With a SyndicateRoom ‘soft close round’, investors that have committed to the raise prior to the round going live on SyndicateRoom are happy to transact their investments on a rolling basis rather than conditionally on the company raising a certain amount. We replicate this ‘rolling close’ structure with SyndicateRoom investors. In other words, a ‘soft close’ round will successfully close regardless of how much is raised.
Funding rounds come in many different shapes and sizes. The most common structure for an early-stage equity investment round is the one SyndicateRoom members will be most familiar with: a company seeking a specific amount of capital to achieve a defined goal, for example to build a new website or develop a particular product.
Often the lead investment will commit but won’t transfer money until the company reaches the set funding target.
This structure works well typically for smaller rounds and younger companies.
For companies that are still ‘early-stage’ but are a little further down the line, the picture is different. Often such companies will be in revenue or have a comfortable nest of cash already backing them up, and will be looking for larger sum of growth capital to be rolled out over a longer period, and for less specified spending.
Raising a larger sum of money, say for a Series A or B round, would ordinarily require either a series of small rounds throughout the year, or a single large round that would only close if a full target was met. Both options require a lot of ongoing effort and resources, and don’t guarantee funding at the end using the established ‘all-or-nothing’ approach; if the round doesn’t hit its target, the company gets nothing and must use even more time and resources on another round.
If the lead investment is comfortable that the company is developing and growing, they will likely be happy to contribute capital to facilitate this growth at the point in time they review the investment, not waiting for others’ commitments to be demonstrated first.
This is where the ‘soft-close’ round comes in. A company still requires lead investment, per the standard SyndicateRoom criteria, but this can close on an ongoing basis. As such, SyndicateRoom members can also invest as much or as little as there is interest for.
Soft closes are likely to involve larger rounds for somewhat later-stage and normally revenue-generating companies in a good cash position that require capital to continue growing. They give you the ability to do exactly what the lead investor is doing: invest in a company you believe in without the limitation of an all-or-nothing funding target.