In the world of venture capital, deals are the result of systematic work by both investors and startups. Finding the right partner is not just about money; it's also about having a shared vision for the company's future development.

The strategies used by startups and funds to find deals often overlap, as networking is a key component. In the venture business, connections and trust are as important as financial indicators. This is why the most successful deals frequently start with an informal conversation that lays the groundwork for a partnership.

What does a startup deal look like in practice?

There are various deal formats, such as investments, shares, options, and SAFE

There is no single, universal deal format in venture capital. Each instrument has its characteristics, advantages, and risks. The choice depends on the company's stage of development, the investor's risk appetite, and the startup's strategic goals.

Investment in exchange for equity (equity financing)

This classic and straightforward format involves an investor putting money into a company in exchange for a certain percentage of its equity. An essential consideration is determining the value of the business. For example, if a startup is valued at $4 million and an investor provides an additional $1 million, they will receive a 20% stake in the company. While this format is convenient, it requires lengthy negotiations on valuation. Startups typically fear that their shareholding will become too diluted, while investors want guarantees that their contributions will not lose value.

Convertible notes

This is an intermediate solution between debt and equity. The investor provides a loan that can be converted into shares at a later stage under predetermined conditions. The main advantage is that the startup and investor can postpone discussions about the company's valuation until the business is more mature. Convertible notes usually have a cap (the maximum valuation at which conversion will occur) and a discount for the investor in the next funding round. This allows both parties to maintain a balance of interests.

SAFE (Simple Agreement for Future Equity)

This instrument was popularised by the startup accelerator Y Combinator. A SAFE has no interest rate or maturity date. Essentially, it is a contract that guarantees the investor the right to receive a share in a future investment round on favourable terms. Startups love SAFEs for their simplicity and speed, as they minimise legal costs. However, it is a riskier instrument for investors because they essentially have to wait for the next investment round to take place.

Other formats

In addition to traditional instruments, there are hybrid and non-standard agreements. One example is revenue-based financing, where the investor receives a percentage of the company's future income until the investment is returned with a premium. Large companies also invest in startups through corporate venture agreements for access to innovation.

In practice, deals can be a combination of instruments to balance risks and interests. It is important for a startup to not only raise capital but also understand the future implications of the chosen format. Investors, in turn, want a deal format that protects their rights.

At what stage are deals concluded?

The format and terms of the investment depend on the stage of the company's development.

The pre-seed stage

This is the first stage in a startup’s life. The idea is still taking shape, and the product may exist as a prototype or presentation. Often, the team consists of only a few co-founders who do not have a stable income. At this stage, deals are usually made with angel investors, friends, or the founders’ family members. The main financing formats are SAFE or convertible notes, as it is still difficult to determine the company's valuation. Investors are putting faith in the team and the idea rather than business performance.

Seed

This is where the minimum viable product (MVP) comes in, enabling the startup to trial the solution with real customers. The goal at this stage is to confirm consumer demand for the product. Deals are made with angel investors or small venture capital funds in the form of SAFE or equity financing, but for limited amounts. For a startup, this provides an opportunity to obtain the necessary resources to launch, while for an investor, it offers the chance to become involved in the project at an early stage and at a low valuation.

Series A

By this point, the company will already have a certain income, proven demand and a growth plan. Large venture capital funds become involved at this stage, and the deal is usually concluded in the form of equity financing, whereby the investor receives a share in exchange for investing millions of dollars. Additional conditions may appear in the investment agreement, such as a seat on the board of directors or the right to veto key decisions. Series A marks the point at which a business becomes a serious player in the market, and the speed of future growth depends on how the agreement is concluded.

Series B and C

At these stages, the company is actively scaling up, opening new markets, expanding its team and acquiring smaller competitors. Investments reach tens of millions of dollars. Agreements are mainly concluded with large funds or CVCs. Protecting the interests of investors becomes an important issue. For instance, conditions such as liquidation preferences and anti-dilution provisions are included to ensure that the investor's share does not depreciate during subsequent funding rounds.

Late stages (Series D and beyond)

This is the final stage before entering the public market. The company may be preparing for an IPO (Initial Public Offering) or a major strategic sale. Deals at this level are made with mega-funds, private investment companies or government funds. Investors may demand more flexible terms, such as priority rights to redeem shares, special exit conditions or a guaranteed return of capital in case of failure.

How do startups find investors?

Channels for finding investors

Finding an investor for a startup is often like building a long-term relationship. It's not just about money; it's also about choosing a partner who shares your vision, has industry experience, and can open up new opportunities.

The first step for founders is to determine who they are looking for and why. Perhaps you just need funding, or maybe you are searching for experience, advice, specialised knowledge, or niche contacts. Knowing the answer to this question will help you understand who to approach: angel investors, early-stage funds, or large venture capital players.

