Soft Circling: Understanding Non-Binding Investor Interest Before a Raise

Soft circling means having early conversations with potential investors to learn whether they might be interested in a future raise. Those conversations may produce non-binding indications of interest, which are informal signals rather than commitments. Either side is generally free to change course.

Because an indication of interest is not a commitment, it is not a purchase, a subscription or a binding promise of any kind. It is simply information. Founders may use it to understand how a story, a structure or a timeline is being received before deciding how to move forward.

Soft circling often overlaps with pre-raise investor conversations and anchor investor discovery. An anchor investor is someone whose early interest may help shape the tone and structure of a raise. Finding one is a possibility, never a certainty, and no outcome is guaranteed.

Traditionally, founders have relied on their own networks, advisors, colleagues and warm introductions to start early conversations. Many begin with a short summary of the business and a few questions about what investors usually look for. These conversations tend to be relationship-driven and informal.

Others have worked with attorneys, accountants or placement professionals who help prepare materials and think through process. Some founders keep soft circling very private and talk to only a handful of people. Others take a broader approach, within the limits of securities rules.

How a raise is conducted matters legally. Under Rule 506(b), an issuer may not use general solicitation. Under Rule 506(c), general solicitation is allowed, but all purchasers must be accredited investors and the issuer must take reasonable steps to verify that status. Because early conversations can affect which path is available, it is wise to consult securities counsel before reaching out.

The right investor or connector may help a founder get honest, early feedback on a plan before significant time and money are committed. A thoughtful conversation may surface questions about structure, timing, use of proceeds and communication that the founder had not yet considered. It may also help clarify what kind of investor is a good fit.

A first conversation is generally exploratory. Expect to describe the business and the goals of the raise, and to hear how the other person thinks about opportunities in general. Nobody should be pressured, and nothing said in the conversation should be treated as a commitment on either side.

Helpful questions to ask include: How do you usually evaluate early opportunities? What would you want to see before forming a view? How do you prefer to communicate during a raise? Are you comfortable with the fact that any indication of interest is non-binding? It is also reasonable to ask whether securities counsel has reviewed the approach.