A Short Guide To Revealing Investor Commitments Mid-Financing

There are not a lot of other shortcuts to an investor’s disdain than pre-maturely telling other investors that they’ve committed to investing in your round when they actually haven’t.

Here’s How This Happens:

1. Founders meet with investor A. Investor A shows some interest.
2. Founders (intentionally or unintentionally) mistake “interest” for a commitment to invest in the round.
3. Founders go around telling other investors that Investor A is already committed as a sign of social proof.

Here’s What Happens Next:

1. At some point, Investor A hears about this.
2. Investor A is confused by this and their trust with the Founders is shaken. Worse, they now have other investors calling them to ask them if they are in, and they have to say they haven’t committed yet.

See How This Is Bad?

Here are a set of guidelines to use when disclosing that another investor has committed to your round:

Confirm in the most straight-forward manner possible that Investor A is indeed committed to invest in your round.

I suggest asking the following question:

“So, Investor A, will you commit to investing [previously discussed amount] in our round at a [previously discussed valuation] as long as we raise [minimum target investment amount]?”

Until they answer yes to this question, they have not committed.

Once they’ve committed, ask them if you can inform other interested investors about their participation.

I suggest the following question:

“Really excited to have you involved! Would you mind if we disclosed your commitment to other interested investors?”

Until they answer yes to this specific question, they have not given you permission to tell anyone else they’re committed.

Now, you can start using part of this information when talking to other investors, but do it with discretion.

I think it’s okay to disclose “We already have # committed” before any formal meetings, but avoid mentioning investor names in intro and pitch emails. Save that disclosure for the meeting.

Wait until Investor B specifically asks who else is in the round. Otherwise, at best, you look like a name dropping amateur. At worst, you may counteract the fundraising momentum you were trying to create.

In summary, when using other people’s names, be very very careful.

Originally published on Medium by Brenden.