What a deal committee is
A deal committee is the group inside an angel network or VC fund responsible for approving an investment before capital is committed. It is the point where a deal moves from someone thinking it looks promising to an actual decision to invest.
Committees vary in how formal they are. Some meet on a schedule and vote. Others are a smaller, less structured group of senior people who need to sign off before a deal proceeds. Either way, the committee is the decision-making step, not the checking step, and it is usually the last thing standing between a completed round of due diligence and a term sheet. A deal that reaches committee has usually already cleared an earlier round of screening, so committee time tends to go to deals someone has already judged worth a proper look.
How a deal committee differs from due diligence
- Due diligence is the process of verifying a company's claims. A deal committee is the decision made once that verification is done.
- Due diligence can be run by one person or a small team. A deal committee is specifically the group with authority to approve or reject the investment.
- A deal can fail at either stage, due diligence can turn up something that kills interest before it ever reaches a committee, or a committee can pass on a deal that cleared diligence cleanly.
- A committee's decision is usually final for that investor, whereas due diligence findings can sometimes be worked through with the founder before a decision is made.
Where a deal committee shows up
- Angel networks. A committee often screens applications before the wider membership sees them, then a separate or the same group signs off before the network formally backs a deal.
- VC funds. Investment decisions typically go through a formal committee of partners, often the final step before a term sheet is issued.
- Angel syndicates. Rarely a formal committee. Decisions usually rest with the lead, sometimes alongside a few close co-investors, rather than a structured vote.
