The Lead Investor

You are told you NEED one but sometimes nobody wants to BE one…… let’s talk about the lead investor, the ‘deal daddio’, the ‘money momma’ and exactly what that means for your round if you don’t have one.
Typically but not always a lead investor is the first person or organisation to put their money on the table. They aren’t necessarily the investor that puts ALL of the money on the table (although really they should be responsible for at least 15% — 20% of the round), but they are the vital first step that makes the rest of the process happen.

The EXCEPTION to this rule is where the ‘first foot’, the ‘keen machine’, the ‘starting-gun shooter’ is your GRANDMOTHER or any other relative. In this instance they can NOT have this crown because it is unlikely their resume is fit for purpose.

They will just have to stick to the title of GRANNY and be satisfied with it.

Your lead investor takes a hold of your investment syndicate and let’s be honest, does the lion’s share of the WORK. They are your Partner-in-Dime (*do you see what I did there……*), the Robin to your Batman, the Jay-Z to your Beyonce (*bite me*). They play a CENTRAL role in your investor group and by having a lead investor, it sends out the following message:

this team is so freakin awesome, I am super excited about them and I am going to outwardly champion them ALL the way — BOOM”.

And this, my friends, creates CONFIDENCE, and some relief, but MOSTLY lots and lots of confidence.

Yet more and more frequently founders at seed stage tell me that they have closed the round but haven’t GOT a lead investor.

If you find yourself in this situation, this means that nobody loves you…

Just kidding.

Look, it happens. People who are not experienced at investing may have good reasons to not lead: they LIKE you but they don’t really KNOW the market, they don’t want to deal with negotiating terms and hiring a lawyer (like you can BLAME them), maybe they feel that their investment is too SMALL to take the reigns. With more experienced investors maybe they are just super BUSY and can’t commit the requisite amount of time to it. Remember this role consists of time, organisation, onward support AND dollars. It’s a pretty big gig and sometimes it’s like:

If this does happen then fear ye not, for the game is far from over. Very simply, here’s how to close a round in that situation:

  1. Get yourself a lawyer who knows what they are doing and they can knock up a fairly straightforward cap table and term sheet.
  2. Send out said term sheet for comment.
  3. Mix the feedback into the term sheet and gently season.
  4. Wait for the ink to dry then get your lawyer to get started on the deal pack. Agreed, this is not ideal but hey, at least it’s going to be founder friendly.

Other times founders come to me with this sort of investor feedback:

“They said, we really LIKE you but we don’t want to INVEST in you without a lead and WE don’t want to be the lead”.

Sit down sweetcheeks, I’ve got something to tell you.

This is actually a ‘NO’ without saying no. It’s called the “Lead Investor Dance”. They don’t want to miss out if your idea takes off so it’s not a REAL no but it’s not an ACTUAL yes either……

In the early stages of investment where you have money committed, not having a lead investor isn’t the worst thing that can happen; the worst thing that can happen would be NOT having any money at all.

Having worked with several outstanding lead investors, I’m firmly in the LEAD camp (apologies, still in referendum mode) and strongly encourage you to ACTIVELY look for your ‘champion’ as without question, it will make your life infinitely easier as you try to raise funds and let’s face it, in this crazy world of high growth start-ups, you need all the help you can get.

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