Raising Your Institutional Round: Chapter 16
This is the final chapter of my upcoming book, “Move the Needle Anyway(s): Raising Your Institutional Round.” There are a total of 16 chapters. The book is currently with the publishers, however, I wanted to start sharing the content in a form of a series of blog posts so the startup ecosystem can benefit immediately. I hope you enjoy :)
Chapter 16: Close the Round
Signing a team sheet from a lead investor is a big deal, but your work isn’t done, unfortunately. More often than not, the lead investor will not take the entire funding round; they will leave room in the round for other parties such as other VCs, High Net Worth (HNW) individuals, founders, strategics from your industry, and even existing investors. To close the round, you have to run a process to secure commitments from these other parties. Here are some tips:
Build a List of Potential Follow Investors: Again, you want to simply list the names and entities who could invest in the remainder of your round. More often than not, another VC fund or investor whom you have already spoken with could be keen to be a follow-investor and could potentially round out your round—you would have run them through a similar process to that of your lead investor.
Build An Allocation Calculator: You can do this using a simple spreadsheet. You want to list what your round could look like in terms of: investing parties, $ amount committed, and % dilution. Initially, the allocations you place will be your lead investor and existing investors who are exercising their pro-rata (you need to confirm this)—this might mean that most (if not all) the round is filled (e.g., 50%+). It all depends. I suggest writing hypothetical allocations for the remainder of the round. Identify which parties you would want in the round and how much you want to allocate to them.
Reach Out the Potential Follow Investors: You can either use the direct outreach approach or second-degree RFI process we shared in Chapter 9. The messaging will differ slightly in that you will tell them you have secured a lead investor and that you are aiming to close the round by a specific date; you will still append the snippet and deck. If there is interest, they will ask about the lead terms and schedule a call with you. You need to focus on the parties who can move the quickest. Speed matters here and it is better to take a check from a value neutral entity than to keep your raise open for another four months to bring in someone who is a “value-add” investor. You can give them a shot at investing in a different round. Or, it will just be a miss for them.
Ask for the Amount You Want: For parties who you know are interested in the round, let them know how much you want them to invest versus waiting for them to give an answer. You want them to commit to yes, no, or “I can work with this.” More often than not, you will get clearer, faster responses if you are specific about your ask.
Set The Date for Wire: You want to time-bound this process as much as you want so you don’t drag your fundraising efforts on longer than needed. When you have virtually all parties committed, decide on a date for money to be wired into your bank.
Concluding Remarks
I thank you for taking the time to read this book, which is part of my series, Moving the Needle Anyway(s). I have been fortunate to work with (and learn from) some of the most brilliant entrepreneurial minds in the business. I will continue to document and share all the learnings gained from working within the startup ecosystem. My wish is for you to adopt the belief that VC fundraising (especially in the US), while mind-numbing, is also a unique gift to the innovation ecosystem and a privilege to all involved. The skills you will have learned throughout this process are transferable to many other critical company-building functions, such as sales, hiring, business development, and partnerships. When you confront unnecessary drag—mental, tactical, and/or material—I hope you use this book to reorient for greater speed and achievement.