

What is a lead Investor, and how do you find one?
9th December 2022

Author
James Church
Author, Investable Entrepreneur and co-founder, Robot Mascot
Something I’m often asked by clients going through the equity fundraising process is ‘what is a lead investor?’. It’s likely that you’ll only come across this term as you start your fundraising campaign and start speaking with investors. It’s also highly likely you’ve no idea what a lead investor does, or even how to find a lead investor. So let me explain…
What is a lead investor?
A lead investor is an individual or organisation who takes on the responsibility of setting the terms of the investment deal. This often means they are putting in the largest share of the total amount being raised and therefore want to lead the negotiations.
Most rounds with more than one investor will need a “lead investor”. If your round has one investor, they are by default, the lead investor.
Lead investors are often the most difficult to find, as it means they have extra responsibilities – which few investors are willing to take on in a group investment scenario unless they are experienced.
Key Responsibilities of a Lead Investor
Securing a lead investor is more than just finding a primary source of funds; it’s about bringing on board someone who can actively support your startup’s growth. Lead investors don’t just write a check; they take on critical duties that shape the entire investment process. By setting terms, leading due diligence, and even providing strategic guidance, they set a standard that can attract and reassure other investors.
Here’s a breakdown of the primary responsibilities a lead investor assumes:
- Setting investment terms: The lead investor is in charge of negotiating and defining the main terms of the investment deal, including aspects like valuation, equity stake, and protective clauses. This framework serves as the foundation for other investors, who generally follow the terms agreed upon with the lead.
- Conducting due diligence: Before committing, the lead investor undertakes a rigorous assessment of the startup’s business model, financial health, market potential, and management team. This in-depth review builds confidence for other investors who may lack the resources for such extensive analysis.
- Coordinating the funding round: From arranging meetings to recruiting other investors, the lead investor plays a pivotal role in driving the funding round forward. This organisation minimises roadblocks and keeps the investment process on track, making it smoother for both founders and other investors.
- Providing strategic guidance: Lead investors often bring industry insights and experience that can be invaluable for founders. By offering mentorship, they can guide the startup in critical areas like scaling, market-entry, and business development.
- Representing other investors: The lead investor acts as the main liaison for other backers, keeping them informed about key developments and performance metrics. This representation builds trust and fosters a unified approach among all parties in the funding round.
Differences between lead and non-lead investors
Aspect | Lead investor | Non-lead investor |
Investment size | Typically contributes the largest amount of capital. | Usually contributes a smaller amount of capital. |
Decision-making power | Often has more influence on the startup’s strategic direction. | Limited influence on strategic decisions. |
Responsibilities | Takes on significant responsibilities, including setting terms, due diligence, and coordinating the round. | Has fewer obligations but may provide expertise and connections. |
What does a lead investor do?
The lead investor is responsible for setting the terms of the deal, doing due diligence, and negotiating with you. They agree on things like the valuation (and therefore share price), the heads of terms, and the legal agreements for which all other investors must agree (the term often used for this is that the other investors “follow on”).
You are also likely to find that many angel investors are more confident in investing if a lead investor is on board. This gives them the confidence that the deal will be a good one. The more experienced the lead investor, the more likely you are to attract other less experienced investors who are willing to follow on.
The lead investor usually puts in the most money, but not always, as they may be a smaller stakeholder but have the experience and willingness to lead. Your round could be led by an individual angel or a professional fund (funds are usually much more willing to lead).
Characteristics of a good lead investor
Not all lead investors are created equal, and choosing the right one is critical for the success of your fundraising round. A good lead investor brings more than just financial resources to the table; they act as a strategic partner, providing credibility, expertise, and connections that can help your business thrive. Here are the key characteristics to look for when evaluating a potential lead investor:
Experience in your industry
A strong lead investor should have a deep understanding of your sector or market. Their industry experience enables them to assess your business with a nuanced perspective and offer valuable insights. An investor familiar with the challenges and opportunities in your field is better equipped to guide you through critical decisions and provide relevant support.
