Pulling Out

I watched with some amusement in 2015 when Chuka Umunna announced his candidacy for Labour leadership and withdrew three days later. It prompted a friend to joke about rating one's "pull-out game" on a scale from Umunna to the US Special Forces.

However, there's something serious here worth examining. How do you back out of an investment you've committed to? This is something no one likes to talk about, yet many investors face this problem.

Better Not to Commit

The obvious advice is: don’t commit until you’re absolutely sure. Of course, that’s as impractical as telling founders not to run out of money. it’s perfectly sensible in theory, but not always actionable in practice.

Angel Investors often feel immense pressure to decide quickly, especially when a deal is too hot to pass up. The fear of missing out can be overwhelming, and you might think, “I’ll commit now and sort out the details later.” As I learnt, that’s a recipe for trouble.

Instead, consider these points:

1. Make it clear you’re still in the decision-making process, even while expressing enthusiasm.

2. Maintain a checklist of the key information you need before committing.

3. Set a firm time limit for your decision-making.

4. Jot down why you’re excited, then wait 24 hours to see if that excitement endures.

Too frequently, investors give a “soft yes” in the hope they won’t have to follow through. This behaviour that ultimately undermines the trust upon which the startup ecosystem is built.

When You Need to Back Out

Last year, I nearly invested in a fintech startup. I was genuinely excited about the founder, their team and the market potential, but I said yes too hastily. It wasn’t long before I started noticing strategic issues that I couldn’t simply ignore.

Here’s what I’ve learned works when you find yourself needing to withdraw:

1. Decide swiftly, communicate even more swiftly. Once you’re certain of your decision, inform the founders within 48 hour because any delay only wastes their time.

2. Be forthright. Founders are quick to detect insincerity. Avoid vague excuses like “I’m having cash flow issues” when the true reason is that you’ve lost confidence in their strategy.

3. Offer specific feedback. If your decision rests on substantive concerns, share them. The best founders will appreciate a remark such as, “Your customer acquisition costs seem unsustainable, and I don’t see a viable path to reducing them.”

4. Recommend alternatives. If you know of other investors who might be a better fit, make introductions. This shows you’re not rejecting the founders outright, only that you’re not the right match.

Of course, there are legalities to consider; term sheets and commitments carry legal weight. However, most early-stage investing is based on reputation rather than litigation. I’m still to hear of a founder sue an angel investor for withdrawing, though many would be reluctant to take their money again.

The Meta-Lesson

The true insight here is about reputation. Whether in Silicon Valley, Silicon Roundabout, Silicon Savannah and indeed in every other startup hub, your reputation is everything.

Withdrawing from a deal can harm your reputation, but doing so with grace and honesty minimises the damage far more than a clumsy exit. It’s far better to back out wisely than to invest in a company you don’t truly believe in and then become a problematic investor.

What matters isn’t just your actions, but how you handle them. Founders and fellow investors talk, and if you manage difficult situations with honesty and respect, that becomes your lasting reputation.

I’ve come to believe that saying clearly, “This isn’t the right fit for me,” is an act of kindness, not cruelty. Founders need believers, not doubters. By backing out, you’re allowing them the opportunity to find investors who genuinely share their vision.

If you’ve committed and then realise you need to withdraw, do so quickly, sincerely, and with a view to helping where you can. In doing so, you’re not just managing a difficult relationship, you’re building a reputation that will serve you well in every future deal.