Ben Zises’ Post

There’s a major shift happening in early-stage financing at the moment. Just a few years ago, the funding market was white hot. Investors were writing checks after just a few screening calls (sometimes only 1!) and a quick peek into the data room. Now, tighter economic conditions have created an environment where investors are much more cautious entering a deal. They take more time to scrutinize every little detail of a startup. The problem is, this can paralyze an investor, especially if they’re the lead. I’ve seen lead investors string along founders for months, only to drop out at the last minute for some inconsequential reason. This does substantial damage to the company, its founder, and the larger startup ecosystem. Reputations get burned, people lose trust, and, most importantly, time is wasted. On the rare occasion that this happens, I have the same conversation with founders: There is always opportunity in tragedy. If a lead investor drops out of a round of financing, the founder has a few options. 1. Continue the round and seek a new lead investor 2. Raise less money from the remaining investors 3. Postpone the round and double down on efforts towards growing revenue - sales cures (almost) all problems! No matter how they move forward, this is always an opportunity to be transparent with internal teams, existing investors or prospective ones coming onboard. I often advise the founder to be as transparent as possible — Explain what happened, why the lead investor backed out, and the plans moving forward. After all, building a company will be one of the most grueling endeavors of almost anyone’s life. If they’re going to succeed, they have to play the long game. The way to win that game is with honesty and transparency.