StructuringFundraising Strategy
How Much Should You Raise? The Complete Guide to Startup Fundraising in 2025
Learn how to calculate your raise amount, choose between SAFEs and priced rounds, and navigate term sheets strategically.
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Learn how to properly evaluate investors through portfolio analysis, reference checks, and compatibility assessment before accepting their capital.
Mark Bugas
Yes, conducting thorough due diligence on investors before accepting a term sheet is critical because you're entering a 7-10 year partnership that's harder to exit than most marriages. The answer is implementing a systematic evaluation process that includes quantitative analysis of their deployment patterns (typical check sizes, number of deals per partner annually, follow-on investment track record), strategic reference checks with 3-5 portfolio founders they didn't suggest including companies that struggled or failed, assessment of working style compatibility through direct conversations about communication cadence and decision-making approach, and validation of their claimed "platform" value-add through specific examples and metrics from current portfolio CEOs. Smart founders spend 15-20 hours conducting investor due diligence after receiving a term sheet, talking to at least 5-7 references including 2-3 off-list contacts, because a prestigious brand name doesn't guarantee hands-on support, aligned values, or constructive board dynamics during difficult periods. The investors who look best on paper sometimes provide the least actual value, while lesser-known firms with partners making only 3-5 investments annually often deliver dramatically more attention and operational support than partners at top-tier firms juggling 15+ deals per year.
Receiving a term sheet, especially from a well-known VC firm, is undeniably exciting. But experienced founders know that a prestigious brand name on Sand Hill Road doesn't automatically guarantee a fruitful partnership. The smartest founders flip the script: before accepting a check, they conduct their own thorough due diligence on potential investors. Choosing your investors is a critical long-term decision; here's your playbook for evaluating them beyond the hype.
Start with the data, as it often reveals an investor's actual behavior versus their claims. Look beyond simple portfolio lists and examine deployment cadence and check size. What's their typical initial check size? How often do they lead rounds versus follow? Crucially, how many new investments do they make per partner annually? A partner juggling 15 new deals a year likely offers less individual attention than one handling five. Gathering this data can involve reviewing public sources and potentially leveraging investor databases, like those integrated into platforms such as Flowlie, which may track fund deployment rates, typical check sizes, and portfolio details.
Understanding their follow-on strategy is equally important. Do they consistently reserve capital for follow-on rounds? Under what conditions do they deploy it? Understanding their approach here is vital for future funding rounds.
This is arguably your most powerful diligence tool, but requires finesse. Don't only talk to the curated list of successful founders the VC provides. Proactively seek out founders from their portfolio whose companies struggled, pivoted hard, or even failed. Identifying founders for these off-list checks, especially from less publicized outcomes, can require some digging through networks or utilizing platforms like Flowlie if they offer comprehensive portfolio company and founder data.
Ask tough, specific questions during these reference calls:
A signed term sheet is the beginning of a multi-year relationship. Assess compatibility by understanding the specific partner's preferred working style. Are they hands-on weekly, or more board-level quarterly? Does their communication style, whether direct or consensus-driven, mesh with yours?
Pay close attention to how they handle differing opinions during your diligence conversations. Is debate constructive or dismissive? This is a strong preview of future board dynamics. Do their stated values align with actions observed through references and interactions?
Many VCs tout extensive "platform" services like hiring support and customer introductions. Cut through the marketing by demanding specifics. Ask for concrete examples and, ideally, metrics: "How exactly did you help Company X with their go-to-market strategy?" "How many qualified C-level candidates did your talent team present to portfolio companies last year?" "Can you share 2-3 meaningful customer introductions you made recently for a company at our stage?"
Talk to portfolio CEOs directly about the actual utility and responsiveness of the firm's platform resources.
Be alert for potential issues including inconsistencies between stated investment thesis and actual deals done, high partner turnover or instability within the firm, a pattern of portfolio companies raising down rounds or struggling disproportionately, vagueness about their internal decision-making process or timeline, excessive pressure tactics or artificial urgency with "exploding term sheets," and poor responsiveness or disorganization during your diligence process on them.
Keeping track of your diligence findings across multiple potential investors is crucial for objective comparison. Using a structured system, perhaps within your fundraising CRM like Flowlie, allows you to log reference call notes, assess alignment on key criteria, and make a more informed final decision based on evidence, not just gut feel or brand prestige.
Selecting your investors is one of the most critical decisions a founder makes, arguably more permanent than hiring employees or landing customers. Don't be swayed by brand names alone. Conduct thorough, systematic due diligence to find partners who not only provide capital but also align with your values, offer genuine support, and will be constructive collaborators through the inevitable ups and downs of the startup journey. Taking the time to truly evaluate your investors is an investment in your company's future. Platforms like Flowlie can support this critical process by helping you gather data, track interactions, and manage the evaluation systematically alongside your core fundraising efforts.
Allocate 15-20 hours over 1-2 weeks for thorough investor due diligence after receiving a term sheet. This includes 8-10 hours conducting 5-7 reference calls with portfolio founders, 3-4 hours researching quantitative data about their deployment patterns and portfolio performance, 2-3 hours having direct conversations with the partner about working style and expectations, and 2-3 hours synthesizing findings and comparing multiple term sheets if you have them. This investment of time is minimal compared to the 7-10 year partnership you're entering and can prevent catastrophic misalignment.
