what may go wrong after you have the terms sheet!
So you’ve made it past all the VC grilling and received a term sheet. Congratulations! But don’t celebrate just yet. Term sheets are non-binding, and even though they should signify a VC has conviction in investing in you and is ready to move towards closing, they fall through more often than most founders may expect.
Here are the three most common reasons why receiving a term sheet may not result in an investment by a VC and what you can do about it.
The Rushed Term Sheet
Sometimes fundraising processes are rushed due to multiple investors vying for a deal. As a result, some VCs may push their usual pre-term sheet due diligence to after your term sheet is signed in order to speed things up, and if this is the case, the chances of them backing out post-termsheet are much higher.
The Term Sheet Draft
Sometimes, a VC is interested in investing in a company in order to get a “good deal” before a company goes out to officially fundraise. So they lob a rough outline of a term sheet with little commitment, and if they get too much push back, they move on.
The Honeymoon Term Sheet
VCs often (and should) fall in love with the startups they offer to fund. However, after the pre-term sheet honeymoon phase, when they begin taking a deeper look into the minutiae of your business, they may discover red flags that significantly change their perception of the deal.
Always have a plan B, and save your celebration for when the money is in the bank.