The role of a Lead Investor
In the dynamic world of early-stage investments, a Lead Investor can inspire trust in your startup and encourage other investors to join the journey. Some Lead Investors inject substantial funds, while others bring invaluable experience as five-star experts. Their backgrounds often feature past support for startups and successful exits, offering a network of contacts and industry knowledge. They typically maintain a distance from the day-to-day operations of the business but remain easily accessible.
Lead Investors play a central role in concluding funding rounds by rallying fellow investors to follow suit and creating a ‘fear of missing out’ amongst the wider investor community. They perform crucial steps such as negotiating term sheets and conducting due diligence. The presence of a Lead Investor signals to other potential backers who may not be able to lead that a seasoned investor is attracted to the funding round, instilling confidence and mitigating risks.
In summary, a lead investor is more than just an investor, contributing a substantial portion of the capital needed to finance a funding round. They open doors and propel startups forward.
How to find a Lead Investor
Create a hitlist of VCs and angel houses that are likely to be interested in the venture you’re offering, considering both industry and product relevance. Leverage free sources like Barclays Demo Directory, which connects founders with potential investors, and Ship Shape to identify VCs and contact details for outreach. Explore premium platforms such as PitchBook and TechCrunch for investor information and market insights. Use Beauhurst Invest to extract ownership tables for companies operating in a similar environment. And scour LinkedIn for the loudest investor voices that align with your vision.
When reaching out to potential Lead, ensure the approach is warm and personalised. Connect using a contact name first, explore social media feeds for insights and craft emails with specific details to capture the interest of potential lead investors.
How to approach a Lead Investor
Begin by assessing the potential Lead Investor’s interest and avoid revealing your cards too early. Some prospective Lead Investors may seek information for a competitive advantage, so business details should be disclosed carefully. Create a desire for more information, and as the relationship deepens, progress to the next stage.
Ensure you're well-prepared for the initial pitch by crafting a compelling deck about your business with key details, market strategy and forecasts. This is often necessary to capture a Lead's interest. When the initial pitch occurs, keep it concise with minimal slides and be ready for questions. The Lead Investor will inevitably seek more details, possibly including financial information.
Once the Lead is engaged, assemble a term sheet with them. While not legally binding, it aligns critical deal terms before progressing towards a final shareholders’ agreement. Consider collaborating with platforms like SeedLegals for a cost-effective and comprehensive term sheet. A term sheet is your bridge to the next stage, covering ownership, control, valuation techniques and crucial investor rights.
