Pre-Approval Completions

Having understood the issues related to financial forecasting and business valuation, venture capitalists proceed to conclude one of the most important steps in the early stage of the investment process—negotiation and finalization of the terms of the deal with entrepreneurs. Negotiations of the major terms of the deal are to have been completed and the term sheet is to have been signed before the deal is presented to the investment committee for formal approval. The term sheet allows venture capitalists to show to the investment committee that the deal, in principle, is signed and that the major areas of commercial investigation have been checked off. This is a critical step to complete prior to obtaining any internal approvals and is the focal point of this chapter.