The Tried-and-True Process for Getting Investors to Give You a Straight Answer

You want to hear "yes,'' and you will survive hearing "no,'' but you can't work with a "maybe'' that never ends.

learn more about Alex Iskold

By Alex Iskold

Shutterstock.com

Opinions expressed by Entrepreneur contributors are their own.

One the the trickiest parts of any fundraising process is getting the actual commitment from investors.

Often, we hear founders say that the investor is in, only to find out later that they are not, really, in. The complexity is based on two dynamics. First, founders have happy ears and, second, investors have FOMO and want the option of being in the round.

This dynamic isn't great for the founders because, as investors fall out of the round, the round may fall apart. The root of the problem is lack of clear written, reflective communication. Here is the protocol that can help founders avoid this problem.

1. Verbal commit.

At the end of every investor meeting, ask the investor if they are interested. If they are, ask how much do they want to put in. If the investor says the amount, this means the interest is potentially real.

If the investor is not there yet, they would tell you. In this case, ask what else do they need to make a decision and what the next steps are.

If the investor is in for, say, $50K, ask if there are any conditions or they are in. Some typical replies on condition will be "I am in pending terms,'' or "I am in if you do a priced round, and get an institutional lead (which I would interpret as they aren't in).''

Whatever the response in this situation, reflect back verbally what you've heard.

Literally say "You are in for $50K pending terms'' or "You are in for $50K provided we do an institutional round.'' Have the investor confirm verbally. Then say that you will send them an email to confirm all of this in writing. It is critical that you tell them they are not in until they confirm via email.

Related: The 5 Best Pitch Tactics I Heard as an Angel Investor

Get them to confirm in writing.

In the evening of the same day, email a summary of all the points and details to the investor with a request they reply with the YES to confirm. Make the subject line of the email: Your COMPANY NAME round. In the body, be terse and specific without including anything extra.

If the investor replies, you are all set, and can count the investor as committed. If the investor replies, and says you didn't get it right, and makes changes, reflect back with a clean version that includes the changes.

If the investor doesn't reply, then this means they are not really in.

If you are raising on the note, and doing a rolling close, then in your written commit email attach the convertible debt note, and the wire instructions. This way, the investor can review the note, ask questions and then send you the money.

If you aren't doing the rolling close, then you need to add investor to your committed investors list, and keep them updated regularly.

Follow up.

Promptly follow up every two weeks to keep committed investors up to date. Good rounds have momentum, and you want the investors to feel good about investing. The update email should include progress on the company and on the round.

Keep in mind that if the round is not coming together, this maybe a turn off for the investor, and they may pull out. However, it is still better to keep them posted and be transparent.

Investors are much more likely to stick with you if you communicate with them regularly.

Related: How to Find and Land Angel Investors

Leverage committed investors.

In addition to keeping committed investors posted on the round, you should tap them to get more investors. After a couple of days of them committing to your round, reach out and ask if there are a few other investors they could introduce you to. The intros that come from committed investors are always very powerful. Ask for permission to tell other potential investors that this particular investor has committed to the round. Again, committed help investors create leverage.

The more investors commit to the round, the faster your round should be going because you get a network effect and build up the momentum.

At Techstars NYC we consistently see an issue when founders aren't following this protocol. Their rounds don't come together as quickly. As a founder you are always better off being clear and know exactly where investor stands than live in the land of a maybe.

Related: How To Show Investors Your Startup Is Worth Sinking Money Into

Alex Iskold

Entrepreneur, Investor, Managing Director of Techstars in NYC

Alex Iskold is the managing director of Techstars in New York City. Previously Iskold was founder/CEO of GetGlue (acquired by i.tv), founder/CEO of Information Laboratory (acquired by IBM) and chief architect at DataSynapse (acquired by TIBCO). An engineer by training, Iskold has deep passion and appreciation for startups, digital products and elegant code. He likes running, yoga, complex systems, Murakami books and red wine -- not necessarily in that order and not necessarily all together. He actively blogs about startups and venture capital at http://alexiskold.net.

Related Topics

Editor's Pick

Everyone Wants to Get Close to Their Favorite Artist. Here's the Technology Making It a Reality — But Better.
The Highest-Paid, Highest-Profile People in Every Field Know This Communication Strategy
After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.
Having Trouble Speaking Up in Meetings? Try This Strategy.
He Names Brands for Amazon, Meta and Forever 21, and Says This Is the Big Blank Space in the Naming Game
Business News

These Are the Most and Least Affordable Places to Retire in The U.S.

The Northeast and West Coast are the least affordable, while areas in the Mountain State region tend to be ideal for retirees on a budget.

Thought Leaders

The Collapse of Credit Suisse: A Cautionary Tale of Resistance to Hybrid Work

This cautionary tale serves as a reminder for business leaders to adapt to the changing world of work and prioritize their workforce's needs and preferences.

Business Solutions

Learn to Build a ChatGPT Bot for Only $30

If you want to see what AI can do for your business, grab this course bundle today.

Business News

'I Don't Feel Like It's Unreasonable': A-List Actor Refused Service At Hotspot For Not Following Dress Code

Academy Award-winning actor Russell Crowe had quite the afternoon after trying to stop at a Japanese steakhouse in Melbourne, Australia following a game of tennis.

Business News

American Airlines Sued After Teen Dies of Heart Attack Onboard Flight to Miami

Kevin Greenridge was traveling from Honduras to Miami on June 4, 2022, on AA Flight 614 when he went into cardiac arrest and became unconscious mid-flight.

Business News

I'm a Former Google Recruiter. Here's How to Land a Job in Tech — and What Can Blow Your Interview

A former Google recruiter says layoffs may be trendy, but tech workers are always needed. Here's how to land a job at a major tech company.