Five Tips on How to Properly Close a Funding Round

October 17, 2015

8:00 pm

So you have all your ‘soft commitments.’ Most potential investors have signed their docs. A few – but not most – have wired…and the deadline to close is coming in a few days. What do you do? Here are a few tips for how to properly close a funding round, honed in the last week by my own efforts to close (thankfully successfully) a non-institutional growth round for one of my favorite portfolio companies, Imperative.

Understand the difference between soft and hard commitment

Most entrepreneurs – particularly first-time entrepreneurs – struggle with this. As an investor you often hear “so and so has committed,” followed by “they told me so on the phone yesterday and I’m sending them docs next week.” To an investor, this means nothing – a casual phone comment ‘would love to join you’ is about the same level of commitment as a positive Tinder swipe. You need to quickly – but politely – follow up and secure their signature to first a term sheet and then the actual round documents. Both steps are important: signing a term sheet is non-binding but does make an investor feel much more tied – personally and reputationally, since their signature is on the term sheet – to the oral commitment.

Have a very clear and proper execution package prepared

Many entrepreneurs often pursue elongated, ‘never ending’ rounds as they seek a lead, gathering soft oral commitments along the way. I think it’s much better to secure a quality, involved lead first and a signed term sheet, then involve that lead in conversations with new investors and circulate the term sheet for their signature. An investor is much less likely to ghost you or not follow through if they have articulated commitment to the lead and signed the term sheet. Then, you want to rapidly follow it up with an execution package, which includes both documents to sign and wire information.

Have wires quickly follow signature of documents

This is part and parcel with the execution package. Many entrepreneurs will often secure signed term sheet or documents and then wait a long time for wires. This is, unless you know the investor well and have worked with them in the past, inviting a potential issue. Having wires quickly follow documents – ideally within the same execution package over a period of a few days at most – helps mitigate this potential issue.

Be politely but consistently persistent

Investors have different priorities from entrepreneurs: unless they are leading, a particular prospective investment is probably a C-Level priority on their totem pole. So, every week or so if someone has fallen off, politely follow up and remind them of the upcoming due date for the end of the round. If they want to come in, they will eventually respond to your overtures, particularly as the deadline approaches.

Stay in close communication after the round close and share rich updates

Round closes are more like checkpoints than the finish line. Chances are you will be back at it soon enough. So maintaining consistent, positive communication and engagement with your investors is critical for the future.

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I am an entrepreneur, angel investor, and early-stage VC living and working in New York City.

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