My Term Sheet Is Signed. What Could Still Kill the Deal Before the Money Arrives?

You signed the term sheet. Your team is celebrating. Hiring plans are moving forward, and you are already thinking about how to deploy the new capital.

Then your lawyer reminds you of something important.

The money has not arrived yet.

Many founders assume signing a term sheet means the financing is essentially complete. In reality, a signed term sheet usually marks the beginning of the final legal and diligence process rather than the end of the fundraising journey.

Before investors are required to fund the round, a series of closing conditions must be satisfied. If one of those conditions is not met, the financing may be delayed—or fail entirely.

Understanding these requirements can help founders reduce closing risk and improve the likelihood that the investment reaches the finish line.

What Are Conditions to Closing?

Conditions to closing, sometimes called conditions precedent, are the legal requirements that must be satisfied before investors become obligated to complete the financing.

Until those conditions have been fulfilled, investors are generally not required to transfer funds.

A signed term sheet reflects an agreement to continue toward closing, but it does not guarantee that the investment will ultimately occur.

For founders, this means the period between signing and closing is one of the most important stages of the fundraising process.

The Standard Closing Conditions

Most priced venture financings include several standard closing requirements. These commonly include:

• Satisfactory completion of legal, financial, and technical due diligence.
• Filing an amended Certificate of Incorporation with the appropriate state.
• Qualification of the newly issued shares under applicable blue-sky securities laws.
• A legal opinion from company counsel confirming the transaction.

Although these conditions are routine, they still require careful preparation and coordination among founders, legal counsel, and investors.

Additional Conditions May Also Apply

Some investors require additional conditions before funding. Examples may include:

• Signed employment agreements for founders and key employees.
• Intellectual property assignment agreements confirming that the company owns its technology.
• A minimum fundraising threshold before the financing can close.

These requirements often vary from one financing to another.

Founders should review the complete list of closing conditions early so there is enough time to satisfy every requirement before the anticipated closing date.

Due Diligence Is Often the Biggest Closing Risk

Among all closing conditions, due diligence frequently presents the greatest uncertainty.

Most term sheets require the investor to complete satisfactory due diligence before becoming obligated to fund the investment.

During that review, investors typically examine areas such as:

• Corporate records and governance.
• Capitalization table accuracy.
• Intellectual property ownership.
• Material customer and vendor agreements.
• Existing litigation or regulatory issues.
• Financial information.

Significant problems discovered during diligence may cause investors to renegotiate terms or abandon the transaction altogether.

Why “Satisfactory to the Investor” Matters

Many founders overlook the wording of the diligence condition itself. Some term sheets state that diligence must be “satisfactory to the investor.”

That language gives the investor considerable discretion to determine whether the review has been completed successfully.

Whenever possible, founders should understand how broadly this standard is drafted and discuss whether more objective language is appropriate.

A seemingly minor drafting change can have meaningful consequences if unexpected issues arise during diligence.

Prepare Before Diligence Begins

The best time to address diligence issues is before investors discover them. Founders should review common problem areas such as:

• Board approval for every stock option grant.
• Complete and accurate capitalization records.
• Signed intellectual property assignments from founders, employees, and contractors.
• Customer and vendor agreements containing change-of-control provisions.
• Any existing disputes or litigation that should be disclosed.

Resolving these issues before formal diligence begins often creates a smoother closing process and reduces the likelihood of last-minute negotiations.

Common Founder Mistakes

• Treating a signed term sheet as guaranteed funding: Investors generally become obligated to invest only after every closing condition has been satisfied. Founders should avoid increasing spending or ending discussions with backup investors too early.
• Allowing investors to discover diligence problems first: Cap table errors, unsigned intellectual property assignments, and problematic contracts are much easier to resolve before formal diligence begins.
• Ignoring broad “satisfactory to the investor” language: A subjective diligence standard may give investors greater flexibility to delay or terminate the transaction if concerns arise.
• Waiting until closing to organize corporate records: Maintaining accurate governance documents, contracts, and company records throughout the fundraising process helps reduce delays and unexpected issues.

10-Minute Closing Readiness Self Check

• Have I identified every condition to closing in the term sheet?
• Is my capitalization table complete and fully reconciled?
• Have all founders, employees, and contractors signed IP assignment agreements?
• Have I reviewed key customer and vendor agreements for change-of-control provisions?
• Are there any undisclosed disputes or litigation issues?
• Does the diligence condition rely on a broad “satisfactory to the investor” standard?
• Am I maintaining relationships with backup investors until the financing closes?

If any box is unchecked, fix it before you sign, not after diligence begins.

Bottom Line

Signing a term sheet is an important milestone, but it does not guarantee that the financing will close. Investors generally become obligated to fund only after all closing conditions have been satisfied, and due diligence remains one of the most common reasons transactions fail. Founders who prepare their corporate records, intellectual property, contracts, and governance documents before diligence begins are far more likely to reach a successful closing.

Want to Raise Venture Capital Without Giving Up Control of Your Company?

Our next free session is July 21, 2026. We cover the 3 fundraising blind spots that cost founders leverage: diligence preparation, term sheet mechanics, and board control. You’ll leave with a clearer understanding of the legal and business issues that often create problems during fundraising and how founders can address them before they affect leverage.

Reserve your seat: https://howtoraisevcround.com/how-to-raise-priced-round-2