Two-Stage Investment Committee Process
Filter every investment through pursuit approval and final diligence approval
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 97%
Every opportunity first passes through the responsible sourcing and investment team, which decides whether it deserves firm-wide consideration. The team then presents the deal to a weekly investment committee that debates the opportunity, requests evidence, rejects it, or authorizes pursuit within parameters such as a maximum valuation. If the team secures a term sheet, it returns with a more detailed diligence package covering the business and associated risks. The committee reviews the expanded evidence and any follow-up answers before granting final funding approval. Separating permission to pursue from permission to fund preserves speed during negotiation while ensuring that preliminary enthusiasm is tested against deeper information before capital is committed.
Origin
Extracted from Masters in Business, where Deven Parekh described Insight Partners' recurring approval process for investments of every size.
Core principles
- 01Apply the same governance process regardless of deal size.
- 02Separate initial pursuit decisions from final funding approval.
- 03Use shared sector metrics so committee members can challenge each deal.
- 04Require deal teams to resolve follow-up questions before capital is committed.
How to run it
- 1
Run the team-level screen
Have the specialist team examine sourced opportunities and prioritize only those strong enough for committee attention.
Pro tip Use reviewers who understand the company's market while applying metrics shared across the wider portfolio.
Watch out Do not consume committee time with opportunities the originating team has not challenged itself.
- 2
Present the pursuit case
Present the opportunity, economics, growth case, risks, and unresolved questions to the investment committee.
Pro tip State which assumptions drive the return rather than burying them in the presentation.
Watch out Initial approval is permission to continue, not permission to fund.
- 3
Define pursuit conditions
Decide whether to reject, pursue, or pursue only within conditions such as a valuation ceiling. Assign follow-up questions to the deal team.
Pro tip Document conditions explicitly so competitive deal pressure cannot quietly move the goalposts.
Watch out Ambiguous conditions weaken accountability during negotiation.
- 4
Complete detailed diligence
After a term sheet, assemble the fuller diligence package and resolve the committee's outstanding questions.
Pro tip Organize evidence around the assumptions that could most change the investment outcome.
Watch out Do not treat signing a term sheet as evidence that final approval is inevitable.
- 5
Seek final funding approval
Return to the committee for a second review and fund only after the detailed case passes.
Pro tip Highlight what changed between the preliminary case and the completed diligence case.
Watch out Material new information must be debated rather than presented as a footnote.
In the wild
A software team identifies a fast-growing company and wins committee permission to pursue it only below a specified valuation. After signing a term sheet, customer references reveal concentration risk. The team models that risk, obtains further evidence, and returns with the complete diligence package before funding.
→ The firm either rejects the investment with limited sunk cost or funds it with the principal risk explicitly understood.
Common mistakes
Treating preliminary approval as final
Deal momentum can turn permission to investigate into an assumed commitment. Preserve a genuine second decision after diligence.
Applying different rigor by deal size
Small deals can still consume attention and create losses. Use the same decision architecture while scaling the depth of analysis appropriately.
Skipping the originating-team filter
Sending every sourced deal directly to the full committee wastes collective attention and weakens specialist ownership.
Is it for you?
Best for
It is best for investment organizations that evaluate many opportunities through multiple specialist teams.
Not ideal for
It is not ideal for tiny angel investments where formal two-stage governance would cost more than it protects.
From the transcript
“every deal, no matter how small or how big, goes through the same investment committee process.”
“We debate it, we ask questions, we ask for follow up information, and out of that either comes this is something we want to pursue,…”
“has to get through that second approval process, and then if it gets through that approval process, then we would then fund.”
From the episode
Deven Parekh on the State of Startup Investing
Deven Parekh