Thoughts on startups by investors that
fund them & entrepreneurs that run them

How do you cross the chasm between commitment to invest in your start-up, to closing a funding round?

By far the hardest step in all this is getting a term sheet. Once you have a term sheet in hand, and assuming good faith, everything else will follow.

The best way to get a term sheet is to concentrate your efforts on an investor who has the ability, history and interest in leading rounds. So one of the very early questions you should be asking a potential investor is “do you typically lead an investment round, or co-invest with other investors on their term sheets?”  That will let you know up front if, when you get to the verbal commitment, it really means “I’m good for X amount of cash to tag along on someone else’s term sheet.”

It turns out that having the knowledge, experience, network and interest in writing a term sheet and leading a round is infinitely more scarce than having a checkbook and an interest in investing. For example, in most angel groups of which I’m aware, there may be 50-100 potential investors, but only 2-10 potential deal leads (that is, term sheet writers.)

So my suggestion is that when you start your pitch rounds, you keep two different lists: one adding the total of all interest, soft and hard commitments…and then another one which simply has the names of people who have told you that they have or can or might lead the investment. It is the latter group that will ultimately make or break your financing round.

*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *

Written by David S. Rose

user David S. Rose Founder and CEO,
Gust

David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.

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