A startup investment goes through a series of stages called “Due Diligence”.
The first stage is the pitch presentation in which the startup introduces the deal to the investors. Next comes a follow-up meeting where the investors can dig in to learn the details. After this meeting, investors typically take time to think about deal and to observe the startup as they continue to make, or not make, progress.
The third stage that comes into play is the due diligence phase. In this phase, investors perform a rigid review of the startup’s documents, team, and market. If the terms sheet has been established by other investors, the investors review those documents. If not, the investor will negotiate the terms- including valuation.
Investors then check with their network to see who else may want to invest or put it out to other investors for syndication. Finally, there’s the closing of the round with the signing of documents. However, not every startup makes it all the way through this process. There are many challenges involved.