Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

Term sheet specifying investor will close the round - worth anything?

I'm learning the hard way one of the principal rules of fundraising - no one wants to be the first investor. I recently spoke with an investor who said he'll put down in a term sheet that he'll invest 33% of my target raise after I raise the first 33%; he hopes I can use this term sheet to pressure others into kicking in that first bit. Is this common? Would other investors be swayed by this? Keep in mind that the the investor told me that if another deal comes his way before I close my initial investment, he reserves the right to pull out.

5 Replies

Rob Gropper
0
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
If we had $1k for every time we heard that during our first raise we would have been over subscribed :-/ . I think it's natural, albeit frustrating, for investors to want validation from other investors. My experience from previous startups is similar - plenty of investors saying they want to invest... right behind the lead. Eventually we found a lead so don't get too discouraged. Part of that seems to be that they want someone else to do the due diligence heavy lifting. Whether this investors "commitment" will sway others i think depends more on this investors reputation. If s/he is known to like to lead rounds his/her position on your deal might raise eyebrows, but again, his/her 'commitment' to follow someone else's lead is common. Writing it into a terms sheet could help create a sense of urgency or scarcity which can help sway investors assuming they respect (or even know) this investor. Remember, the only thing investors hate more than investing in a bad deal is missing out on a good one. He wants to reserve 1/3 of the deal if it becomes 'hot' and he also wants an out if something better comes along (i.e. he changes his mind for any reason). you should have an out too, i.e. if he is known to be difficult to deal with and his presence is a deal killer for others you should be able to bump him. my $0.02. good luck.
Sidney Amster
0
0
Sidney Amster Entrepreneur
Member Investors Circle
I can appreciate the entrepreneur's frustration and as an angel investor am not particularly impressed by those investors who make "conditional" verbal announcements with numerous outs. However it is also the entrepreneurs responsibility to 'nail down' these types of investors with both carrots and sticks - the carrot could be a financial incentive to lead and the stick can be not playing the game - stating that there will be a close under the terms announced and a second opportunity later with different terms. Another approach is to say fine and can you recommend a lead and can i use your name to reach out to this person/group. If the answer is not credible then the investor may not be credible for you.


Martin Omansky
0
0
Martin Omansky Entrepreneur
Independent Venture Capital & Private Equity Professional
This is a normal ploy. Investors use this reasoning all the time to deflect deals they either don't understand or they are reluctant to endorse. Assume you have nothing. If you do find a lead investor, you should have no trouble finding others to follow them in. Sent from my iPhone
Steve Simitzis
0
0
Steve Simitzis Advisor
Founder and CEO at Treat
I wouldn't sign the term sheet. Other investors will want to see commitments, not conditional commitments, and will view the conditions as a signal the other investor doesn't have full conviction. You can thank the investor but politely say that you are only reserving room in the round for commitments. You'd be happy to accept a term sheet for an investment, otherwise you can keep them in mind if there's still room as you're closing.
Jerome Peloquin
0
0
Jerome Peloquin Entrepreneur • Advisor
President, Family Fish Farms Network, Inc.
You can use a convertible note called a "convertible debenture," that allows one to start with a loan and offer the option for the loan to be converted to stock at an insider rate. Remember you can also use the proceeds from the note to buy out the first funder. It is a common practice. j Jerome Peloquin President The Family Fish Farms Network, Inc. 717 Lawrence Street, NE Washington, DC, 20017 cell: (410) 227-0498 (Skype) fishfarms1 LinkedIn Profile email: [removed to protect privacy] website: www.thefamilyfishfarmsnetwork.com We grow healthy local food ... save fresh clean water ... create decent paying jobs.
Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?