It’s not over until it’s over. In fundraising, ”over“ means money in the bank. Get that done ASAP!
The final part of closing is actually receiving the capital of committed investors in the company’s bank account. This phase commences once everything else has been done - due diligence has been completed, legal documents are teed up for signatures, and investors are all ready to sign and then wire the money.
Mechanically, you will need to set up a “first close” date. This is the actual date on which investors will sign and then wire the capital. (Sometimes signatures will be done earlier just for convenience sake.)
Note that most of the time VCs don’t actually have the capital sitting in their bank accounts. They have to do what’s called a “capital call” - i.e. request the capital from their own investors (called limited partners or LPs), who will wire them the money so they can then wire it to you. It pays off to give your prospective VCs ample notice about your first close date so they can make the necessary arrangements on their side and line up the required capital in time for the close.
Often, there are investors who get added to the syndicate after the first close. From a legal point of view that means that you are doing a “second close,” a “third close” and so on. There are 3 things worth mentioning on this topic:
Make Sure It’s Fair
The finalized purchase agreement (or another similar document) will usually include a period during which it is okay to keep adding investors on the same terms. My experience is that the standard length of that period is 90 days past the first close.
So what is a founder to do in the event of investor interest past that deadline? There is no simple answer. It might make sense to refuse / postpone the investment, or to accept it at the same valuation, or to negotiate a higher valuation, or to use an instrument that doesn’t set a valuation (e.g. an uncapped SAFE with a discount). I suggest having a conversation with your management team, board members, and existing shareholders - and then making up your mind because making hard decisions is ultimately the job of the founder CEO.
Whatever you decide to do, make sure to prioritize the success of the company while being as fair and transparent as possible - both to existing stakeholders as well as to prospective investors. In my experience, staying above board in your conduct really pays off in the long run.
Don’t Overdo It
Typically, once you have a signed term sheet, fundraising gets easier as other investors perceive less risk or simply want to be associated with your existing backers. This effect is further amplified after your initial close, especially for priced rounds that need to be filed with government agencies and thus inevitably become public knowledge.
It makes sense to both enjoy the moment as well as take advantage of it, expanding your network and selectively accepting new investors and more capital.
But beware of overdoing it, which can have several negative effects including more dilution and getting distracted. Remember: fundraising looks and even feels like success, but what ultimately matters is building the business. That’s why I recommend being disciplined. Decide how much capital your next milestone requires. Raise that amount - with a buffer, just in case. Then go back to working on your company.
Get It Done
As they say, it’s not over until it’s over. In fundraising, ”over“ means money in the bank. While unlikely, the round can still fall through. So keep working until you have a successful first close, where your lead investor and hopefully the majority of the capital gets wired to the company’s bank accounts. Then gradually step off the gas, refocusing on building the business while handling the laggards as well as new investor interest.