Thread by @dunkhippo33

Today's thread builds off a question I've been hearing a lot about in the last 24 hours.

As a founder, what do you do if investors tell you they're committed to investing if there is a lead?

1) First off, let me tell you how EXCITED I was when I was told this when I was raising for my past startup. I thought that it was so great that I was getting commits.

And I would often respond, "Ok! I'll come back when I have a lead!" This was a big mistake.

2) It turns out most of the time when investors tell you they are committed to investing if there's a lead, it's not a lie, but it's also not a real commitment.

It's the easiest way to tell a founder no without actually doing so.

3) If a founder comes back and says that Sequoia gave them a term sheet, then of course, everyone will want in!

But if the founder cannot find a lead, the investor has effectively rejected the founder without actually doing so and looking really positive about it!

4) When I figured this out, I was soon dejected.

What to do? It seems like founders hear this a lot!

Here's how to handle this.

5) First, clarify what the investor means. Sometimes the investor just wants terms to be set by someone else. In this day and age with SAFEs and notes, this is easy. Heck, a founder can just set the terms and the investor can decide if they are in or out.

6) Sometimes it's that an investor believes the business won't work unless at least $X capital is raised. If this is the case, you can still use this to pull investors together. You can sign a doc where the investor commits to $Z at $Y valuation contingent upon at least $X raised

7) So it's not necessarily that an investor needs a traditional lead who does 50% of the round on an equity basis. This is why it's impt to understand the specific qualms.

8) After you learn this, if this is applicable, I would respond by saying, "We may get a lead, but pending the right fit, which is super impt to us. But it won't hold up our fundraise and we are raising now on a SAFE / note. And we can convert that later if we do get a lead."

9) In other words, you are still making the ask to have the investor sign your SAFE at a set valuation cap.

Maybe the investor does it. Maybe not. But, you should keep going w/ your raise, because that lead may or may not happen.

10) And if you get enough of a round together on the SAFE / note, you'll find that often the "lead" requirement no longer exists.

And lastly, of course, if you find a great lead, you can just roll all the SAFEs/notes into the round.