Texts with Founders: Conditional Commitments
Why they aren't commitments and what to do about them.
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Investors can sometimes be ambiguous about their interest in your fundraise.
One of the more common forms of investor ambiguity is the conditional commitment.
A conditional commitment is when an investor says something along the lines of:
I’d be interested in investing if [blank] occurs.
The “[blank]” is often something like you getting a lead investor on board.
On the surface, this statement might sound like the investor is interested in getting involved.
Conditional commitments are not usually commitments.
They’re often closer to hedging than committing.
Conditional commitments give investors an “out.”
A conditional commitment is closer to a hedge than a real commitment. That’s because the “if [blank]” part of the statement is vague enough to give the investor a reason to bow out if they decide they don’t want to invest.
You could line up a lead term sheet, and the investor could say things like:
“The market shifted, and we don’t really invest in web3 anymore…”
“Oh, I thought the lead would invest more than that…”
“I’ll have to check with my partner, but he wants us to slow our investing this quarter…”
Essentially, numerous excuses ranging from mostly valid to cringe-inducing will enable an investor to absolve themselves of a conditional commitment.
Why do investors do this? Is it that hard to pass?
In the mind of an investor who makes conditional commitments, here’s the worst sequence of events that could happen: they pass on your company then later that day a top-tier lead offers you a term sheet.
These types of investors want to appear interested until they feel it is safe to make a concrete decision in either direction.
As a founder, it is hard to find this all that agreeable—but at least now you understand it and are prepared.
An investor made a conditional commit — now what?
First, count the investor out until they’re unambiguously in.
Second, keep going.
Continue to build momentum:
in your business by growing your core metric (waitlist, sales, etc)
in your fundraise by bringing on angels and small funds
Communicate wins through weekly updates to your existing investors and those that remain on the fence. Eventually, some of the investors who gave conditional commitments might convert. They’re harmless so long as you don’t have a poorly-calibrated understanding of their level of interest.
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