They passed before, why should they invest now?

Jason Yeh
November 19, 2021

They passed before... why should they invest now?

After a founder who has been unsuccessful raising money discovers the concept of Calendar Density, they eventually realize that the best path forward is starting a new, tightly organized fundraising process. Soon after, the question usually surfaces: “Should I reach out to investors that passed once before?”

This question arises in a variety of situations, so understanding an approach to unlocking value from this cemetery of old leads is worth a deep dive.

First, we need to identify if the original pass was truly not a good fit. Actual bad fits come from mismatches around stage or industry focus. No matter how sophisticated your fundraising strategy, reaching back out to a growth stage, biotech investor who passed because you’re raising a seed round for a social media app won’t change the outcome. These we don’t touch at all.

The rest of the passes, no matter how they were delivered, fall in the category of “so you’re saying there’s a chance.” 

So satisfying to incorporate Dumb and Dumber here

I know that some of you might be confused as to why I would even recommend spending time with an investor who wasn’t excited the first time around. After all, I preach the importance of defining your specific story, sticking to that story, and then searching for your match (the investor who thinks like you and is excited to find you).

Here are a few thoughts on why we spend time with old passes: 

  • Interest in your deal is valuable to the process overall, regardless of who it’s from or the final outcome. Because of that, stimulating interest from investors who passed can be valuable on its own. Plus you already did the work of finding them…might as well squeeze out a little more value.
  • It’s very possible that you sucked at telling your story the last time, but you’ve gotten better! A better pitch could very wellhave a very different impact on the same investors who passed before.
  • Your story may have evolved. Actually, your story has evolved since you’re coming back to the table after a failed attempt. Staying alive and coming back for another shot shows a level of grit that investors want to see. I’ve seen this be a real difference-maker for investors multiple times. 
  • Your already established relationship with the investor who passed is valuable. Having history with an investor can be very valuable in the path to a term sheet.
  • The more term sheets the better. If you can get an old lead- even one you like less- to convert to a term sheet, you’ll be in a much stronger position to negotiate with investors.

There’s a chance, but how do you maximize that chance?

The first thing you should realize is nothing will change if you don’t change the dynamics of the investment opportunity. That means reaching out directly saying “We’re back out raising again, would you like to take a look?” or in other words “Hw about now??” is not going to work.  

The dynamics of an opportunity only change if you change how attractive the opportunity is. So what will affect attractiveness?

First, you need to update the story with an evolution that occurred since your last communication. Your old story didn’t work so when you come back, it has to be different. 

When it comes to story updates, think about these 4 L’s: Learned / Launched / Landed / (en)Larged 

  • Learned - did you learn something while operating that equipped you with a new unique insight?
  • Launched - was there a product launch that happened since your last conversation?
  • Landed - did you land a deal? Maybe you landed a strong new hire?
  • (en)Larged - are revenues / customer sign-ups / engagement numbers going up and to the right?  If your numbers are larger than before, your story has changed.

Next- with a new story in hand, it’s time to send them a message, right? Well, you could. With the right “I don’t care if you’re interested, but you probably want to know about how awesome we’re doing 💁‍♀️” tone in a short, polite email, it’s possible to reignite interest in your deal from an investor that passed. 

What would be better than reaching out is if the idea of re-engaging came from someone else. Even though it may sound silly because you’ve already met before, finding someone who can offer the investor an intro to you would be helpful.  

The investor might say “I actually already know them,” but that’s OK! If an investor who passed hears about your new fundraise / trajectory / story via another channel, a conversation about the company’s updates will be much more readily accepted. Even being “reintroduced” by a mutual contact who mentions they heard you were raising again b/c of X, Y, and Z new happenings at the company can create a better opportunity for success. 

The re-introduction is just one of a number of ways you can incept the idea of reconsidering your deal. If you realize the re-introduction is just a particular method of recasting a desirable light on your deal, you should be able to creatively come up with alternative approaches to setting up the reconnection.

You might still be feeling the sting of past passes but you can use that burn as fuel for arming yourself with a compelling story update and connection strategy. Savvy investors will pick up on your grit and determination, potentially leading to a closer look at your new and improved opportunity.

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