Conduct at least 5-7 reference calls per investor, including 2-3 off-list references you find independently from founders whose companies struggled or failed. Talk to 2-3 recent portfolio additions to understand current behavior, 1-2 founders from older investments to assess long-term partnership quality, and at least one founder who had a difficult board relationship or company challenge. This mix provides a comprehensive view beyond the cherry-picked success stories investors will volunteer.
Search the investor's portfolio page for companies that haven't raised follow-on rounds or show signs of struggle like layoffs or pivots. Use LinkedIn to find founders from portfolio companies not mentioned prominently. Ask your network if anyone knows founders backed by this investor. Check Crunchbase or similar databases for their full portfolio including older, less successful investments. Reach out with: "I'm considering taking investment from [Investor] and wanted to get your candid perspective on working with them, especially during challenging periods." Most founders are surprisingly willing to share honest feedback.
The most revealing questions focus on difficult moments: "Describe a time you significantly missed projections or faced a crisis. How did [Partner] react?" "When you had a major strategic disagreement, how was it resolved?" "Did they follow through on specific operational help they promised? Examples?" "How available were they when you needed them most urgently?" "Would you take their money again, and why or why not?" The answers to crisis and conflict questions reveal more than discussions about smooth sailing periods.
Partners making 15+ new investments annually are spreading their time across too many companies to provide meaningful hands-on support. They can attend board meetings but rarely have bandwidth for operational help between meetings. Partners making 3-5 new investments yearly can dedicate substantially more time to each portfolio company, responding quickly to needs and providing proactive guidance. Calculate this by looking at the firm's total new investments divided by number of investing partners, not total team size. A partner with 20+ portfolio companies across all their funds has limited capacity regardless of new deal flow.
Ask directly: "What percentage of your fund is reserved for follow-on investments?" "Under what conditions do you deploy follow-on capital?" "Can you share examples of companies you chose not to follow in and why?" Review their portfolio to see how many companies received Series A after their seed investment, or Series B after their A. A pattern of not following-on might indicate they're not truly committed to companies long-term or are poor at picking winners initially. Investors who rarely follow-on may abandon you when you most need support.
Major red flags include reference checks revealing the investor disappeared during difficult times, multiple founders describing them as unhelpful or adversarial on the board, high partner turnover at the firm indicating internal problems, significant discrepancies between what they promise and what portfolio companies experienced, pressure tactics like artificial deadlines on term sheets, and a portfolio showing many struggling companies or down rounds. Any reference saying "I would not take their money again" is a definitive red flag requiring deep investigation before proceeding.
Demand specific, measurable examples: "How many executive candidates did your recruiting team source for portfolio companies last year?" "Can you name 3 recent customer introductions you made for companies at my stage?" "What percentage of portfolio companies actively use your platform resources?" Then verify these claims with 3-4 portfolio CEOs asking: "Which platform services have you actually used?" "How responsive was the platform team?" "Did it materially impact your business?" Many firms market extensive platforms that portfolio companies rarely access or find marginally useful.
Prioritize partner quality over brand name. You work with a specific partner, not the firm's logo. A top-tier firm's brand helps with future fundraising and recruiting, but provides zero value if your partner is unresponsive, adversarial, or spread too thin. A lesser-known firm with a phenomenal partner who's deeply engaged, well-connected in your space, and truly supportive delivers dramatically more value. That said, if you can get both brand and great partner, that's optimal. But forced to choose, pick the person over the name.
Have explicit conversations about expectations: "How often do you typically engage with portfolio companies between board meetings?" "What's your preferred communication style?" "How do you approach disagreements with founders?" "What do you expect from me in terms of updates and access?" Ask references about their actual communication patterns. Consider whether their style (hands-on vs hands-off, direct vs diplomatic, strategic vs operational) matches what you need and how you work. Misaligned working styles create friction even with good intentions.
Ask the investor: "Describe your philosophy on board composition and dynamics." "How do you handle situations where founders and investors disagree on major decisions?" "What's your track record on founder-friendly vs investor-friendly resolutions?" Ask references: "How does [Partner] behave in board meetings?" "Are they collaborative or domineering?" "How do they handle bad news?" "Have you ever felt pressured or bulldozed on important decisions?" Board dynamics matter enormously once you scale, so understanding how this partner operates in governance is critical.
Deep sector expertise is valuable but not always essential. Domain experts can open doors faster, provide nuanced strategic guidance, and make relevant introductions more easily. However, smart generalist investors who are quick learners and well-connected can be equally valuable, especially if they bring fresh perspective unburdened by industry conventional wisdom. Evaluate whether their portfolio companies in adjacent spaces succeeded, whether they've built relevant networks even without direct domain experience, and whether they demonstrate intellectual curiosity about your market during diligence.
