Subscribe to the Youtube channel here:
What they mean
Investors are sheep. There are very few conviction investors that don’t care what other investors think (which is ironic since you really only get big returns by being contrarian, and good terms in something perceived as undervalued).
Commitments mean investors have said ‘I am in.’ You can have hard and soft commitments. Hard is basically money in the bank. Soft are conditional, such as conditional to you getting a lead investor, raising a certain amount etc.
The investor is literally asking how many investors like this deal and how much money they are putting behind their conviction. Having a lot of commitments is the ultimate social proof. Think about it, you have two companies that are the same, but one has raised $500k of the $750k and the other not a dime. You are going to think the one with ‘commitments’ is more attractive as other investors like it.
This question is more likely to be asked by Angel investors or small investors who are followers. Most investors don’t have a clue what they’re doing, so they use signals instead. If smarter and better-known investors are interested in the deal then maybe this is something they want to jump on.
People always assume others know something that they don’t (which is super dangerous!). If you have only been raising for two weeks and you have half your round filled, then it looks like this deal can happen and people should pay attention. Success breeds success.
If you haven’t any commitments so far, then it’s best to say you don’t have any when you have only been raising for a week, than for 3 months. If you have been raising too long, then investors think the deal has been ‘over shopped’ and there is something wrong with the deal. I.e. PASS!
What you need to say
“We are raising $2 million and we have $700,000 already soft committed. They are large checks from angel investors who are waiting for a lead. This is why we are talking to you.
We understand that you typically write checks for around $1 million so that should be in your sweet spot.”
Get in the game
Free tools and resources like this shipped to you as they happen.