Once the fundraise is going you’ll need to progress investor prospects through the “funnel.” Some investors are transactional – they look at the deal and make a decision. Most investor are not transactional – they look at the deal and continue to study it for evidence of traction and momentum. That’s why it’s important to continue updates showing progress and reminders that you are still working on it.
The lead investment is the hardest to close so it will take extra effort. No one wants to go first and in your fundraise you are looking for the lead investor who will go. After that, you have the benefit of saying “We have $150K of our $1M round closed.” This is the first big hurdle to overcome.
Once you hit the 50% mark, you’ve achieved your second hurdle. After 50% has been raised, it gets much easier to raise the funding. The perceived risk that the round will not close goes way down.
At some point, it comes time to close the round. A few techniques include:
Near the end of your raise, you’ll have some investors who are still on the fence. Scarcity helps motivate people to move along. In closing the round, you can release a statement saying $850K of our $1M round is closed. We have $150K left.
In some situations you can offer an incentive investors to move forward. You can offer a better deal to those who close before a certain date. I heard one entrepreneur who offered two warrants if the investors closed in 60 days. One warrant if closed in 30 days, and no warrants thereafter. Investors who wanted to be in the deal would make an effort to get their diligence done and their investment in.
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies