How the Investment Process Works: Step-by-Step Guide

1. First Contact with Investors

The process usually starts with a warm introduction or an application. Investors rarely invest in someone they don’t know or trust, so introductions through mentors, advisors, or other founders can be highly valuable.

How to initiate contact:

• Attend pitch events, demo days, or startup meetups.
• Reach out via email or LinkedIn with a short, compelling message.
• Share a 1-page executive summary or teaser deck.
• Clearly state what you’re building and what you’re looking for (e.g., “raising $250K in pre-seed”).

Tip: Do your homework. Don’t send mass emails. Research each investor’s focus (industry, stage, geography) before contacting them.

Example: “I saw that you’ve invested in B2B SaaS companies. We’re building a CRM tool for freelancers and are looking for early feedback and connections.”

2. Delivering Your Pitch and Due Diligence

If an investor shows interest, the next step is often a pitch meeting—either virtual or in person. Here, you’ll walk them through your pitch deck and answer questions.

During the pitch, be ready to discuss:

• The problem and how your product solves it
• Market size, trends, and growth opportunity
• Your business model and traction
• Financial projections and funding needs
• Your team’s experience and capabilities

Tip: Practice with mentors or founders before your real pitch. Be concise, confident, and ready to back up every claim with data.

Due Diligence

If your pitch goes well, the investor may begin due diligence—a verification process where they assess the business in depth.

They’ll ask for:

• Financial statements (past and forecasted)
• Cap table (who owns what)
• Legal documents (company registration, IP, contracts)
• Customer or product metrics (churn rate, CAC, LTV)

Key Concept: Cap Table
The capitalization table shows the ownership structure of your company—founders, investors, option pool, etc. It matters a lot when negotiating equity.

3. Understanding Term Sheets and Agreements

If the investor decides to move forward, they will present a term sheet—a non-binding document outlining the proposed investment terms.

Key elements of a term sheet:

• Valuation: How much your company is worth pre-investment
• Investment amount: How much they will put in
• Equity stake: What percentage of your company they’ll receive
• Liquidation preferences: Who gets paid first if the company exits
• Board structure: Will the investor get a board seat?

Tip: Always consult a startup lawyer before signing. A “bad” term sheet can cause problems later.

Example: A $500K investment at a $2M pre-money valuation gives the investor a 20% ownership stake (post-money valuation = $2.5M).

4. What Happens After Receiving an Investment

Once terms are agreed upon, the legal paperwork is signed and funds are transferred. But this is just the beginning.

Post-investment responsibilities:

• Reporting: Regular updates to investors (e.g., monthly or quarterly reports)
• Use of funds: Stick to the agreed use of funds (often outlined in the pitch or term sheet)
• Board meetings (if applicable): Keep communication transparent
• Focus on milestones: Investors want to see progress toward KPIs (Key Performance Indicators)

Key Concept: Runway
Your runway is how many months you can operate before running out of money, based on your burn rate. It’s critical to manage this carefully post-investment.

Example: If you’re spending $25K/month and you raised $300K, your runway is 12 months.

📌 Final Thoughts

Raising investment is not just about money—it’s about partnership. Investors will become part of your journey, so it’s important to choose them wisely, communicate openly, and deliver on what you promise.

By understanding the phases of the investment process, you’ll position yourself as a confident, prepared founder—and increase your chances of securing the funding you need to grow.