Next comes the preparation. A startup must be able to present itself clearly, with materials such as a one-pager, a pitch deck and financial forecasts. It is important not only to showcase the product, but also to demonstrate that it solves a genuine problem within a substantial market.

The search process itself resembles networking. Founders participate in industry conferences, startup pitches and meet-ups. Often, introductions through mutual contacts are decisive, as a recommendation from another entrepreneur or mentor can significantly increase the chances of being heard.

Another channel is online platforms. LinkedIn, Crunchbase and AngelList provide an opportunity to research funds and contact them directly. It is significant to adopt a personalised approach that demonstrates to investors that the founders understand their focus.

Startups rarely limit themselves to one method of raising capital, instead combining various channels.

• Business angels: These are private investors who invest their own funds in the early stages. They are valuable not only for their investment, but also for their experience and professional network. Business angels typically provide advice and are more flexible in negotiations.
• Venture capital funds: These are professional investors who manage third-party capital. They invest in startups at the seed, series A and later stages. The advantage of funds is their substantial resources, but the terms of cooperation are more stringent, involving control, reporting and a seat on the board of directors.
• Accelerators and incubators: These are programmes that help young teams to develop their product, receive mentoring, and gain access to investors. Participants in accelerator programmes can receive small amounts of funding in exchange for a stake in the company.
• Corporate investors: Large companies create their own venture divisions to invest in startups that align with their strategy. This provides not only capital, but also access to customers, partners, and technologies.
• Crowdfunding: On platforms such as Kickstarter or Seedrs, startups can raise funds from numerous small investors. This is also a way to test demand for the product.

The most suitable channel depends on the business's stage, funding needs and goals. The most effective approach is to combine channels: for example, start with angel investors and an accelerator programme, and then secure funding to scale up.

How to stand out from other startups?

The competition for investors' attention is high. Each venture partner receives hundreds of presentations every year. Therefore, a founder's key task is to demonstrate how their startup stands out in terms of quality.

Investors need to understand from the outset exactly which market pain point you are addressing. Abstract formulations do not work. If customers are already willing to pay, that is the strongest argument.

Often, it is the founders themselves who are the deciding factor. Investors will want to see that you have the necessary expertise, motivation, and ability to adapt quickly. Having a diverse team of technical specialists and business-oriented managers adds credibility.

Even small, concrete indicators such as users, sales, and partnerships demonstrate the seriousness of your intentions. Investors want to see proof that your idea works in the real world.

The presentation style is equally important. A bright presentation is good, but clarity and simplicity really stand out. If you can explain your business in 30 seconds, that's a real advantage.

Finally, personal contact is influential. Startups that are recommended by mutual acquaintances are more likely to get attention. Trust in the industry frequently outweighs numbers.

How do investors find startups?

The deal pipeline and how it works

In venture capital, the process of finding startups is organised according to the deal flow pipeline principle. This system helps investors structure the entire process, from initial contact to actual investment, of evaluating potential companies.

Hundreds, and sometimes thousands, of startups enter the pipeline each year. They come from various sources, such as conferences, recommendations, accelerators and direct approaches. Investors must quickly weed out those that do not fit their strategy, keeping only the most interesting ones.

The first stage is screening. Here, the main parameters are evaluated: industry, stage of development, team and potential market. Up to 70–80% of companies may be eliminated at this stage, as most simply do not align with the fund's focus.

The second stage involves getting to know the startups in more depth. If a company looks promising, an initial meeting is held with the founders. It is important at this stage not only to see the presentation, but also to assess the energy and competence of the team.

The third stage is due diligence. This involves a thorough check of the business finances, legal documents and customer base. The investor wants to ensure that the company is transparent and poses no hidden risks.

The fourth stage is the term sheet. This document outlines the key terms of the potential deal, including the investment amount, the investor's share, and the rights and obligations of the parties involved. If both parties agree, preparations for the final contract can begin.

Only a few deals per year make it to the end of the process. This is normal: funds deliberately invest in a very small number of companies, but give them maximum attention. The deal funnel helps to systematise the process and ensure that no truly ‘golden’ opportunities are missed.

Search tools

Investors actively use a variety of tools to identify promising startups. These can be categorised as public, professional or closed.

• Conferences and exhibitions are popular, staying the market classics. Events such as Web Summit, Slush and Collision bring together thousands of entrepreneurs and hundreds of investors. Startups get the chance to present themselves on stage or in demo zones here, and investors can see live products, meet teams and experience the founders' enthusiasm.

• Investment clubs: These are associations of private investors who analyse deals together and decide where to put money. They are particularly popular among business angels, as they enable them to share experiences and mitigate risks through collective decision-making.

• Investor syndicates: This is a more structured form of collaboration in which the experienced lead investor analyses the deal and invests their own funds, while the other syndicate members join them. This mechanism is popular on AngelList and gives less experienced investors access to high-quality deals.

• Accelerators and incubators. Investors often collaborate with these programmes to gain access to the latest startups. Getting into an accelerator programme is a quality filter in itself.

