A lead investor is the first investor in a funding round, setting the terms and attracting other investors. They play a crucial role in negotiating terms, handling legalities, advising the startup, and facilitating future fundraising and investor relations.
What this video covers
So, what is a lead investor? A lead investor is that investor that is going to come in and is going to lead your round. It’s going to be the first money in, and essentially, it is going to help in creating that umbrella in which everyone else is going to come in and invest under whichever those terms are.
In terms of what the lead investor does, there are many things. In fact, I’d like to describe them and break them down for you. Those are the following things:
Who makes a good lead investor? At the end of the day, you’re going to have two types of investors. You’re going to have the Follower, which is going to be the one that invested in other people invest in your round, and then you’re going to have the Lead.
In terms of the Lead, this is going to be someone that really believes in your mission, in where you’re heading, someone that has the domain expertise and that can contribute, and also, someone that has a very good network that essentially you can leverage for either future fundraising rounds, for getting your company acquired, other people that you may need to recruit that they have in their network, and also, for distribution.
This is someone that brings much more than the money itself. Essentially, those networks that you can leverage so that in 18 to 24 months, which is where you’re going to be heading your next financial cycle, they can help to accelerate unlocking whichever milestones that you have in front of you. How much does a lead investor put in? A lead investor is going to invest anywhere between 20% to 30% of your round. They don’t care about anyone else. They don’t care about who else is investing. They just want to invest.
When it comes to when to start the search, you need to start as soon as you have the idea of doing a round of financing. If you think that in 18 to 24 months, you’re going to require more money or in 6 or 12 months, or whatever that is, you need to start asking for meetings with those people that you think are going to be a good fit.
The way that you go is you go asking for advice, for building the relationship, and for this coming from them. Eventually, when you’re going with them and following-up every couple of weeks to tell them how great their advice and their feedback once implemented, how incredible the outcome was, they’re going to feel like they’re a part of it. They’re going to feel like they’re helping you to build the business, and it’s what gets them excited.
It’s going to come from them and say, “Hey, by the way. Are you looking for money?” Then, at that point, you’re going to say, “Yes.” They’re going to put whatever amount of money that is, and then you’re going to bring the other people that were giving you advice to also jump in. That’s how you establish the sense of urgency. At the end of the day, when it comes down to searching for these people, you want to do it as soon as possible, as soon as you know that you’re going to have to raise a round of financing.
There are many ways to find a lead investor when it comes down to where can I find a lead investor? These are the following ways in which you can find that lead investor and get them engaged. You can get those lead investors by:
- They negotiate terms.
- They hire a law firm to handle the paperwork.
- They advise your startup, they take a seat on the board.
- They make introductions and connections to perhaps other investors.
- They help structure future fundraising rounds.
- They help manage other investors.
- They bring other investors, financing, and distribution channels.
- They participate in follow-up funding rounds, amongst other things.
- introductions by other entrepreneurs and investors.
- investors who have a history of leading funding rounds.
- online investment platforms – equity crowdfunding, etc.
- networking events offline or online.
- social media networks. You can find their email or their LinkedIn profile and send them a note directly.
