How to Get a Lead Investor on Board?
Have you ever wondered what a lead investor is and why you need one? This article will answer all your questions regarding such an important subject and we will try to make easy to follow and with less jargon.
What is a lead investor?
A lead investor is a person or organisation (i.e. a Venture Capital fund, or group of Angel Investors) who will lead your investment round. They are the first hands on person who invests which means they get special perks, this also means they will be more involved than other investors as they have a bigger stake and more to gain. The lead investor will work closely with you as the business, helping make business plans, set strategic goals, decide on hires, create marketing plan action, etc.- so in short, they are your right hand man, your go-to person. Your lead investor will also be expected to be “the face” of your fundraising round, networking with other investors on your behalf and answering questions from other investors. As a result of this additional commitment, your Lead Investor may negotiate better deal terms and a percentage of the success fee upon exit.
Why do you need a lead investor?
A Lead Investor will provide balance and perspective to your offering, particularly around valuation and terms of your deal. As a startup founder, it is not unreasonable to assert that you will craft a deal that is in the best interests of you and your company.
It is important to secure a lead investor prior to going live with your equity fundraising campaign. However, in doing so, there may be a few small points that make-or-break your deal with potential investors which, if you have a lead investor on board to guide you, you will likely be able to address.
A lead investor will give you the inside track to what investors are really looking for in a deal. They will be able to provide suggestions on how you can create an investment proposition that represents both the interests of investors, and your start-up equally. This will significantly increase the positive reactions and investment you receive once your campaign has gone live.
Providing a balanced perspective isn’t the only benefit of having a lead investor. By securing a lead investor who has already been through the process of growing, funding and exiting a start-up successfully, you can learn from their wins, and also their mistakes, again significantly increasing your chances of success.
A lead investor will also come with their own network of contacts who they may be able to introduce you to in order to help you on your journey.
What qualities are important to have in a lead investor?
There are several qualities you should seek in a lead investor, however, the single most important quality is commitment. Your lead investor should not only be able to make a significant financial commitment to your round, but they should also be fully commitment and “invested” in the overall success of your business.
You need to build a relationship with your lead investor, which can take some time.
That is not to say that your lead investor should invest the majority of capital in your round. Rather, they should be investing the most amount of time and effort in securing the success of your round and your future growth.
It is also useful if your Lead Investor is someone who fully understands your industry and sector. Perhaps they are someone who has a background in running a successful business in your industry that they have now exited; or they may have previously invested in your vertical with a certain level of success.
It is important that your lead investor has a deep understanding of your market so they can fulfil their duties as your lead investor and help you advance your business. It is no use having a lead investor who has an in-depth knowledge and experience in the medical technology industry if you are operating in e-commerce.
Finally, your lead investor must be on-board with your vision and your “why”. Your “why” is your deepest motivation for running your business and the change you want to make in the world. They must share that same vision and sense of purpose otherwise your relationship will not stand the test of all the obstacles that will likely arise as you grow your business. It is important that your lead investor shares your vision for the business.
So, how do you find a lead investor?
The first thing you need to do is to have a plan. This is where your slide deck and financial model come into play. These assets should convey your vision, passion and the market for your business. They should make an investor sit up and listen to what you have to say and connect with them on a deeper level.
Most professional investors see hundreds, if not thousands, of investment propositions every year so it is important that yours stands out from the crowd.
However, do not be obsessive about these assets. Raising funding can be a long-game and it should be played as such. You can never introduce yourself and your idea “too early” to an investor. The sooner you start building relationships with investors the better. It gives them opportunity to feedback to you on your proposition and what you can do to make it better. You can then take time to cultivate that relationship until they are ready to invest in you. This is of course, assuming you have an idea of who you would like your lead investor to be.
The most fruitful place to find a lead investor, is amongst your own network. You may have
worked with them in the past, they may have invested in a company you used to work for, they
may be a thought-leader in your industry or even a friend of a friend.
A warm introduction goes a long way and it is useful if you can be introduced through a mutual connection. In the same way that word-of-mouth is one of the most powerful marketing tools because people buy from people they trust, investors tend to invest in people who have been referred to them as it makes them stand out.
The 7 Steps to Getting a lead investor
Once you have done your research on prospective lead investors, make a list of “leads” in the same way you would prospect for new clients.
Go with a 7-touch campaign to build a relationship with your lead investor:
1) Introduction — This could be in the form of email, message on social media, referral through a mutual connection or even a letter. Try and avoid calling where possible as it is unlikely you will get a direct line and no one likes an unexpected proposition phone call, especially with investment when there are so many questions to ask.
PS: Stand out from the crowd by thinking of a creative way to get in touch with lead investors. Sending a letter with a sample of your product or something that connects to your service is a great way to stand out.
2) Invitation for coffee — this is usually a 30 minute to 1 hour chat about your product and idea. This is also an opportunity to discuss your coming round, but at this stage you should be asking prospective investors for feedback on your proposition rather than asking straight out for investment.
Furthermore, remember that investors are people, and they are likely to invest if they believe in you. The first meeting is as much about building trust in you as in what you are trying to build. 3) Company update — follow up your coffee meeting with a company update email with news of traction you have gained since your meeting.
4) Invitation to event/conference meeting — if your lead investor is involved in your industry, your fourth touch point could be to invite them to meet you at an industry conference or event to discuss how your industry is evolving.
5) Invitation for lunch/second coffee meeting — this is an opportunity to delve further into your investment proposition and to ask prospective investors of their feedback on your pitch deck.
6) Ask for investment — based on how developed you feel your relationship is with your prospective lead investor, you can now ask them to come on board.
7) Company Update — now you have secured your lead investor, you need to be continuously communicating with them and nurturing your relationship.
It is worth noting that this 7-touch plan may not be right for you, but by now you will have an idea that asking someone to be your lead investor requires time and effort to build a relationship that will generate a positive outcome.
It may not be possible to meet with your Lead Investor face-to-face, especially with investments crossing borders. Video calls are a lifesaver and you may want to adapt your 7-touch plan to accommodate this.
In conclusion, getting a lead investor on board can provide a degree of comfort to other investors that your proposition, the valuation and the terms of the investment have been “vetted” and there has been an opportunity for challenge. Your lead investor should be someone who is fully committed to your success and is willing to support you both financially and with time. Finally, finding a lead investor can be a time-consuming process. You need to cultivate your relationship over time, and. It has to be right for both of you and there are no quick wins!