Commitment in the venture capital industry has two different meanings, depending on whether you are looking at venture capital from a supply side or a demand side. The first meaning of commitment refers to an amount that an investor promises to a VC fund. This is a contractual agreement to supply a certain amount of capital over a specific time frame to a new fund that a VC firm is raising. The second meaning, however, is much more relevant to the lives of startup founders – in this case, a commitment is a promise by a VC or angel investor to subscribe to your new capital-raising round.

Commitments are so crucial in the world of venture capital because, to raise a full round of venture capital, you will likely need to cobble together funding from a variety of different sources. To make sure that you can raise the total amount, you will rely on commitments from investors. The hardest part is lining up the first committed investor. But once you have this lead investor, that’s when you can start to tell other investors that you have a lot of committed capital already and that around is beginning to fill up. From a purely psychological perspective, this helps to create FOMO (“Fear of Missing Out”) in the minds of other investors. In other words, commitments are good because they help to get you what you want: a full round of venture capital.

That being said, there are various forms of commitments. The least binding form of commitment is the verbal commitment, in which an investor might say “I’m in” after a meeting or pitch. The next level of commitment is an assurance of “I’m in,” but with a certain amount of conditionality. For example, the investor might say, “I’m in, pending terms.” This means that the deal, in theory, sounds fantastic, but until all the terms are agreed to and put down on paper, there’s still some wiggle room to get out of the commitment. It’s up to the startup founders to judge how these conditions will impact the ability of an investor to come up with the cash at the end of the day. For example, if an investor says something like, “‘I’m in, pending a priced round” or “I’m in, pending an institutional lead,” then you might want to re-think how much you can count on that investor.

In the best of all possible worlds, you will get a written commitment, which is worth considerably more than a verbal commitment. This can be done by following up with investors every two weeks or so, and seeing if they are ready to make a final commitment to your company. Once you’ve secured a commitment, you want to do everything within your power to keep that investor aboard. If other investors find out that someone is wavering with his or her commitment, then it might set off a chain of negative circumstances. Venture capitalists, while professing to be free and independent thinkers, are very much herd creatures who tend to move in lock-step with one another.

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