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What they mean
This is a situation you do not want to be in.
If you are being asked this and the investor knows who your investors are, they are asking as they presume the investors lead rounds at this stage, from what they are aware of. Something doesn’t seem right.
If you are a hot company and your investor has money, you can be certain they will be allocating as much dry powder that they have planned to the round.
Now investors don’t always lead rounds. They may be seed and series-a investors and simply don’t have the cash to do more growth stage companies.
You have to have a really simple answer to this question. Do not respond “um, I didn’t ask yet.” The default thinking of an investor is something is rotten in the state of startup. The first investors you should be talking to are your existing ones.
So, if you do not answer this properly, you may not be raising from this investor or any other. Make sure that whatever you tell the investor, that you agree with your previous one to say the same thing.
Not having any more capital, or not participating at this stage is typically the best answer in the absence of others.
Now, there may be an edge case where you don’t actually like your investor… In which case you need to be delicate. Do not talk shit. Say something like ‘ We are growing faster than we expected. We would love to have a lead that had in-depth experience in the SaaS space, like you do, to help us navigate the scaling challenges we will have. X is great, but they are generalists.
What you need to say
“Quest are seed investors, they are happy to do pro rata, but it is not their investment strategy to do series-A. Pretty clean cut.”
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