A lot of fundraising rounds fall apart during closing. Most of these collapses can be avoided by correctly handling investor communication after they verbally commit to invest. Here are the steps to make sure every yes becomes a check.
1. Email Handshake — First and foremost, you must get the YES in writing. Waste no time in emailing the investor to confirm the investment’s basic terms:
Great chatting today. As discussed, please reply “yes” to confirm you’ll be investing $50k in Hooli at a $5M cap?
Until an investor is willing to do this, you can’t assume it’s a real commitment. Any investor that actually wants to invest should reply immediately, so don’t hesitate to follow up every 1–2 business days if you don’t get a response.
2. Expedite Documents Review — With written confirmation in hand, promptly send over the investor documents for the round. Legal review can take anything from a few days to weeks. However, as I’ve explained before, using standard documentation can significantly reduce the time and expense needed to get agreement. This time, follow up every 3 days, however, if the process takes more than a week, get an in-person meeting to maintain the sense of urgency.
3. Signing and Wiring — Once legal review is complete, you should send over the final documents for e-signature right away, with your signatures already included. If the investor doesn’t sign immediately, you should follow up every day to find out why they’re delayed. With all documents signed, you can send the wire transfer information. Once again, you should follow up each day until you get confirmation the wire has been executed.
4. New Investor = New Leads — When the money has hit your bank account, and absolutely not before, you can ask the new investor for introductions. Go through their online networks and send them your list of potential introductions. This is one of the best channels for finding potential investors as there can be no better endorsement than “I just invested myself”.
It is often tempting to take these kind of introductions from investors who are still deciding, not yet closed or may have even said ‘no’. This is extremely dangerous, as investors move as a herd and one could negatively influence the opinion of another, killing your chance of getting a ‘yes’.
Don’t be afraid to push investors who have committed. A verbal commitment is a great distance from real cash and you’ll need to use the right tactics to ensure each agreement becomes money in the bank.
Here is a flowchart detailing the complete process:
This article is part of a series on Seed Fundraising.
1. When to Raise Money
2. How to Build a Deck
3. VCs vs. Seed Funds vs. Angels
4. How to Get a Meeting
5. How to Request an Introduction
6. How to Get Early Momentum
7. How to make a Good Pitch Great
8. The 5 Most Common Pitch Mistakes
9. Meeting Requirements
10. The Basics of Meetings
11. How to Handle an Angel Investor Meeting
12. Know these Numbers for your VC Meeting
13. 4 Investor Gotcha Questions
14. How to Follow-Up After an Investor Meeting
15. How to Close the Lead Investor
16. The 4 Stages of a VC Process
17. How to Raise a $2 Million Seed Round
18. Go from Investor YES to Cash in Hand
19. When Investors Say Yes but Mean No
20. When and When Not to Use an Investors Name
21. Stop Making These Common Fundraising Mistakes
22. How to Avoid Bad Terms that Kill Startups
23. What to do After Receiving a Term Sheet
24. Term Sheet Problems Part 1 — Money Talks
25. Term Sheet Problems Part 2 — Boardroom Blues
26. Term Sheet Problems Part 3 — Side Letters
27. 10 Traits of Successful Founders
Sterling Road invests in pre-seed B2B startups based in North America. Full process here: sterlingroad.com/process.
You can reach me here: firstname.lastname@example.org
Thanks to Kaego Rust for reading drafts of this.