When Investors Go Dark

One of the most annoying aspect of fund raising is when investors ‚go slow‘ or ‚go dark‘ on a company. Meaning the investor doesn’t say yes and they don’t say no. Instead, they respond very slowly to the emails or calls of the founders. Below is advice I give to founders. The key is understanding the different investor mindsets. You can then act accordingly.

No (Qualified Out)
The investors passes right away or they take a look and then pass firmly. This is actually great behavior; it saves founders a lot of time. The only way I have seen that can change that investor’s mind is when another investor / board member gets in touch and says: „You should look again at this company; I think you have read the situation incorrectly. “ Unless you can do this, it is exceptionally difficult to convince investors to take a second look. Instead, accept it gracefully and don’t annoy them.

Upfront significant information request
Sometimes a junior / inexperienced investors request a lot of specific information upfront. This happens before it is clear whether there is real partner level interest in the company. This can take up a lot of the founders’ time and should be politely refused. The investor should first establish whether there is real interest.

Going slow or going dark
The investor is slow to respond. ‚Going dark‘ is a term often used. They say: „We are very busy with internally processes and are doing due diligence.“ There are three dozen variants of this. What they actually think is the following: „I can’t make up my mind about this company. It is not so compelling I feel I need to make an offer. Yet it also isn’t so disinteresting I feel I need to reject them.“ It is highly unlikely that this investor will lead your round. What you can do is to try to either convert them to a ‚soft-circle‘ or to qualify them out. You can go back and say: “It doesn’t feel as if you are interested in leading the round, tell you what, I will keep you in the loop and once I have a lead and there is space left, I will get back to you, how does that sound?“ If they say yes, try to crystallize the conditions under which they would say yes to a deal. Get that in writing if you can. If you cannot progress them in this way, qualify them out.

Conditional Yes / The ‘soft-circle’
The investor is interested and happy to commit. But their check or interest level won’t crystallize the round. That is fine. Soft-circle them. Try to get them to a ‚conditional yes’. A conditional yes is not a term sheet, but a statement where the investor says under which conditions they would be happy to invest. There is a scenario where you will have multiple soft-circled investors. You can then issue a term sheet yourself and have one investor do the legal work.

Every time when I have been involved with a fund raising and a firm received a firm yes, this happened relatively quickly. There was speedy and continuous communication. Ideally you have multiple investors say yes at the same time so you can compare them and then work with the firm(s) of your choice.

Those are the five most typical initial outcomes of an investor discussion. The key for all involved is to get out of time wasting and slow discussions ASAP. Push to either No, Conditional Yes or Yes. And then you can construct the round accordingly.

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