More than once in my practice I have encountered such a situation when an investor, in principle, likes the idea of a startup and the team, but he does not have enough money to finance the entire required amount or he would like to share the risks with other investors.
What should I do?
For such cases, a conditional financing mechanism has been invented.
What it is?
This is when an investor gives a startup a letter of intent to invest part of the money in a project, provided that the startup finds the rest of the required investment. These are the letters of intent that a startup goes around the market and collects from investors. Once he has collected the full amount, he calls out everyone who has signed letters of intent and invites them to invest together.
Of course, the term of the letter of intent on the part of the investor has limitations (usually from a month to three). And there is also a possibility that not all investors will want to be in the same pool with each other. But in any case, this is better for a startup than leaving an investor empty-handed.
In addition, collecting letters of intent has an additional effect.
Each such letter adds weight to the startup in the eyes of the subsequent investor. Investors, like all people, are subject to the herd instinct. How do they reason? If someone is interested and agrees to invest in a startup, then the project is worthwhile, and you need to invest in it too.
I think this is a good way to attract investment. Startups can use it.
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