Soft Circle
A soft circle is a non-binding indication of investment interest from an allocator, used early in fundraising to gauge potential capital and investor intent.
What Is a Soft Circle?
A soft circle is an informal, non-binding expression of interest from an investor or allocator to participate in a fund or investment round. Unlike a hard circle, which represents a formal and legally binding commitment, a soft circle simply signals that the investor is considering an allocation but has not yet finalized their decision or paperwork. This term is most often used in the early stages of fundraising to help fund managers estimate the potential capital they might raise.
How Does a Soft Circle Work?
During fundraising, managers engage with prospective investors to present their strategy and gauge interest. If an investor expresses intent to invest often verbally or via email but has not yet signed any agreements or transferred funds, they are considered “soft circled.” This allows managers to track tentative commitments and build momentum, using the total soft-circled amount to demonstrate traction to other potential investors. Soft circles can become hard circles as investors complete their due diligence and move toward formal commitments.
Why Are Soft Circles Important for Fund Managers and Allocators?
Soft circles are valuable because they:
Provide early feedback on investor appetite and fundraising progress
Help managers prioritize follow-ups and allocate time efficiently
Create social proof, showing other investors that there is genuine interest in the fund
Allow managers to forecast likely capital raised, even though not all soft-circled amounts will convert to actual commitments
Example: Soft Circle in Practice
A fund manager meets with several family offices and institutional investors. Three investors each express interest in potentially allocating $5 million but clarify their commitment is contingent on further due diligence and internal approvals. The manager records these as soft circles, totaling $15 million in tentative interest, and uses this figure to attract additional investors and demonstrate market traction.
When Should You Use a Soft Circle?
Soft circles are most relevant:
In the early and middle stages of fundraising, before legal commitments are made
When gauging market interest to inform fundraising strategy
To build momentum and credibility with other prospective investors
As a tool for internal tracking and forecasting likely capital inflows
