TBC: How to Close an Angel Round

TBC133: How to Close an Angel Round

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[00:00:04] Jason Yeh: Hey, welcome to the back channel. On today's episode, I want to talk about the mechanics or some of the strategies that I would use to help close an angel round. Now, there are so many details when it comes to how to close an angel round, but I wanna specifically talk about guidance. I was giving a founder who ran into this very specific problem.

[00:00:22] They were like, look, uh, we got a bunch of angels to. Agree to, um, to a deal. Um, some of them have even signed the safe letter, but now I'm realizing I need to get them to wire the money, and this is proving to be difficult. What's going on? What have I done wrong? How should I fix this? And the first thing I told them when it comes to this detail of what, like.

[00:00:46] You thought the round was done. People have said, yes, I'll do it. People have even signed docs and now I don't have money in the bank yet. A lot of founders are like, I made some mistake at some point, but the reality is this is how [00:01:00] fundraising works. Not even just at the angel level. I. But when you get to more formal rounds with venture capitalists, writing million dollar checks, some people think that this is all, um, a process that is almost like done on the blockchain and using programmable money where a smart contract is in place where someone signs the docs.

[00:01:21] And then it means that money is gonna flow into your bank. And the reality is that's not, not such not true. The business world works in, in agreements and trust and, um, rule of law and people saying you're gonna do the right thing. But when it comes to signing documents and actually wiring capital, there isn't anything that'll force them to do anything.

[00:01:41] They just have to do it. And while there are some situations where there might be some legal precedents where you could do something. Um, Sue in order to get them to give you the money. And the reality is like if they've said that they're going to make an investment signed docs but haven't actually wired money, [00:02:00] there isn't a lot you can do to actually force that other than run some strategies to hopeful, hopefully encourage that to happen.

[00:02:08] Okay? So that's the best thing that you can do and is part of the guidance that I would give you. So when it comes to actually getting someone to do something. The best things you can do is do a combination of social proofing and setting deadlines in order to encourage and nudge someone to doing what they need to do.

[00:02:29] So if you start telling people, great, I'll, I'll give you the wiring instructions. Please wire a few people wire, but a few people don't. You need to go back to these people, or at some point you need to talk to people about great. Uh, by the way, our wiring date with all the people that have signed, including you, is going to be this date.

[00:02:52] That is the date that you have to wire by. Here are the instructions. Everyone is going to be doing this. Let me know if you have any [00:03:00]issues, some variation of this is what is most. Is most effective when it comes to getting people to do what they need to do.

[00:03:08] There are a ton of easy to make mistakes when growing a startup. I feel like I've either made them all myself or seen them all as an advisor and investor. One super common one is waiting too long to bring in expert help around managing company finances. I get why that happens though. You're not a tiny company anymore, but you feel like you're not big enough to have an in-house finance team and don't wanna waste money.

[00:03:31] My advice to you is to avoid the mistake of just winging it. This is not a time to fake it till you make it. At least talk to someone early so that you can hear about how the additional help could actually save you money and improve your operations. If you're looking for recommendations on who to talk to, check out Propeller Industries.

[00:03:49] They've worked with hundreds of venture to growth stage startups, so have a ton of deep knowledge to help you avoid major bumps and set your company up for success. Whether it's [00:04:00] talking to investors or planning for future growth. Set up a free call by going to funded pod.com/propeller. That's P-R-O-P-E-L-L-E-R.

[00:04:10] And tell them we sent you, they're giving funded listeners a one-time $2,500 new client credit if you work with them for three months.

[00:04:19] A lot of times people aren't trying to be sneaky and not wire an investment.

[00:04:25] They're not trying to avoid the thing that they said they were going to do. Most of the time. It's just, ah, you know, I, I made the, I did the hard thing, which is giving the commitment, signing the documents, and you know, it, it can feel. It could feel anxiety ridden to actually do that last thing of, you know, wiring the check.

[00:04:42] You know, it is money. It's a significant amount of money leaving a bank account. And it's not that they're not trying to do it, but they just need an organization. They just need someone to help prioritize it for them, give them a date of when they have to do it by. So when you try to get anyone to do anything, whether it [00:05:00] be, uh, writing a check or actually, um.

[00:05:03] Doing something that they said they were gonna do. If you can combine it with social proofing saying other people are doing it, it's almost like that strategy that you've seen. Hotels, hotels, uh, um, employ, which is, they'll have some sort of informational placard, but like 75% of guests do not ask for refreshed towels in order to save water.

[00:05:23] They're like, oh, other people are doing this. I should be doing this. We're gonna employ the exact same tactic here. Everyone else is going to be wiring on this date. We need you to wire on this date as well. We expect you to wire on this date. Here are the instructions to wire. Let us know if there's, there are any challenges.

[00:05:37] Okay, so that's gonna be your first play. And by the way, sometimes it will mess up. Sometimes people might go over, but at least you had the opportunity to put that pressure and, and the next time it comes around, if they miss that date. You have to come in there and lean into another date. Look, other people have missed for various reasons.

[00:05:56] Let us know what your reason is. If you need to, if you need to drop out of this [00:06:00] investment, you have to let us know by this point so that we can fill in your slot so that we can fill in your in investment. So we can replace you. 'cause other people want to be in this investment. This is you not doing us a favor, but us doing you a favor to be even involved in this company.

[00:06:17] That's kind of the perspective that I want everyone to have. But we're always just gonna be pressing against deadlines. We're gonna be pressing against doing the right thing and realize that this alone will get us 90% of the way there. And for the last 10%, these are people that probably shouldn't be on your cap table anyways.

[00:06:36] All right, so hopefully this banana. So hopefully this approach, this understanding will lead you in the right direction when it comes to figuring out what needs to be done and closing your angel round and also F banana and also future rounds, banana, and also future rounds with larger investors. All right.

[00:06:49] Thanks so much for listening to this episode of The Back Channel, and I'll see you next time.

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