The backstory:
Our first fundraise was textbook. Got 3 term sheets, picked the better one, and politely told the other VCs "thanks, but no thanks." Everyone shook hands (metaphorically) and moved on.
Fundraising = shop around, take the best deal. Simple.
Turns out I was catastrophically wrong.
Fast forward:
We'd burned $100K but hit $100K ARR. Time to raise $500K more.
A group of founder-royalty angels reached out. Six separate calls. Each one saying how much they wanted to invest.
Total: $650K at a $5M cap. The lead investor (who made this happen) called last and said he'd "follow up with the paperwork."
But we'd also applied to YC. So I emailed them: "Hey, could you interview us this week? We have another offer we need to accept if you don't take us."
YC interviewed us. Accepted us. Dalton called: "You're in."
Here's where I screwed up:
I called the angels with what I thought was professionalism: "Thanks for the offer, but we're going with YC."
In India, this is Tuesday. You take the best deal, thank everyone else, the world keeps spinning.
But there was a problem:
Remember those 6 calls where angels offered money and we said yes? That WAS the deal. Apparently in Silicon Valley, a "handshake deal" is more binding than a blood oath. No term sheets, no signatures - just a phone call where you agree, and boom, you're legally married to that investor. The paperwork? That's just wedding photos.
You cannot back out!
One angel called YC: "These Indian founders promised to take our money and broke their word!"
24 hours after acceptance, Dalton calls:
"Hey, someone says you had a handshake deal with them. Do you want to take their money or stay with us?"
Translation: "Fix this or you're out."
After painful minutes of back-and-forth, Dalton says: "Okay, figure it and call us back. This would be a good test if you guys are founder material!"
The resolution:
One literal angel founder in the angel group saved our asses. He realized we weren't malicious - just clueless.
"You know you can take both, right?"
He even offered better terms to make it work. But we stuck to our original commitments.
Emailed Dalton: "We're good." Stayed with YC and told the other's we will take their money along with our demo day raise. Everyone is happy!
If we'd chosen NOT to honor the handshake deal, YC would have kicked us out. For breaking our word.
It's a beautiful system, really. Honor your word or get exiled from the ecosystem!
The lesson:
Don't break handshake deals. They're the invisible infrastructure that makes Silicon Valley fundraising work at light speed.
PS: This traumatized us so badly that during YC Demo Day, I accidentally raised $400K extra and had 5 more meetings scheduled.
Dalton: "You know, once you hit your target, you can just cancel the meetings and email saying you're done, right?"
Me: "Shit! Let me email now."
Some lessons cost $400K to learn.
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