The investor you pitched to isn't the one on your term sheet

The term sheet arrives after weeks of conversation. By now you know the partner well. You have met the platform team, heard how the firm supports its founders, and called two of its portfolio CEOs. Then, in the opening lines of the written offer, a name appears that nobody has mentioned. The investor is not the firm at all. It is something called Fund III LP.

Most founders read straight past it. They should not.

Investors talk about their firm because the firm is what lasts: the brand, the people, the network, the way it backs founders. That is not unreasonable. But the money in your round comes from one specific fund, and that fund has its own size, its own clock, its own cash held in reserve, and its own investors to answer to. Those facts are rarely discussed before the term sheet, and they shape how your investor behaves for years after it.

The firm is the investor you meet. The fund is the investor you get.

In June we described the investor-director's second loyalty, to the money behind them. In July we asked whether a firm could raise again at all. This week we go one step earlier, to the moment when you can still choose. Before you sign, read the fund, and the people it answers to.


The firm you meet, the fund you sign with

The distinction is structural, not semantic. As Carta's guide to fund structures puts it, VC firms are different from VC funds. The firm is the business behind the brand name, and a successful one often runs Fund I, Fund II and Fund III at the same time. Each fund is a separate legal entity that pools money and owns its own investments.

That money comes from limited partners: pension funds, endowments, funds of funds and public investors. Founders almost never meet them, and by design. Limited partners cannot take part in the active management of the fund, while the partner across the table acts, in Carta's words, as a fiduciary of outside capital.

None of this is a conflict to resent. It is the system working as intended. Back in February we argued that founders should pick the partner, not the firm, and that still holds. But the partner signs on behalf of a fund, and the fund answers to people you will never meet.


Every fund runs on a clock

Those limited partners set the first rule a founder should understand: time. Law firm Proskauer reviewed 38 European venture funds raised in 2022 and 2023. Of these, 89% had a ten-year initial term, most allowed only two years of extension, and in 60% an extension needed a limited partner committee's approval. Five years was the most common investment period: the window in which a fund chooses its portfolio by making new investments. After it, new investments largely stop, and the fund backs only companies it already holds, from capital it has kept back for follow-ons.

Now lay that over a DeepTech timeline. As an illustration, take a fund that backs your Seed round in its fourth year. Six years later it reaches the end of its term, when a company building novel hardware may only be raising its Series B or C. Your journey is barely halfway. The fund's is almost over, and it must now do something with your shares.

Gunderson Dettmer's Brian Huber sets out the options for a venture fund whose time is up: an extension, selling or distributing its remaining holdings, or a continuation vehicle. Some reach you only as a new name on your cap table. One reaches you with far greater impact: a sale of the whole company, which a fund running out of time may push for, ready or not.

So, the vintage on the term sheet is no technicality. Even Carta's own data team says founders should feel empowered to ask where an investor is in its fund's lifecycle. Most never do.


The exit that matters to the fund

The limited partners also set the yardstick. A fund is judged on the multiple it returns on their capital, which means the same exit can mean very different things to different funds.

Venture firm ACME Capital sets out the arithmetic plainly. Own 8% of a company that sells for $1 billion and the $80 million of proceeds returns 1.6 times a $50 million fund. That single exit pays back every one of the fund's investors with profit to spare and can make its manager's track record. The same $80 million returns just 0.08 times a $1 billion fund, an outcome that, in ACME's words, "barely moves the larger vehicle". One partner celebrates the sale. The other barely notices it. The company and the exit are identical. What differs is what the outcome means to the limited partners each fund answers to.

For DeepTech founders this cuts both ways. The investors who best understand your technology are the specialists, and the 2026 European Deep Tech Report found that 87% of dedicated European DeepTech investors run funds below $300 million. That makes them natural early backers, because an exit well short of the billion-dollar headlines can still move their returns.