Focus 80% of your diligence on the specific partner who will take your board seat, as you'll work primarily with them. However, spend 20% understanding the broader fund dynamics, including the managing partners' reputation, the firm's financial health and ability to support follow-on rounds, and cultural issues that might affect your partner's longevity or behavior. A great partner at a dysfunctional firm can become problematic if internal politics distract them or if the fund struggles to raise its next fund.
Frame your diligence as standard practice and mutual evaluation: "We're excited about partnering with you, and as part of our process, we'd like to speak with a few of your portfolio founders to understand your working style and how we can set up our partnership for success." Most professional investors expect and respect founder due diligence. If an investor reacts negatively to reasonable reference check requests, that's actually a red flag. Transparency about your diligence process demonstrates your thoughtfulness and professionalism.
Trust your instincts if something feels off despite positive references. You might not be talking to the right references, or the concerns might be about fit rather than quality. Schedule additional conversations with the partner to pressure-test your specific concerns. Seek out more off-list references. Ask yourself if the concerns are about the investor or about accepting any investment. Sometimes founder anxiety masquerades as investor concerns. But if after thorough diligence you have genuine reservations, it's better to walk away than enter a forced partnership.
Create a structured scorecard evaluating each investor across key dimensions: valuation and terms, partner quality and availability, firm reputation and brand value, sector expertise and relevant network, platform resources and actual utility, follow-on capital and commitment, working style compatibility, values alignment, and reference quality. Weight each dimension based on your priorities. Score each investor objectively using your diligence findings. This systematic approach prevents you from being swayed purely by the highest valuation or biggest brand name when other factors might be more important for your success.
If you discover significant red flags during due diligence after accepting a term sheet but before closing, you're not legally obligated to close until documents are fully executed. Have a direct conversation with the investor about your concerns. If they're material issues like references revealing dishonesty or behavior that contradicts your values, you're justified in walking away, though it may burn that relationship. If they're minor concerns about working style, negotiate expectations explicitly before closing. Better to face short-term awkwardness than lock into a multi-year problematic partnership.
Investors' behavior during company failures is incredibly revealing. Ask founders of failed portfolio companies: "How did [Investor] support you as things got difficult?" "Were they constructive or did they distance themselves?" "Did they help with soft landings for the team?" "How did they handle tough board conversations about wind-down or sale?" Investors who stay engaged, helpful, and respectful during failures demonstrate true partnership values. Those who disappear or become adversarial when companies struggle will likely abandon you in difficult times.
Conduct full due diligence on any investor taking a board seat or investing a significant check. For smaller follow-on investors without board seats, abbreviated diligence focusing on their reputation and whether they'll be supportive or problematic in future rounds is sufficient. However, even small investors can create complications if they have protective provisions or might cause problems during future fundraising or exits, so at minimum verify they have a reputation for being founder-friendly and collaborative in syndicate situations.
For angels, focus on references from other founders they've backed, their responsiveness and helpfulness post-investment, whether they can participate in future rounds, and their value-add through specific networks or expertise. Angels don't have the same structured platforms or deployment data to analyze, but reputation, availability, and genuine value-add matter enormously. Ask: "Does this angel make meaningful introductions?" "Are they responsive when you need them?" "Do they provide thoughtful strategic guidance?" Individual angel behavior varies more widely than institutional VCs, making references even more critical.
Use a structured CRM or fundraising platform like Flowlie to track your due diligence systematically. Create investor profiles documenting quantitative data like check sizes, deals per partner, and follow-on rates. Log detailed notes from each reference call with specific examples and quotes. Score each investor across your evaluation criteria. Track follow-up questions and outstanding diligence items. Compare investors side-by-side across key dimensions. This organization prevents information overload, ensures you don't forget critical details, and enables objective decision-making based on comprehensive data rather than recency bias or emotional reactions to the most recent conversation.
The most common mistake is doing insufficient or no due diligence because of excitement over receiving a term sheet, especially from a prestigious firm. Founders either skip reference checks entirely, only talk to investor-provided references who obviously give positive feedback, or rush through the process to close quickly. They assume brand name equals quality partnership. They fail to ask tough questions about difficult scenarios. They don't verify platform claims with actual portfolio companies. Taking an investor's money without thorough diligence is like marrying someone after one date because they're attractive and successful.
Combine both systematically. Use data and reference checks to eliminate clearly problematic investors and identify high-quality candidates. Then use gut feeling to assess intangible compatibility factors like communication chemistry, shared values, and whether you genuinely like and trust the person. Data prevents you from being charmed by someone who's actually a poor partner. Gut feeling prevents you from choosing someone who looks perfect on paper but with whom you'll have a strained relationship. The best investor for you scores well on objective criteria and feels right interpersonally.
If you're struggling to find off-list references, ask your network more broadly: "Does anyone know founders backed by [Firm/Partner]?" Use LinkedIn and founder communities to identify portfolio founders. If references are being too polite or vague, ask more direct questions: "On a scale of 1-10, how would you rate working with [Partner]? What would make it a 10?" "What's one thing you wish [Partner] did differently?" If you genuinely cannot gather sufficient reference data despite significant effort, that itself is information suggesting either a very small portfolio (raising questions about experience) or an unusually secretive or problematic investor (red flag).
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