Getting lead investors to commit to a funding round can be incredibly tricky for any startup big or small – most of the time, it just takes a good strategy.
At the November 2018 edition of TechTO, Brizi CEO and co-founder Anna Hu discussed some of the valuable lessons she’s learned about fundraising – and what worked for her company (which closed a $2.5 million funding round in September).
When it comes to finding potential investors – let alone lead investors – Hu mentioned that it can be “really hard” to get Canadian investors to commit to your round. As a solution, she brought up the soft circling method: the strategy of collecting soft commitments from investors until you’re past the size of your round. Founders can use this oversubscription as leverage to land a big lead investor. “The key idea is to only negotiate when you have leverage,” she said.
Hu discussed the various steps it takes to secure an investor, including making the ask (“Be bold!”), discovering and firmly specifying the terms (“You have to get all of their fears out,” she noted), getting a soft commitment, and then oversubscribing on those soft commitments by 20 to 40 percent of the round size. According to Hu, this is what leads to the leverage for negotiation – though she added that it’s wise to avoid investors that want detailed financials, or ones that give unhelpful feedback.
See the full video below: