At LSI Europe ’23, the panel “Beneath the Tip of the Fundraising Iceberg” pulled back the curtain on what really happens after a VC says “yes.” Moderated by CBO Adam Rosenwach of Deerfield Catalyst, the session featured seasoned perspectives from Todd Usen, Claire Masterson, and Kyle Faget. Their collective message? A verbal commitment is just the beginning—especially in today’s market, where venture capital due diligence can make or break a deal.

The Many Shades of “Yes”

For those who haven’t lived it, it’s tempting to assume that a verbal commitment from an investor means funding is inevitable. Not quite.

“Yes, today is different than two years ago,” said Usen. “You have to know what you’re getting into.” In today’s cautious medtech investment climate, a term sheet doesn’t necessarily guarantee a close—and even that coveted term sheet can be contingent on other factors, like syndication thresholds or ongoing diligence.

Masterson agreed: “The term sheet is incredibly important, but I don’t count it as a true yes until the money hits the bank.”

And while verbal yeses may feel like validation, they’re not always equal. “ICs [investment committees] will have different thresholds,” Masterson added. “You can end up in a chicken-and-egg scenario, needing to herd a full syndicate into alignment just to move forward.”

Venture Capital Due Diligence in Practice: The Crunch Point

Post-term sheet diligence is when the real work begins. For entrepreneurs, it’s about managing momentum while under a microscope. For medtech investors, it’s about confirming the deal’s risk profile—beyond the pitch deck.

“You can’t be surprised with the capital markets where they are,” said Usen. “Sometimes ‘yes’ can turn out to be a really dangerous process if you go on with the wrong partner.”

That’s where venture capital due diligence becomes a critical step, not just a formality. Legal, financial, operational, and even cultural dimensions of a startup come under review. Everything from customer contracts to board governance is in play.

Faget, speaking from the legal side, offered blunt advice: “You can reduce your legal fees by 50% by just managing the process and owning communication. Don’t give that job to someone else.”

She also emphasized the importance of disclosing potential issues before they’re discovered in diligence. “It’s really on the company to disclose,” she said. “If you’re hiding something, it’s going to come out—and that can kill a deal.”

Control, Terms, and the Trade-Offs

The negotiation doesn’t stop at valuation. The panelists emphasized that terms related to control, board seats, major investor rights, and information rights often create more friction than the price tag.

“Understand what you’re willing to give before you go out to the market,” said Faget. “Because once you’re desperate to get money in the bank, you may fold on things that reshape the company’s future.”

Masterson added that terms like reporting frequency can feel minor but quickly become operational burdens. “If your investors want detailed monthly reporting, and you’ve only got a two-person finance team, that changes your priorities.”

Usen cautioned that founders should take a hard look at who ends up in that board seat: “No one wants to hear ‘I sit on 10 boards.’ That doesn’t help your company. You need someone who’s engaged, who adds value.”

Alignment Is Everything

Several panelists noted that misalignment on endgame strategy can lead to friction down the line. For example, what happens if your investor wants to flip the company for a quick return, but your team wants to scale and operate long-term?

Faget shared a cautionary tale: “The CEO wanted to build something big. The investor just wanted to sell. Now they’re in a stalemate, even on who the next CEO should be.”

As Rosenwach put it, “The investor’s job is to do what’s best for their investment. That’s not always what’s best for your company.”

The Unspoken Risk: Legacy Terms

The structure of today’s deal becomes the foundation for every future round. That means poor term setting now, especially in Series A, can haunt a startup later.

“If there are strange rights that seem fine in Series A,” warned Masterson, “they can become real issues in Series B and C. New investors will dig into every clause.”

Usen echoed that: “Major investor rights become the biggest sticking point. Early investors want to protect their risk, but new ones want control. That’s a battle every time.”

Final Thoughts: Be Deliberate, Not Desperate

So what should founders focus on after that first “yes”? The panelists offered a unified message: don’t be penny-wise and pound-foolish.

“It’s tempting to shop a term sheet,” said Usen, “but remember, you’re choosing a partner, not just getting a check.”

Masterson wrapped it up best: “Legal fees are not the place to skimp. A few thousand now can save you months of retrading and stalled deals later.”

And for all the founders navigating venture capital due diligence for the first (or fifth) time, Faget had this final reminder: “You might not get the best economic deal—but you might get the best partner. That’s worth everything.”

Enjoyed these insights? Join us for our next emerging medical technology conference in Singapore from June 10th through 13th.