• Online databases and platforms: Crunchbase, PitchBook and Dealroom provide market and company analytics. These tools can be used to find startups even if they have not yet entered the public space.

Investors, therefore, use a combination of tools rather than just one. Conferences provide live networking opportunities, clubs and syndicates offer collective expertise and platforms provide in-depth analytics.

Together, these tools allow investors to gain a comprehensive understanding of the market and identify new opportunities.

Evaluation criteria

Finding a startup is only half the battle. It is also important to understand whether it is worth investing in. To help investors separate strong teams from weak ones, there is a set of evaluation criteria.

• In the world of venture capital, the saying goes: ‘We invest not in ideas, but in people.’ Founders' experience, adaptability, diverse skills and motivation are all key factors. Even the best product can fail without a strong team.

• Investors assess the size and dynamics of the market. Is it large enough for the company to scale up and become a global player? Are there local characteristics that limit it? If the market is small, even a brilliant idea will not generate the expected return.

• How unique is the solution, and how well is it protected from being copied? Does it solve an important problem? Investors value products with high barriers to entry for competitors, particularly those involving proprietary technologies or patents.

• A startup must demonstrate exactly how it will generate income. Even at an early stage, it is important to explain the logic of income and expenditure. Investors like to see initial sales, or at least confirmation that customers are willing to pay.

• Growth indicators include users, sales, partnerships, and customer acquisition rates. These indicators show that the market is already responding positively.

• Investors also analyse forecasts, such as how quickly the company can break even and how much funding will be required in future.

While each fund has its own focus, the general principle remains the same: opportunities are given to companies that demonstrate a strong team, a substantial market and a clear business model. This is the formula sought by venture capital.

How do negotiations and closing deals work?

In venture capital, an investor's interest in a startup does not necessarily mean that a deal is ready to be finalised. A long negotiation process takes place between the initial contact and the signing of the documents. Entrepreneurs should understand that negotiations are not a battle to be won, but rather a search for a balance of interests.

The process usually begins with a discussion of the key terms, such as how much capital the investor is investing and what share they will receive in return. However, this is only the beginning. During negotiations, issues such as control (voting rights and a seat on the board of directors), exit conditions, the possibility of additional rounds of financing and minor details like the priority of return on investment are addressed.

It is common practice to use a term sheet, which is a document setting out the basic terms. While it is not a final contract, it establishes the framework for subsequent legal work. Transparency is important at this stage: the startup must present its financial results, forecasts, and team honestly, and the investor must clearly explain what obligations they will assume.

The deal is finalised after due diligence. Lawyers will then prepare the final documents, including the investment agreement, amendments to the articles of association and shareholder agreements. Depending on the complexity of the business, closing can take from several weeks to several months.

For an entrepreneur, this stage is a test of endurance. On the one hand, you need to remain flexible so as not to scare off the investor. On the other hand, you should avoid agreeing to terms that would restrict the company's freedom to develop. Experienced founders always advise against rushing and recommend using the services of lawyers who have experience in venture deals.

Once the documents have been signed and the money transferred to the company's accounts, the real partnership begins. The investor becomes an ally who provides not only capital, but also contacts, experience, and opportunities for growth.

Tools and resources for finding deals

Platforms and databases

The most well-known examples are Crunchbase, PitchBook and CB Insights. These platforms allow investors to see who has already invested in a particular startup, which funding rounds have taken place and how the team or revenue has grown. For startups, this provides an opportunity to study potential investors and understand their profile and strategy before making an offer.

In addition to large international databases, there are local platforms. For example, for the Ukrainian market, these can be registers of accelerator participants or open databases of fund portfolio companies. Such resources help to reduce 'noise' and focus on relevant contacts.

Databases are also valuable because they enable you to work with large amounts of information systematically. Investors can create their own watch list of companies, and startups can compile a list of funds that specialise in their industry. This significantly increases the likelihood of finding the right partner.

Thus, platforms and databases are the first step in forming a deal pipeline, where the quality of analytics can determine how quickly decisions are made.

Networking, events and accelerators

Despite the development of digital tools, personal contacts remain one of the most effective ways to find business opportunities. In the venture world, networking works like 'quick trust': if a well-known entrepreneur or investor recommends a startup, this carries significant weight.

Industry conferences and forums also play an important role. Events such as Web Summit and Slush are becoming places where investors and entrepreneurs can meet face-to-face. Even a brief chat on the sidelines can lead to serious negotiations.

Accelerators and incubators operate as a separate channel. Participation in such programmes offers startups the opportunity to receive mentoring or small amounts of funding, as well as access to a network of investors who trust the accelerator's graduates. For funds, this is an effective filtering system: a startup that has undergone months of selection and training has already demonstrated its ability to work.

Networking also includes less formal meetings, such as private investor dinners, business angel clubs and startup parties. Here, it is important not only to present the project, but also to make a personal impression.