🚀 So, an Investor is Interested – What’s Next? A Step-by-Step Guide to the Post-Interest Investment Journey

B.Gopalakrishnan Startup Coach & Independent Director

You’ve nailed the pitch. The investor is nodding. You’ve heard the magic words: “We’re interested. What happens now?

Contrary to what many first-time founders think, a term sheet doesn’t follow immediately. The road between interest and investment is paved with details, diligence, and negotiation. Here’s a breakdown of what comes next—step by step—once the investor wants to proceed, along with some benchmark practices used by seasoned founders and VCs alike.

🔍 Step 1: First-Level Due Diligence – The Foundation of Trust

Objective: Verify the basics and identify red flags (if any). Benchmark Practice: Think of this like pre-boarding checks before takeoff. Thorough and non-negotiable.

📂 Key Focus Areas:

• Legal documents: Incorporation certificates, MoA/AoA, board resolutions, shareholder agreements.
• Financials: Audited statements (if available), profit and loss, cash flow, cap table.
• Statutory filings: Income tax, GST, PF/ESI, labor compliance, ROC filings.
• IP & licenses: Any trademarks, patents, or licenses that validate core assets.
• Contracts: Agreements with customers, vendors, employees, freelancers, etc.

💡 Pro Tip: Use a secure Data Room (like Google Drive, Dropbox, or specialized tools like DocSend, CapLinked, or FirmRoom) with folders clearly labeled. A well-organized data room sends a strong signal to investors about how you run your business.

🗣️ Step 2: Second-Level Diligence – Validation through Conversations

Objective: Cross-verify assumptions and assess startup credibility and execution quality.

👥 Key Conversations:

• Existing investors – to understand: How has the startup used previous funds? What’s the quality of communication and reporting? Would they re-invest?
• Key customers and users – to assess: Satisfaction levels Retention/Churn insights Value derived from the product/service
• Core team members – to validate: Team culture, stability, and competence Founder-employee dynamics Role clarity and scalability
• Suppliers or channel partners – if applicable.

💡 Benchmark Practice: Investors often use independent agencies or consultants for these conversations to get unbiased feedback. If you’re a founder, prepare your references ahead of time—don’t let investors catch your stakeholders off guard.

🧩 Step 3: Third-Level Diligence – Architecting Investor Rights (Without Crippling Founders)

Objective: Protect investor interest while preserving the founder's ability to operate effectively.

This is where the legal structuring and governance rights come into play. A good investor-founder agreement creates alignment, not friction.

⚖️ Key Areas of Focus:

1. Board Representation Will the investor get a board seat or observer rights? Balanced boards prevent micromanagement.
2. Information Rights Monthly/quarterly updates, MIS reports, financials. Transparency without overburdening the startup.
3. Affirmative Rights Veto rights over major decisions like: Future fundraising M&A or sale of business Hiring/firing CXOs Issuing ESOPs
4. Liquidation Preferences Determines investor priority during an exit. Benchmark: 1x non-participating is most common for early-stage deals.
5. Anti-dilution Protection In case of down-rounds, protects early investors. Benchmark: “Weighted average” is founder-friendly compared to “full ratchet.”
6. Exit Rights Right to drag-along, tag-along, or force IPO within X years. These should be balanced with realistic exit timelines.
7. Founder Vesting & Lock-In Vesting encourages long-term commitment. Benchmark: 4-year vesting with 1-year cliff.

💡 Pro Tip: Work with a startup lawyer. Don’t copy-paste term sheets. Use tools like SaaS-capable templates from YC, or work with accelerators/incubators who provide legal support.

📌 Final Checks Before Signing

Once rights and diligence are clear:

• ✅ Investor prepares Term Sheet
• ✅ You agree and sign (non-binding but signals commitment)
• ✅ Final Shareholder Agreement (SHA) and Share Subscription Agreement (SSA) are prepared
• ✅ Capital is wired, and shares are issued

🧭 Way Forward – Maintain Investor Confidence

Once the deal is done, the journey begins:

• Set up clear reporting rhythms.
• Treat your investor like a partner, not a taskmaster.
• Seek help when needed—don’t wait till things go south.

As investor Mark Suster says: “Invest in lines, not dots.” That’s true for founders too—show consistent growth, communicate honestly, and build a great business.

📝 Bonus Template: Data Room Folder Structure

/01_Company_Incorporation

/02_Financials ,Financial Planning ,Customized financial data

/03_Tax_Compliance

/04_Cap_Table

/05_Customer_Contracts

/06_Team_Contracts

/07_Product_IP

/08_Founder_Decks

/09_ESOP_Plan

/10_Other

One of my mentee is going through this phase .If you're preparing for this phase as a founder, investor, or advisor—this roadmap gives you the clarity and control you need to navigate the post-interest process smoothly and smartly.