Securing investment for your startup is by no means an easy task. Indeed, even when you have had a verbal commitment, it is still incredibly difficult to actually secure that commitment and receive the investment.
Both founders and investors are at fault here; founders because they’re often too eager to hear the positives in what investors are saying and the investors because they just don’t want to miss out on the investment round but then fail to follow through.
How can you prevent this?
The answer is to ensure there are open, clear and regular channels of communication.
1. Expand on the initial verbal commitment
Each time you meet with an investor, you need to get them to verbalise their interest, beyond the initial nod. You should enquire how much investment they are willing to put in; if they aren’t prepared to state a number their interest is unlikely to be committed.
If an investor communicates to you that they’re not ready to state a number, this is your cue to ask what else you can do to make up their mind, what do they need to see etc. This will help you answer any additional questions or allay any fears they have about investing in your business.
It is also important to understand whether an investor might have conditions to providing investment, which is incredibly important for you to know. When ending the conversation, always remember to repeat back, verbally, to the investors what they have said, i.e. “So, to confirm, you are in for an amount of £100K, under the pro viso that we…”
It is very important they agree to what you have said. You should then state you will follow up your conversation via email and that they should confirm their investment status by replying to your email.
2. Ask investors to confirm their investment interest in writing
Once you have written everything up, you should email this summary to the investor. Make sure you request that they respond to your email, stating that they confirm their investment commitment.
Make sure you are clear, concise and specific in your email and that it is clear their commitment relates to your company and the specific investment round.
If you get a positive response, then you can take it as they are committed. If they come back to you asking for any changes to the agreement, reflect before making them, and then if you do make changes, be sure to send the agreement back and ask for their agreement as you did before. If you don’t receive a response, it’s a clear sign they aren’t in.
Additionally, it is important that if you are raising investment “on the note”, and doing a rolling close, you should attach a convertible debt note to your email, as well as details of where investors should send the money. If you are not doing a rolling close, you should just pop new investors onto your committed investor list and ensure you send them regular updates.
3. Ensure you follow up with interested investors regularly
Communication is key to keeping people interested in investing in your company. You should aim to follow up with your investors at least every two weeks. Investment rounds need to have momentum, so keeping investors up to date will ensure they keep up with the momentum and feel positive about investing in you and your company.
Even if your investment round is not going as well as you’d like, it is vital you keep investors in the loop. Being transparent will build up their trust in you and may make them even more committed to investing.
4. Utilise your committed investors to get more interest
If you have committed investors, then they are prime targets for sending out your message to other potential investors. Make sure you tap into this by reaching out to them a few days after securing their commitment to your round and asking if they have other investors they could introduce you to.
Introductions such as these are incredibly important and very powerful, since they add credibility to your round. Make sure you receive permission from your committed investors to allow you to tell other potentials who has already invested. After all, the more momentum you can build up for your round, the better.