Some investors want to be the last one to commit and few want to be the first. It’s mostly a safety and survival technique. Think about it from their perspective. The first investors to write you a check run the risk that you only get half-way to your fundraising target, which means your business is suddenly an even riskier investment than what they originally predicted. Savvy investors that write checks early in the round will intuitively take this into account, which might explain why they are being extra cautious and demanding in their due diligence. These dynamics are behind my related analogy on fundraising (see article here titled “The Domino Effect of Fundraising“).
As it turns out, I’m a big proponent of letting the investors control the pace of the “dance”. But when you’ve got investors on the fence for excessive periods of time and need to close your round, you need to apply some genuine sales closing techniques. In fact, during your initial conversations with each prospective investor, ask what sort of things are important to them when making their investment decisions. Focus on those things during your conversation but also write this information down when you’re done so that later when you find yourself needing to nudge them to a decision you remember which aspects of your opportunity and business plan to accentuate and highlight recent progress or new information.
Dancing the Dance
The main thing you want to know during the “dance” is if the investor is just being polite by taking your repeated follow-on meetings or is this their preferred method of due diligence. So ask them, in effect, to find out. At the end of one of your meetings or via email (in person is better), and after you feel like you’ve truly provided all relevant information, ask them something like “Is there any additional information you need in order to make an investment decision?” If they answer “no”, then respond with one of the following questions:
- “Can we count on your commitment for this round?”
- “Are you leaning towards investing or not investing?”
Now any remaining issues or inhibitors will almost certainly be put on the table for you to address. Just realize that some investors have a hard time giving a firm “no” or telling you the real reason they don’t want to invest. Instead, they might say “I’m just not really investing at the moment” or “I need a little more time to consider this”. If you feel like you aren’t really getting a complete response to their lack of investment, try these follow-on questions:
- What would it take for this to be an exciting investment opportunity for you?
- Is there anything specific that concerns you about committing to this investment opportunity?
As you engage in the dance, realize that things will be different if you haven’t gotten any investments yet (or only very little). Like I already mentioned, practically no investor wants to be the first (or even second) check written. So landing a fully committed lead investor is a big piece of new news for other investors that previously expressed interest. And if the lead investor has actually transferred their funds, even better. Using the word “committed” or “verbal” or “term sheet” is helpful but not near as powerful as “money in the bank”.
Obsessed with Valuation
Many entrepreneurs are so focused on getting the valuation they desire that they forget that a good deal involves a combination of “price” and terms (see my related article titled “Tell Me Your Price and I’ll Tell You My Terms“). The investor might be reacting (silently or not) to your valuation (or valuation cap if you’re using a convertible note – see my related article titled “Justifying the Valuation Cap in Your Convertible Note“).
Maybe you’ve priced yourself too high and need to come down while possibly using some changes to other terms to counterbalance. Or maybe you’re simply priced too high.
For this particular issue, I highly recommend you also read my article titled “Negotiating Valuation with Investors“.
Keeping Them Warm
I also recommend periodically packaging up recent updates that any of the “interested” investors should know about. Clearly, if you’ve just landed a lead investor, that is worthy news to share. But securing investments isn’t the only thing I’m thinking about for your updates. Consider other meaningful updates that fit one or more of these criteria:
- Validation – something on your list of theories is now proven
- De-Risk – something previously considered a risk is now less of a risk or not a risk at all. Could overlap with validation
- Upside – something accomplished increases the potential outcome for the investors (ie – upside potential)
When meeting with the “interested” investors next time, you should recap the recent update, check their pulse (are their eyes still twinkling like before) and then ask the question: “With our recent progress, is this something you would consider investing in?” If they say “no”, you need to go back to the list of questions above to find out why.
You also want to create a sense of momentum, of course starting with the news about your lead investor and any others that have written checks or verbally committed. Once you’re more than half way to your goal and especially as you approach 60-65% you want to change your wording to include “we only have $____ left, can I save a slot for you?”
If you’re struggling to convince investors to write checks, check out these other related articles: