After countless meetings, you may feel a sense of relief, thinking that the fundraising round is nearing its end. However, the marathon is not over just yet! Until the capital is securely in your company's hands and all necessary agreements are signed, the round is not officially closed.
In addition, for those fortunate enough to face the challenge of high investor demand with an oversubscribed round, there are additional decisions to be handled.
Having a good view and management on ongoing discussions, cap table, dilution, and transfer of capital will not only help in facilitating a smooth raise, but also set you up for success in future rounds.
Every subsequent meeting should provide clarity and have an action point. Bringing the topic around investment and capital allocation is necessary to progress discussions as well as help in managing the cap table distribution.
Negotiations will naturally intensify during the closing phase and it is essential to strike a balance between securing the necessary capital and safeguarding your company's interests. Make sure that your long-term company's interests align with the investor and that there is a mutual understanding of what the investment would entail.
Striking the right balance of investors in terms of number, type, value-add, stake, and/or geographical location can determine future success of the company, including product/token launches and subsequent rounds.
Ideally, you would want a handful of investors, each with their unique value-add that is aligned to your company's interests. So when you need help in hiring, product development, marketing, business development, and more; you know exactly who to reach out to and everyone on the cap table will be able to address your company's potential needs.
A heavily skewed and/or crowded cap table can feel unattractive to new investors joining the round as the incentive and value-add of existing investors may be questioned. For example, a seed round that is dominated by more than 5 angel investors, who's combined share of the company is more than any VC investors in the round, doesn't leave much space nor provide incentive for a strategic partner to want to come in.
A problem every founder would love to have; where investor demand exceeds available allocation and investors will be the ones pitching you on their value-add! If you find yourself in this fortunate position, it is essential to ensure fairness and balance in the investment terms for all participants while being considerate of your company's interests.
If you see that there is a potential for an oversubscription once gauging the level of interest from investors to anticipate the total amount of funding that may come in to assess cap table allocation, it is recommended to determine the maximum amount of funding and set a hard cap for the round, considering dilution and the company's financial needs.
It is also worth considering to adjust the investment size or terms to accommodate additional investors without significantly diluting the ownership of existing shareholders. It is also important to maintain open and transparent communication to manage expectations and foster positive relationships with both existing and new investors.
Main items to consider in an oversubscribed round: