Your startup is up on its feet, you have a superstar founding team, your product has been gaining traction, and it’s time to raise some money to fuel future growth. How do you start your next fundraising round? The last part of our series ‘Business Funding’ is dedicated to finding a lead investor.
Let’s start with the basics first. In a typical investment round with multiple investors, there will be one institution or angel who plays a special role in the structuring of the round and all related due diligence – the lead investor. A lead investor is usually well-known and the one who puts in a bigger chunk of money in a round.
So, what does a lead investor do? A lead investor will negotiate your term sheet including your valuation and liquidation preference. In addition, the lead investor will ensure that all documents are in order, and will help the company find or manage the relation with other investors. Your lead investor will most probably be the one to earn a board seat and plays an important role in any further development of the company.
What’s the advantage of having a lead investor in the round? Having a lead investor on board will save you time when negotiating the investment terms and performing a detailed due diligence as you will be doing so with just one party. In addition, have a lead investor on board will help attract other investors.
How do you find an appropriate lead investor?
- Choose your lead investor wisely as this will be the most influential role beyond the founders’ team.
- Find out if the potential candidates on your list are willing and able to act as lead investors.
- Engage your lead investor early on as an advisor into your startup leveraging his/her expertise and connections.
- Try to avoid lead investors who ask for a compensation in the form of a cash finder’s fee.
Raising money is definitely a hard task and there are no shortcuts, but if implemented successfully it can be very rewarding. Remember that the core of securing an investment is building relationships. Always be patient and prepared with your pitch, so that when an opportunity presents itself, you’ll be sure to secure your lead investor.
We hope you have enjoyed our guide for business funding and that it conveyed a sense of understanding of what business funding actually is, the available options and how it works. If you have any questions, join us on telegram.