The Switch is the transition from Soon But Not Yet to Signing ASAP, which you execute when you have a term sheet.
The Switch is a decision you make rather than a phase or an event that happens to you. The key is recognizing when to execute the switch. There is a rather straightforward rule of thumb: you should switch when you either have a term sheet or are very certain you are about to get one (or, ideally, multiple term sheets).
The phrase “very certain” obviously leaves room for interpretation. My advice is to be conservative in the vast majority of cases. Execute the switch only once you have the actual term sheet, or when you have verbal agreement on all key terms and are expecting the term sheet in the next 24-48 hours.
You could claim you have a term sheet coming even before all items are buttoned down. But that’s a very dangerous strategy. You will lose all credibility if you can’t produce a term sheet after claiming to have one. And remember: the investor community is very small and very networked - so people will know. This in turn will make fundraising hard to impossible. So only resort to this strategy in a really desperate situation - if you are truly running out of time and better options.
Nothing in between - in Soon But Not Yet your message to investors is that you are not raising yet but will be in the foreseeable future, say the next 10-12 weeks. In Signing ASAP, your message to investors is that you will be signing the term sheet ASAP, which probably means the next 2 weeks. The key concept with the Switch is that there is nothing in-between. You should never be in a position where you say you are fundraising but can’t produce a term sheet, which makes you weak. Nor should you drag out the close, which risks the round falling apart. Make sure to seize the momentum and get things done.
The Switch marks a critical turning point. Before switching, you are looking for a believer, who wants to fund your startup and get in business with you over the next decade. Such a person may or may not materialize, which is an uncertainty you address by talking to many investors.
After switching, you have at least 1 believer, who is willing to lead the round. That’s a huge difference, because now you know the round is happening. That means momentum accelerates and shifts decisively in your favor. This is when founders typically breathe a sigh of relief.
You should use that momentum to go back to other investors you are in conversations with and accelerate the process. In the best case scenario, that means getting multiple term sheets and thus being able to optimize the deal. In the worst case scenario, you still have your initial term sheet, and can do the deal, probably on good to very good terms. Note: the deal is not done until money is in the bank! I address this topic in Phase III - Closing.