A proven track record
The best lead investors have a history of successful investments, particularly in startups or businesses at a similar stage to yours. Their track record of identifying and supporting high-potential ventures not only validates their ability to lead but also enhances your credibility with other investors.
Strong networking and connections
A lead investor with an extensive network of contacts can open doors to additional funding opportunities, strategic partnerships, and industry experts. They are often well-connected within the investor community and can bring other follow-on investors into your round, helping to close your funding more quickly.
Willingness to take responsibility
Leading a funding round requires more effort and responsibility than simply following on. A good lead investor is someone willing to take on these extra duties, including setting the terms of the deal, negotiating with legal teams, and conducting due diligence. Their commitment to this role demonstrates their confidence in your business and their ability to lead effectively.
Alignment with your vision
Your lead investor will likely become a key partner in your business, so it’s essential that they share your vision and values. Look for someone who believes in your long-term goals and understands your company’s mission. Misaligned expectations can lead to conflicts down the line, so ensuring mutual understanding from the start is crucial.
Financial capability
While a lead investor may not always contribute the largest share of the funding, they should have the financial capacity to make a meaningful investment. Their commitment level sets the tone for other investors, so their contribution should reflect confidence in your business.
Willingness to offer guidance
Beyond financial support, a good lead investor acts as a mentor, providing strategic guidance and advice. They should be approachable, willing to share their expertise, and proactive in helping you navigate challenges. This mentorship can be especially valuable for early-stage startups.
Reputation and influence
A reputable lead investor brings significant credibility to your fundraising efforts. Other potential investors are more likely to follow on when a well-known and respected individual or organisation is leading the round. This influence can also extend beyond fundraising, as having a high-profile lead investor can enhance your brand’s reputation in the market.
Patience and long-term commitment
Startups often face ups and downs, and having a lead investor who is patient and committed to the long-term success of your business is invaluable. Avoid investors who are overly focused on short-term gains or who may pressure you into decisions that don’t align with your vision.
Understanding of founders’ needs
A good lead investor appreciates the unique challenges founders face and fosters a relationship built on trust and collaboration. They should empower you to make decisions while providing support and input as needed, striking the right balance between being hands-on and giving you autonomy.
Do you need to have a lead investor for your investment round?
Not necessarily. You can effectively lead the round yourself and negotiate the terms individually with each investor. However, these terms need to end up the same with every investor (you wouldn’t be able to agree to a different valuation with different investors, for example, nor would you end up with different shareholder agreements for each).
This means it becomes your responsibility to get all investors on the same page and work on a deal they can agree to.
If you find someone who is willing to be the lead investor early on, that is great news! Having a lead investor usually means you have someone with experience willing to invest, which will give you credibility with other investors. Be sure to name-drop who your lead investor is in future pitches!
Do lead investors get better terms?
No. Lead investors invest on the same legal terms as everyone else. The benefit for the lead investors is that they get to set the terms that work best for them, and they are also more in control of the due diligence. This suits some investors who are more detail-focused on their approach and like to be more hands-on.
It can also provide some other benefits. For example, it can help the investor improve their reputation in the industry, so they get a better deal flow of investment opportunities. It’s also common for the lead investor to request a board seat with the startup to have input on the company’s direction (although they wouldn’t have any control over decisions other than anything agreed upon in the shareholder’s agreement).
Benefits of Having a Lead Investor
Having a lead investor can provide several advantages for a startup:
- Credibility: A lead investor’s backing can establish credibility in the market and attract other potential investors.
- Efficiency: It streamlines the fundraising process by reducing the need to negotiate terms with multiple investors simultaneously.
- Experience: Lead investors often bring valuable industry knowledge and connections to the table.
- Future support: They are often expected to lead any bridge rounds and make introductions for future funding rounds.
