How Top Founders Juggle Term Sheets

Editor’s note: Jonathan Friedman is a partner at LionBird  Israel and Chicago’s most active digital health investor, and blogs about the Venture Capital Point of View at

Breakout startups that are ready for “Fundraising Acceleration” often face the challenge of managing interest from multiple investors. Having been involved in a number of these startups first-hand as an early-stage VC, I’ve noticed a common pattern to how they manage to “juggle” investor interest that we can all learn from.

The Dry-Pitch Phase

The best-case scenario in these cases is to put yourself in a position to obtain multiple term sheets for your next round, all within one week of each other.

Because the fundraising process is based on timing (both the VCs’ internal decision-making timelines and the term sheet expiration dates), the first step is to meet all the relevant VCs you can in order to bring everyone up to the same level of knowledge. You should be speaking to everyone in parallel to keep them all on the same track, and should target 20+ relevant investor meetings at this stage.

Your first meetings will be more like a “dry pitch,” focused on introducing yourself and educating everyone on the opportunity. Since there are some investors who may know you better and some that will be meeting you for the first time, this is a chance to bring everyone up to speed before you begin officially fundraising.

Finding a Lead

When you have brought everyone to the same comfort level, you can begin splitting potential investors into three pools: lead investors, strategics and trusted advisers.

  • Leads are those that can fill a significant portion of your round and provide a term sheet to crystalize a syndicate.
  • Strategics are those that can help you operationally but may require strings attached or may not be willing to lead rounds.
  • Trusted advisers are the people you’d feel comfortable calling when you need advice on how to handle the other two groups.

For now, you’ll want to focus your efforts on the potential lead investors; you can return to the others after you have closed a term sheet.

The Juggling Act

Some lead investors may want to offer you a term sheet before you’re ready, and everyone will be pulling you every which way. However, accepting a term sheet from one investor while the other potential leads are still not ready to invest is problematic. Term sheets usually come with an expiration date, and even when they don’t, it’s considered bad form to stall too long after receiving one.

To avoid this situation, assuming you’re confident you will get multiple potential leads, politely ask interested parties that get ahead of the process to hold off. Only when you have gotten to the point where you believe you can get 2-3+ term sheets within a short time frame should you begin collecting them.

Narrowing the Field

Whom you choose to lead your round is key, as they represent not just more money but more voices on the board. Dysfunctional boards are among the leading reasons startups fail, so in addition to the usual criteria used to choose between investors, you’ll want to make sure the new investor gels with your current board.

Once you have a lead, you’ll want to usually leave an allocation for strategics and trusted advisers that previously expressed interest in joining your round and that you believe can add significant value. Whereas before they may have distracted you in fundraising, now you can more easily get all these investors onboard at common terms.

The Takeaway

Even though your startup may not be in a position to attract multiple suitors to your round, you can still benefit from these best practices. By focusing fundraising efforts on a targeted list of investors and moving them along in parallel, you can maximize your options, reduce the amount of time it takes to close a round and get back to building your business sooner.