When your lead investor pulls out at the last minute đŠ
đ Hi, itâs Jess, and Iâm here with a đ„ edition of The Midnight Text, Forum Venturesâ bi-weekly newsletter that provides honest answers to the unspoken questions that keep founders awake at (mid)night.
Iâm the Founder of Amplify Group, and I provide fractional go-to-market leadership and growth advisory to startups. I started my company three years ago and have learned a lot through my own founder journey as well as from working intimately with over 30 seed and series A stage founders to date. Iâm passionate about sharing my raw and real entrepreneur journey AND tactical, practical go-to-market education with founders. All my best tips, tricks, advice, and GTM multivitamins are available in my newsletter, GTM for Startups.
Up today: âMy lead investor pulled out at the last minuteâŠâ
Sadly, Iâve received this âmidnight textâ more than once. It sucks, but it definitely happens. Even after diligence and term sheet negotiation, even at the final hour.
If youâre in the middle of it: I see you. Youâre not the only one this has happened to. And you will get through it. Today, I want to share two real stories that show what not to do, and what to do, so that if you ever find yourself in this moment, youâll feel a little less alone and a little more prepared.
Founder A: What not to do
An investor agrees to lead your roundâŠpop the champagne! Celebrate! BUTâŠdonât spend the money until itâs in your bank account.
One founder I was working with, letâs just call him Founder A, made this mistake. He spent the money before the deal settled, and it had a cascading impact on a lot of people, himself included.
He had a verbal commitment. Diligence and term sheet negotiations were done. Everything seemed green-lit. Then, the week the round was supposed to close, the investor backed out.
We never really got a solid explanation as to why. But sometimes why doesnât really matter. The deal was dead.
Before the deal fell apart, he â
Recruited and hired a Customer Success manager (who left a more established job to take a risk on his dream) at an $80k salary
Signed a 12-month contract with G2 for their paid subscription with buyer intent data ($25k/year).
Signed a 6-month contract with an SDR agency ($8k/month).
âŠ.and more.
Without this projected capital injection, he didnât have the budget or runway for any of it.
So now we were left with â
A new employee who took a risk and wasnât getting a paycheck - 30 days into her new job.
Existing employees - not getting paid.
Multiple vendors who had already started working, also not getting paid.
Our mess was now bigger than just a lost check. It impacted real people. And it damaged his reputation, too.
I repeat: donât spend the money before it settles. Even when everything looks locked in. Just in case.
Founder B: What to do
The minute you sense a deal is on shaky ground, ask for help. From your existing investors, your advisors, your board, people in your corner. Do not try to go it alone.
Another founder I worked with did exactly this. And it made all the difference.
She had a committed lead. Terms agreed. They were ready to close. Then, at the final hour, the lead investor tried to change the terms â drastically.
Technically, they didnât pull out. But letâs be real: offering predatory terms at the last second is just another version of walking away.
She now had a choice to make: Take the new terms and give up control, or walk away.
Walking away is never easy. Like most founders in her position, she needed that cash. And she worried about the optics of that investor pulling out â would other investors she turned down think something was âwrongâ? Would they use this as leverage to renegotiate their own terms?
Often in these scenarios, youâre left with two options: 1) Continue your fundraise or 2) Go back to focusing on sales and revenue. Both paths require a lot of your time, energy, and effort. So itâs one of those âpick your hardâ moments in life.
Because this founder had involved her community early â me, other advisors â she had support to make decisions that worked well for her. As we speak, this story is still unfolding, but sheâs on track to return to the fundraising market from a position of strength in the next few months.
The Takeaways:
Donât spend the money before itâs in your account.
Ask for help. Be transparent. If you do, people will show up for you.
Sometimes you have to pick your hard. You might need to prioritize sales over fundraising to stay alive or preserve control.
I hope you never find yourself in this situation, But if you do â I hope this helps you navigate it just a little bit better. Youâve got this. And weâve got your back.
If you found this helpful, please share it with a fellow founder.
Itâs been a pleasure bringing you this edition of the Midnight Text.
Jess
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