- Alignment and trust: A lead investor who actively participates in decision-making can establish a foundation of trust and alignment with the startup’s vision.
- Network access and partnerships: Beyond connections with other investors, lead investors often bring a network of industry partners, advisors, or strategic clients.
- Streamlined communication: With a lead investor acting as a point of contact for other investors, communication becomes more focused and efficient.
- Increased investor confidence: A respected lead investor’s endorsement can be a strong signal of quality, which helps attract top talent and other investors who may otherwise be hesitant.
- Potential for follow-on capital: Lead investors are often in a position to provide follow-on investments in later rounds, which can be a stabilising factor for the startup’s long-term fundraising strategy. This potential for continued support can reduce the pressure of future fundraising efforts.
How to find a lead investor
It can take some time to find a lead investor. In our experience, most investors are more willing to follow on, and few want to lead the round. Many rounds lose momentum or even fail because founders cannot find a lead investor.
You may also find yourself in a position where you have all the money you need committed, but no lead investor – in which case, there are a few options available to help you find a lead investor and close your round:
Approach a fund
If you have a substantial portion of your funding round already committed, reaching out to venture capital firms or funds willing to act as lead investors can be a strategic next step. Many funds and venture capital firms focus on specific industries or growth stages, making them more likely to understand your market and recognize your startup’s value. Research and target firms that align with your business’s focus, as they’re often equipped with the expertise to set terms and lead rounds.
When approaching these firms, clearly communicate that your round has traction and that you are seeking a lead investor to finalise the process. This progress can capture their interest, as funds often prefer to lead rounds with proven demand and other investors ready to follow on.
Sweet talk your current investors
Your existing investors and advisors can be invaluable resources in your search for a lead investor. As supporters who already believe in your vision, they may have connections to experienced lead investors who could help complete your round. Reach out to your investors for introductions, as their network and recommendations can carry significant weight.
If you’re close to closing your round, consider asking one of your current investors to take on the lead role. Use your powers of persuasion to show that you’ve made the process as smooth as possible by preparing key materials, such as a solid data room, due diligence documents, and legal insights. By demonstrating readiness, you may encourage one of your investors to step up as the lead, which could give your round the momentum it needs to succeed.
Ask your current investors for intros to a lead investor
Investors rarely invest in isolation. If they have a portfolio of investments, they also have connections with lead investors who structured the deals on those rounds. Ask your committed investors if they know of any investors that might be willing to get involved and take the place of lead investor – especially given the round is now in a position to close.
Once you find a lead investor, make sure that you are clear about what their level of financial commitment is going to be in the round, so you are all on the same page – just like you would with any other investor. And don’t forget to do your due diligence on the lead investor – it’s easy to get caught up in the excitement of finding a lead investor that you forget to check out their credibility, just as you would with all your follow-on investors.
How to Attract a Lead Investor
Attracting a lead investor is a crucial step in the fundraising journey, as their involvement can boost credibility, streamline the funding process, and draw in additional investors. However, securing a lead investor requires a proactive approach and a well-prepared strategy. By tapping into existing networks, demonstrating tangible progress, and presenting a compelling vision and value proposition, startups can set themselves apart in the eyes of potential lead investors.
Here are key steps to increase your chances of attracting the right lead investor to advance your funding round:
Step 1: Understand What Makes a Good Lead Investor
Before you begin your search, take the time to identify what qualities you want in a lead investor. A good lead investor should:
- Have experience in your industry or with startups at your stage.
- Possess a strong network of connections that can bring additional investors on board.
- Be willing to take on the responsibilities of leading the round, including setting terms and conducting due diligence.
- Align with your company’s vision and values.
Having a clear picture of your ideal lead investor will help you focus your efforts and ensure you find someone who can add more than just capital to your business.
Step 2: Build a Strong Foundation
To attract a lead investor, your business must present a compelling case. Prepare the following materials to showcase your opportunity:
- Pitch deck: A well-structured and visually engaging presentation that outlines your business model, market opportunity, team, and financial projections.