But the same fund size limits how far they can carry you. The average European DeepTech Series B last year was $40 million, which needs a lead cheque of around $20 million. The report assumes a fund spreads its capital across about fifteen companies, so leading rounds of that size takes a fund of at least $300 million. Most specialists cannot lead at Series B and beyond, the gap we explored in Europe's Series B problem.


When the reserves run out

Follow-on money is the part of the fund founders most often take on trust. When an investor says they will support you in later rounds, it means they will draw on capital that the fund has set aside for its existing companies.

Those reserves are finite, and they are allocated across the whole portfolio. Peter Walker, who runs Carta's insights team, notes that many seed funds set aside 40-50% of their capital for follow-ons, then questions whether it pays. Of 547 companies on Carta that raised a Series B in 2018, two-thirds are still valued at less than twice that round's price. For most of them, money added at Series B has at best doubled, a modest return for a fund that needs its winners to multiply many times over.

That is the question every fund manager is asking about every company, including yours. A follow-on is not a promise made by the firm when you first met. It is a decision taken later by the fund, measured against the rest of its portfolio and against what its limited partners expect from the money that remains.


The sibling fund that will rarely step in

And so to the scenario few founders anticipate. The original fund's reserves are spent, or its investment period has ended, and the firm has since raised a larger Fund IV. Surely the new fund can simply step in?

It is rarely that simple. When a firm's newer fund invests in a company held by an older one, the firm is in effect setting the terms on both sides of the deal, a conflict the limited partners in each fund watch closely. The Institutional Limited Partners Association's principles, the standard reference for how investors in venture funds expect conflicts to be governed, say firms should limit overlapping investments between funds, cap them in the fund agreement, and disclose the remaining capital of each fund involved. Transfers of assets between funds should need the limited partners' committee's approval. The referees are limited partners you have never met.

None of this forbids a sibling fund from backing you, but in our experience, founders should assume the route is closed. Few early-stage firms will put a newer fund's money into an older fund's company, and those that do usually use a vehicle built for it. Boston's Atlas Venture, for example, raised an opportunity fund last year reserved for existing portfolio companies, to increase its ownership where it expects the largest returns. Funds like that back a firm's strongest companies, not those that have simply exhausted their first fund's reserves. If your next round depends on a sibling fund stepping in, plan as if it will not.


One offer, read many ways

All of this converges when an acquirer calls. For European DeepTech, that call is the likeliest exit. The 2026 European Deep Tech Report found that more than 80% of DeepTech exits are acquisitions, with US buyers accounting for 73% of acquisition value but only 40% of deals. IonQ's purchase of Oxford Ionics for around $1.1 billion is the kind of outcome it describes.

Now consider what an offer means to the funds on your cap table. It is not only a price. It is cash, which UK venture funds have been short of: those raised between 2018 and 2023 had returned just eight pence per pound paid in, according to figures the British Business Bank published last December, and returned cash decides which firms raise again. So every fund weighs an offer twice: once for your company, and once for its own next raise.

Then the offer lands, and the cap table splits. The small, ageing fund wants to sign: this is the exit that makes its record. The large, young fund wants to wait: to it, this is a rounding error. The board will vote, but in our experience it will not decide. The consent rights in your articles will, and they usually sit with whoever owns most. Earlier backers are outvoted, or dig in to block. And you sit in the middle, brokering between funds that each answer to limited partners you have never met.


Read the fund before you sign

The firm will tell you how it supports founders, and that half of the story matters. The other half is written in the fund named on the term sheet.

So, ask four questions before you sign. How large is the fund, and what size of exit genuinely moves its returns? How far into its ten-year clock is it, and where will that clock stand when your company is still mid-journey? How much does it hold in reserve, and how will companies like yours compete for it? And if those reserves run out, what would the fund's limited partners allow its sibling fund to do?

None of these questions is hostile. Every good investor has answered them for their own limited partners. A founder deserves the same answers, before the signature rather than after it.

Let's talk.