pending lawsuits, IP assignments from founders, anything that creates legal risk.
Team diligence. They’ll check backgrounds on key people. They’ll verify everyone who has equity options actually signed option agreements. They’ll flag anyone who worked somewhere else without a clean IP assignment.
You’ll get a diligence request list. It’ll be 40 pages long. It’ll seem insane. You answer it anyway. This is your job for the next month. Prepare spreadsheets. Pull documents. Call your banker and vendor contacts. Get references.
The good news: if the VC is doing serious diligence, they’re serious about the deal. If they’re barely asking questions, that’s a red flag.
Negotiating Terms You Missed
The term sheet covers economics. Everything else gets hashed out in the 100-page investment agreement.
Voting agreements. Information rights. Protective provisions (what the board has to approve). Anti-dilution mechanics. Drag-along and tag-along rights. Liquidation cascades. Registration rights if there’s ever an IPO.
Some of this is standard. Some is negotiable. Know which is which.
The VC’s first draft will be entirely pro-VC. Your lawyer will strike 20 provisions. You’ll negotiate 10 of them. You’ll lose 5. You’ll compromise on the rest. This is normal.
Common things to push back on: board observer rights (VCs will want them, you should limit the number), information access (monthly financials is standard, weekly is not), and drag-along rights that can drag you out even on good outcomes (try to set a threshold).
Don’t burn political capital fighting every provision. Pick three that matter. Win one or two. Move on.
If you’re raising a priced round versus using a SAFE or convertible note, you’re dealing with a lot more legal complexity. You should understand the difference before you’re in the middle of it.
The Cap Table Clean-Up
Before you get funding, your cap table has to be squeaky clean.
Every founder has to have signed equity agreements. Vesting schedules. Clawbacks for people who left. Founders need to certify they own the equity they claim to own. Spell out that they didn’t sign agreements with prior employers that give away equity.
All convertible notes and SAFEs from previous raises get documented. You need evidence that previous investors had the right to get equity in this round. If you took a SAFE from your dad’s friend, you need a signature page.
Options. All outstanding options have to be accounted for. The VC will calculate your fully diluted cap table. That means all options in the pool. They want to know what percentage they’re actually buying.
Common mistake: founders think they have more equity than they do because they didn’t account for the option pool or prior rounds. The option pool grows with this new round. If you’ve promised 15% to employees and another 20% to advisors, the new VC isn’t going to accept that. You’ll have to increase the pool or reduce those commitments.
This is when you learn whether your earlier equity documents were airtight or if you’re about to spend $50k fixing them.
Board Formation and Governance
The term sheet specifies board size and seats. Typically three seats early on. Your CEO. The VC rep. An independent director.
You’ll need to set up proper board governance. Board resolutions. Record-keeping. Actual board meetings. The VC won’t make a single wire transfer until board documentation is in place.
The independent director usually doesn’t care. They just show up. But find someone who’s done this before. An advisor. Someone from your network. Someone who won’t be combative but also won’t rubber-stamp bad decisions.
Board meetings happen quarterly. Monthly for the first year if the VC is nervous. You need proper minutes. You need to document decisions. This seems bureaucratic until you’re in a dispute and those minutes are the only evidence of what was agreed.
The board is also where you’ll hear hard feedback. The VC rep will push on unit economics. Burn rate. Customer acquisition cost. This isn’t confrontational. It’s their job. Get used to it.
The Due Diligence Killers
Deals fall apart during diligence when founders weren’t honest about something.
Key customer isn’t actually locked in. They were verbal. Diligence calls the customer and finds out they’re also talking to competitors.
IP isn’t owned cleanly. A founder worked at company X and didn’t sign an IP agreement when he left. The technology might be encumbered.
Financial numbers don’t match what you told them. ARR is half what you claimed. Churn is higher. Revenue recognition is aggressive.
Someone on the team has an undisclosed criminal record or lawsuit or integrity issue that comes up in background checks.
You didn’t disclose a major customer loss or team departure that happened after the term sheet.
Any of these can kill the deal. Not because VCs are unreasonable but because they’re buying into your story and these are story-changers.
Be honest in diligence. If something’s wrong, tell them before they find it. You can negotiate around it. You can’t negotiate around a lie that blows up mid-diligence.
