Welcome Back to The Cap Table Newsletter!
This week, I want to dive into something I wish more founders understood: how VCs actually decide to invest.
Because the truth is - fundraising isn’t just about pitching. VCs run on a playbook. And if you don’t know the rules, you’re playing blind.
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The Myth vs. The Reality
The myth: send a bunch of cold emails, perfect your deck, and the money will follow.
The reality: VCs filter thousands of startups, and most founders get rejected in the first 15 minutes.
So let’s walk through how the game is actually played.
Step 1: Getting Into the Funnel
How do VCs even find you?
Most founders think the bottleneck is their deck. It’s not. It’s getting in front of the right people.
Warm intros still dominate. The majority of deals come through trusted referrals - portfolio founders, angels, other VCs. The system is biased toward who you know.
Outbound sourcing matters. If you’re in a hot sector (AI infra, defense tech), investors will come find you. Also, if you are raising a later-stage round and have good investors on the cap table, as much as I don't want to say it, other VCs are paying closer attention.
Accelerators and trusted networks carry weight. YC, Techstars, or a respected founder vouching for you signals to investors: someone credible has already done the first filter.
Cold outreach? It works only if you’ve built undeniable traction or can answer the question of why you clearly and concisely. Numbers are the only other thing that can skip the line.
Step 2: The 15-Minute Filter
The first meeting is not a meeting... it’s a test.
Most founders get cut in the first 15 minutes. Investors are asking:
Is this a billion-dollar market?
Is there any proof that customers want it?
Is the team credible enough to pull it off?
If you say you have “no competition” or can’t answer CAC/LTV, it’s over.
The harsh truth: the filter is unfair. Great companies often don’t look great early. You are going to be told no way more than you are going to be told yes. But all it takes is 1 yes...
Step 3: The Partner Politics
Founders obsess over the pitch, but the real decision isn’t made in front of you. It’s made in a partner meeting.
Here’s how it actually works:
One partner has to champion your deal.
Everyone else debates the risks.
If no one wants to burn political capital on you, you’re done.
So when a VC says, “we’re still discussing internally,” it’s usually code for: no champion or they really need to continue to do diligence to decide if it is worth it.
Step 4: The Term Sheet Trap
Valuation is the headline everyone celebrates. Terms are the fine print that founders regret later.
The things that actually matter, especially in the later stages:
Liquidation preferences: who gets paid first, and how many times.
Board control: who decides when things go sideways.
Dilution: how your 30% ownership turns into 8% after three more rounds.
The pattern I’ve seen: founders chase the highest valuation, brag on Twitter, and then get crushed in the down round. The investors survive. The founders don’t.
Step 5: Due Diligence
A term sheet isn’t money. Diligence is where most deals actually die.
Investors will comb through:
Your financials and contracts
Customer references (and yes, they’ll call them directly)
Your cap table and IP
Your background and reputation
Diligence is less about being perfect and more about being consistent. If you overstate numbers or dodge questions, you don’t just lose the deal... you damage your reputation across the ecosystem.
Step 6: After the Wire Hits
The moment money lands is the moment pressure begins.
Investors will expect:
Structured updates, not rambling essays
Hard metrics on growth, not just vision
Milestones that justify the next round
This is why so many founders crash post-raise — they confuse fundraising with building. The money is oxygen. It buys you time, not success.
Step 7: Using Investors for More Than Capital
Smart founders treat investors as leverage, not just checks.
Push them for intros. Use updates to create momentum. Drive board conversations instead of reacting to them.
If you treat your investors like ATMs, you’ve wasted the most expensive money you’ll ever take.
Final Take
Fundraising isn’t luck, and it isn’t just storytelling. It’s a structured process designed to filter out 99% of founders.
If you know the playbook, you can navigate it. If you don’t, you’ll waste months chasing meetings that never mattered.
And remember: raising money doesn’t mean you’ve won. It means the game just started - and now you’re playing with a clock.
That’s all for this week. Next time I am thinking of sharing a breakdown of what to actually do once you secure allocation - how to evaluate whether the deal is worth your dollars, and how to avoid overpaying for hype.
Until next week, Elana ✌️
Resources
If you enjoyed this week’s newsletter - feel free to check out some of our past articles:
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