A number of investors say they are interested in your fund or startup. But how can you tell which investors are really serious about committing capital? And how can you nudge them into writing those checks?
Collecting signed PACTs provides a clear and time saving way to calculate the Hard Circled total, which reduces the uncertainty and guesswork of closing a multi-party investment round.
VC Lab successfully uses the PACT to help venture capital firms secure capital from Limited Partners. The Founder Institute also uses the PACT in the Funding Lab program for startups raising angel capital. To date, investors and funds have signed over 3,500 PACTs, and VC Lab systems are tracking as much as $60 MM per month in new PACTs being signed worldwide.
What does the PACT actually do?
When potential investors sign the PACT, they indicate a clear desire to invest, and they specify the amount of investment. The PACT also asks potential investors to self-identify as qualified and includes some limited confidentiality over deal terms.
Lastly, the PACT also asks potential investors to provide accurate information on the individual or entity making the investment, which is often needed to customize the closing agreements.
How do I use the PACT?
The process to secure PACT letters from potential investors works as follows:
Edit the items in yellow, including the three target funding levels
Upload the customized PACT to a document signing system
Email an interested investor to sign the PACT with sample emails below
Follow up with the interested investor until signed
Mark the signed investor as hard circled in your CRM system
How do I use the PACT in Decile Hub?
Click “Fundraising” in the left navigation
Click “PACTs” in the expanded content, item 2 if you have just started in hub
Click “Send PACT” below that
Start typing the LPs name and select their name from autofill
Press Send
Follow-up tasks, stage movement of the investor, and accounting are all automated when the investor receives the PACT email.
What are best practices for the PACT?
There are a variety of PACT best practices, including:
Minimums – For a venture capital fund, VC Lab sees more success when funds have a high minimum and support different minimums for different types of Limited Partners. This means having different versions of a PACT.
Signing – VC Lab recommends using a digital signing system for sending, tracking and signing a PACT. These systems allow investors to fill in key information needed for the final offering. The digital singing experience is commonly built into a deal closing workflow that involves follow up emails and updates.
Closing Likelihood – A signed PACT indicates a 75% likelihood for the investor to actually complete the investment. This likelihood varies based on geography, type of offering, and other factors. Developing nations tend to have a 50% likelihood, as an example.
Sample Emails to Limited Partners
Use a PACT after a successful meeting
SUBJECT: Great to meet you…
Hello,
I enjoyed our meeting. As a next step, can you please let me know your desired investment amount so that we can reserve you a position in our upcoming close?
Attached is a non binding letter to participate in the fund that we need to move forward. I have also sent this to you for digital signature through [this digital signature service]. Please return it to me at your convenience.
Thank you.
Use a PACT before sending materials
SUBJECT: Here is access to our materials
Hello,
Thank you for expressing interest in our new fund. To receive our full investor presentation and other fund materials, can you please let us know your desired investment amount?
Attached is a non binding letter to participate in the fund that we need to customize the materials. I have also sent this to you for digital signature through [this digital signature service]. Please return it to me at your convenience.
Thank you.
USE FOLLOW UP TO SECURE A PACT
Subject: Appreciate your feedback
Hello,
Thank you for reviewing the materials on [our new fund]. We are now collecting feedback on our term sheet before preparing the definitive agreements for our first close.
If you would like to review the draft term sheet and receive the final closing documents, can you please sign and return the attached PACT Letter? I have also sent this to you for digital signature through [this digital signature service].
I look forward to receiving your feedback on the closing. Thank you.
Use a deadline to secure a PACT
SUBJECT: Update on our closing date
Hello,
Thank you for your interest in investing in our fund. We are planning to close in [time period] and are collecting commitments by [date].
Attached is a non binding letter to participate in the fund that we need to move forward. I have also sent this to you for digital signature through [this digital signature service]. Please return it to me at your convenience.
The Decile Group develops industry-leading offerings to transform venture capital into an ethical force for good in the world, including VC Lab, Decile Hub, Decile Partners and Decile Capital.
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