- Business plan: A detailed document that provides deeper insights into your strategy, execution plan, and market positioning.
- Data room: A secure, organized repository containing financial statements, market research, intellectual property details, contracts, and other documentation investors need for due diligence.
- Traction evidence: Demonstrate your progress with metrics like customer acquisition, revenue growth, partnerships, or product development milestones.
Having these materials ready will boost your credibility and make it easier for investors to take your proposal seriously.
Step 3: Network Strategically
Building relationships with investors is essential. Start by leveraging your existing network:
- Industry events: Attend startup conferences, investor showcases, and industry-specific meetups. These events are prime opportunities to connect with experienced investors.
- Angel networks and groups: Research local and international angel investor groups. Many angels participate in such groups to pool resources and share opportunities.
- Startup accelerators and incubators: These organizations often have strong connections with lead investors and can provide warm introductions.
Be consistent in attending events and building relationships. Investors who trust and understand your business are more likely to lead a round.
Step 4: Approach Funds
If you already have some funding committed, you can approach professional funds as potential lead investors.
Here’s how:
- Highlight your traction: Make it clear that your round is moving quickly, with a significant proportion of the funding already committed.
- Explain their role: Emphasize that you’re looking for a lead investor to close the round and guide the terms. Funds are often willing to take on this role, as they have the experience and resources to lead effectively.
- Tailor your pitch: Research each fund thoroughly and customize your pitch to align with their investment thesis. Mention successful portfolio companies they’ve led in similar rounds to demonstrate alignment.
Step 5: Engage Your Current Investors
If you already have investors committed to your round, use their involvement strategically:
- Persuade them to lead: Have a conversation with your existing investors and explain the need for a lead investor. Highlight how leading the round will give them a larger voice in negotiations and build their reputation in the investment community.
- Prepare to support them: Make it as easy as possible for your current investors to take on the lead role. Provide clear term sheets, guidance on due diligence, and access to experienced legal teams to minimize their workload.
- Ask for introductions: Your current investors may know other investors with experience leading rounds. Request introductions to their network and leverage their relationships to find someone who can step into the lead investor role.
Step 6: Leverage Online Platforms
In today’s digital age, online platforms can connect you with lead investors who match your needs:
- AngelList: A platform where startups can showcase their business to angel investors and venture capitalists.
- LinkedIn: Use LinkedIn to research and reach out to potential lead investors who have a history of investing in your sector or business stage.
- Equity crowdfunding platforms: Platforms like Seedrs and Crowdcube can attract investors who are willing to lead or participate in a round.
Step 7: Build Social Proof
Social proof can play a powerful role in convincing a lead investor to join your round. Here’s how to build it:
- Highlight existing commitments: When pitching to potential lead investors, clearly state the amount already committed to your round. This will show traction and reduce their risk.
- Showcase credibility: Share endorsements from industry experts, testimonials from customers, and media coverage to build trust.
- Name-drop strategic investors: If any of your existing investors have strong reputations, mention their involvement to add legitimacy.
Step 8: Demonstrate Why Leading Your Round is Attractive
To persuade someone to lead your round, you must show the value of their involvement:
- Define Their Benefits: Explain how they will shape the terms of the deal, gain influence over the round, and secure a board seat or advisory role.
- Align Incentives: Show how their expertise and connections can directly impact your success, increasing the value of their investment.
Step 9: Conduct Due Diligence on Potential Lead Investors
It’s not just about finding a lead investor – you need the right lead investor. Before finalizing their involvement:
- Check their track record and reputation in the industry.
- Speak with founders they’ve invested in to understand their approach and involvement post-investment.
- Ensure they have the financial capacity and expertise to contribute effectively.
Step 10: Be Persistent and Patient
Finding a lead investor can take time, and you may face setbacks. Keep refining your pitch, expanding your network, and demonstrating traction. Persistence is key in the fundraising process.
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