The Legal Doc Sprint
Once diligence clears, you enter the final document sprint. Usually 2 to 3 weeks.
Investment agreement. Stock purchase agreement. Shareholder agreement. Board consent resolutions. Officer certificates. 83b elections. SAFE agreements if there are any converting. Stock ledgers. New cap table.
It’s a blizzard of paper. Your lawyer handles most of it, but you’re signing every page. Read it. Don’t just sign. If you don’t understand a provision, ask your lawyer to explain it in plain English.
Common timeline issue: you think you’re done, but the VC’s lawyer makes edits. Your lawyer responds. They go back and forth. This can add 2 weeks. Budget for it.
The 83b Election and Stock Details
If you’re getting common stock with a vesting schedule, you file an 83b election with the IRS. This is tax stuff but it matters.
Basically, you’re telling the IRS you want to be taxed on the value of your shares today, not when they vest. This is good for you because the value is low now. Without the 83b, you’d get taxed annually as shares vest.
Your lawyer handles this, but it has to be filed within 30 days of stock issuance. Missing the deadline costs you serious tax dollars. Don’t miss it.
Make sure your stock certificates have the right numbers. Shares, vesting, acceleration clauses. You want to know exactly what you own and what happens if you leave.
Final Steps Before Wire
Everyone signs. That’s lawyers, founders, board members, VC fund managers, sometimes institutional limited partners if it’s a bigger fund.
Closing documents get executed. Stock gets issued. Board consents get filed.
The VC does a final legal check. Legal opinion is issued by both sides’ lawyers saying everything is properly documented.
Then comes the wire instructions. The VC tells you which account they’re sending money to. You verify the account details are correct. One typo here and your money goes to someone else’s bank.
Wire hits. Usually 2 to 3 business days from signing to cleared funds. Then it’s real.
Total timeline from term sheet to wire: 60 to 90 days is typical. 120 days is not unusual if there’s a lot to clean up. Some deals close in 30. Some drag to 180 if there’s serious legal complexity.
Post-Wire: What Founders Get Wrong
Money hits the bank and founders think the VC is now part of the family. They’re not. They’re a shareholder with board representation and downside protection.
You now have a board obligation. Quarterly board meetings. Monthly financial updates. Investor updates become non-negotiable. The VC can fire you if you’re not hitting milestones. You can be pushed out even if you’re the founder.
You also have information rights. They can ask for any document. They can talk to your team. They have some veto power over major decisions. Hiring a CFO. Taking on debt. Selling the company. These are normal but they change how you operate.
The money also comes with expectations. You now have to hit the numbers you modeled in your pitch. Not exactly, but in the ballpark. If you told them you’d hit $1M ARR by end of year and you hit $400k, the board gets frustrated. If this happens repeatedly, they’ll bring in new management.
Treat the post-wire period like an extension of fundraising. You’re still being evaluated. The difference is now they have legal leverage if you fail.
The Syndicate’s Take
The term sheet isn’t the finish line. It’s the start of a gauntlet. Smart founders treat the diligence and documentation phase like the real close, not just a formality.
Have a good lawyer. Not the cheapest one, the sharpest one. They’ll save you months of pain and bad terms that haunt you for years.
Be honest in diligence. The VC will find out anyway, and honesty now beats blown deals later.
Understand what you’re getting into post-wire. You’re not just getting money. You’re getting oversight, board obligations, and investor expectations that don’t go away.
Use the timeline wisely. You have 60 to 90 days between term sheet and wire. Use that time to get your house in order. Clean cap table. Solid documentation. Happy team. Happy customers. When wire hits, you should be running at full speed, not spinning up.
If you’re new to fundraising, read Paul Graham’s essay on fundraising. It covers the whole process and the psychology of it. And look at YC’s SAFE documents to understand how different instruments work if you’re comparing structures.
Want to understand what you agreed to? Check out our explainer on SAFE notes if that’s what you used to get here, and how priced rounds compare to other instruments.
Know your timeline. Check out how long a typical seed round takes so you know whether you’re on track or behind. And if you’re unclear on valuation, we have a breakdown of how seed valuations work.