Fundraising · Angel investing

How many meetings does it take to get a term sheet?

Dimitry Rotstein Founder at Miranor

November 18th, 2015

Specifically, for angel/private investors in the software/web industry, how many meetings and/or weeks it may take before they provide a term sheet or some equivalent indicator that they are genuinely interested?
For that matter, is it unusual (or even possible) to get a term sheet after the first meeting? Has anyone had this experience?

Just in case, it's hardly an academic question. I need to know whether to proceed with certain investors that I believe are simply stalling, while the rest of the team is more optimistic.
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Steve Mock Looking for great teams/co-founders

November 18th, 2015

The answer is it depends on a number of factors. Are you doing a Seed round or a Series A or Series B or later financing? Also, are you asking an individual who will write you a check or a firm with a partnership.

Individuals might write you a check after the first meeting if you've already dictated the terms of the deal. I've seen small seed firms do it, but it is rare.

A firm will usually have a partner meeting where they will make a go or no go decision. So, the key item is for the partner who is your champion to get you into their partner meeting for a vote. Obviously, if they invite you to the partner meeting to present, you are in pretty good shape.

It sounds like you are in an ambiguous area. A question you could ask is, "So, what is your process for making an investment decision?" Based on their answer, ask if they are ready to go to the next steps. If they hesitate, you can ask why aren't you going to the next step if that is part of their process.

For example, they might say we'd like to talk to a few customers. You should queue up the meetings. If they don't move pretty quickly, you know there is something else going on.

If they say something ambiguous like, "We'd like to see more traction" with no follow ups, just assume it is a no.

Kurt Johnson President, CEO

November 18th, 2015

It depends on the round. The issue is that angel groups and investors are 'invisible' and nuanced, meaning they have the types of companies or industry segments they love, understand and are willing to invest in. Subsequently, at the seed round it's as arbitrary as selling a house. As you get into larger rounds, it's more standardized. I would treat whatever stage you're in as a sales cycle with a 6-9 month close rate. That said, you can get the impulse buy, however for the 70%-80% of your funding, I'd expect a six round sell, with 3-sh weeks between each meeting. Stage 1: initial pitch, stage 2: a few discovery questions, Stage 3: Pitch to larger group, Stage 4: Discovery (proforma, biz-plan, etc.), Stage 5: Terms discussion, Stage 6: Close. Important questions to ask early are: 1: What types of businesses do you invest in (industry, Pre/post rev, concept/MVP, etc), 2: Are you funded or can you cut a check, 3: what is your process for evaluating companies, and time frames, 4: What are you specifically looking for in a 'good' investment? Hope that helps. Good selling.

Neil HereWeAre Want To find-close Business Online without competition Before They Google Search? We solve this problem 1(508)-481-8567

November 18th, 2015

Actually,  to determine genuine interest, just ask for the feedback. "So how does this sound as an investment path for you?". 

Get the answer and 
gage it. Dont let a fuzzy answer suffice.

If its fuzzy or great or we will discuss the idea or a flat out no as an answer and frankly, you really need to know that answer and its meaning at the first meeting, ask to understand why that was the answer. 

If the answer is encouraging re possibly investing, ask what is the part that says "Good idea worth an investment, what part needs a bit of clarification or redefining so the investment can be made".

Remember also to ask "who along with you would be involved in the review and decision to invest process" Thats how you know how to proceed so all the folks involved can be reached, met with and sold so for their reasons not yours they all say yes.

That might be "Whats the next step re gaining the investment approval and who along with you would be involved in the assessment process?"

It's a process and its also a sales approach combined so you get to yes or no as quickly as possible and so you understand how to get to yes and can then go that route.

YOU control that process via the above approach and you are not left up in the air wondering if things will work or not.

Neil Weintraut Co-Founder at Rendevu

November 18th, 2015

Dimitry,

I find that startups are Zen - including interest either being there (and obvious) or not), and people behaving accordingly. A corollary is that for example, having more meetings doesn't make people get more interested - they either are or they are not.

With that said, I recommend that operative-concept (and people) to focus on, is a lead. At every stage there are plenty of followers - they are always interested, don't say no, will meet again and again, but only act when someone else leads.

To wit, a reasonable question to ask - and you should ask - is whether or not they are interested in leading the investment. If not, just put them on the back of your list, and once you get a lead, they will be calling you. That then also means you should concentrate you effort on people that will actually lead. Per other advice here, it's OK to - respectfully - ask solution-oriented questions such as would you ever lead a round and/or is this something that is highly of interest to you. 

And then remember the zen. If they're really not going to act, they are not necessarily going to say that, but it is what it is. Entrepreneurs shy from asking direct questions (or simply triaging the prospect hoping that time will change things), but it's all self-correcting. If they say/act anything other than strong interest, then the best that they will be is a follower (see above) and hence, no loss asking the question; and conversely if they answer affirmatively, well you have your answer :-)

Run the show, accept what's before you.
And BTW, the investor that will be your lead investor, won't stall.

Finally, location. It's unclear where you are located. I will just note that there's an entirely different (and positive) understanding/behavior in Silicon Valley, that is markedly less expressed elsewhere.

Thomas Kaled Business Development Consultant @ thomas.kaled@gmail.com

November 19th, 2015

Dimitry,

I agree very much with @Neil Weintraut. You have early adopters who provide motivation for mid and late adopters. That's why I always set (or have my clients set) a basement and ceiling threshold. You will need to decide whether or not you will oversubscribe an offer (and you should state that up front) as well. But as Neil says use the early adopters to create a sense of urgency for the remainder.

Thomas Kaled Business Development Consultant @ thomas.kaled@gmail.com

November 18th, 2015

Whenever I've raised seed money I have never waited. I have moved from prospect to prospect with a Term Sheet, Investor Qualification Form and Liability Waiver. 

In the Term Sheet is a base business plan, projection, qualified equity offer and timeline to close (or financial criteria to start the venture). The qualification is for our State Investors and the Liability is self-explanatory. 

Thomas Kaled Business Development Consultant @ thomas.kaled@gmail.com

November 18th, 2015

Dimitry.

I don't collect any Term Sheets, Investor Qualification Statements or Disclosure (Liability) until I have a check. .One without the other is meaningless and although some may argue that they are obligating themselves without their cash you have no way of enforcing an abrogated agreement except with your money which defeats the whole purpose of OPM.

Steve Mock Looking for great teams/co-founders

November 18th, 2015

They won't sign the term sheet in the meeting. They'll say, "Great, I'm ready to invest. Send me the documentation." Which includes the term sheet. They'll want to review and perhaps have their lawyer review. 

This assumes the terms have been set. If the terms haven't been set, it's more complicated, because you have to agree on terms. 

Dimitry Rotstein Founder at Miranor

November 18th, 2015

@Thomas J. Kaled,

Are you saying that your seed investors have always signed the term sheet on the first meeting or not at all?

Jackson Powell UI/UX Designer & Front End Developer

November 19th, 2015

Lonnie Sciambi, a wise advisor, once taught me that some firms don't behave professionally. They will keep you in their pipeline, so they can have activity, but not much intention to get serious.