3 Steps to Attract Your Lead Investor

A lead investor can make or break a round.

Secure a great lead investor, and it’s a huge signal that can supercharge your round.

Fail to find a lead, and you might seriously struggle to close your raise.

Unfortunately, most founders end up struggling, because they don’t realize…

Most investors do NOT want to lead your round.

A lead investor is a…

• Fact-checker. Leads due diligence efforts
• Bigger check. Invests a substantial proportion of the round (figure 40-60% of your total raise)
• Negotiator. Negotiates with you & sets the terms for all investors
• Introducer. Can potentially introduce co-investors that bring even more $$$
• Overseer. Monitors their investment regularly (can act as “boots on the ground” for faraway co-investors)
• Board Member. Sits on the board & has a significant input into strategic decisionmaking process

Finally, give the reader a sentence of hope: you're going to explain to them how they can overcome all these problems you just laid out!

Here's how, step by step:

Step 1: Assume no one is leading - until they are.

So many business owners make the mistake of assuming every investor could lead their round - and it torpedoes their chance at closing an investment.

Because the majority of small investors don’t want to lead.

Leading means:

• Bigger check size
• Bigger time commitment
• Bigger role in helping drive your company’s growth

Secret: most investors just aren’t set up for that.

So do everyone a favor, use my soft-circle strategy and assume the person or firm who wants to lead the round will present themselves.

When I go around asking for soft commitments, I like to use some permutation of this phrase:

Assuming all the DD stacks up, the terms are good and we have a lead investor that you’re REALLY gonna like - then rough order of magnitude, what sort of range would you be in for? Not gonna hold you to it! But just so we have an idea.

A small investor will just give you their range.

But when an investor who likes to lead rounds hears this, they jump up and down saying, “Woah woah woah. We lead investments.”

And that’s when you can take it further.

But to get to that point, before you approach a lead there’s a few more things you gotta do.

Step 2: Be prepared.

Every investor you meet is going to ask you this question at some point:

So… how much money have you raised so far?

Your answer better not be “umm, nothing yet.”

If you want that conversation to go the right way, then you gotta get your soft commitments in first:

1. Build a killer pitch & have all investor materials squared away

2. Run down your non-dilutive funding options

3. Get soft commitments from friends & family who might write a check into this round

4. Get referrals & soft commitments from your existing investors

5. Build your round to over 50% soft-committed

It’s a simple list, but so many founders just spray-and-pray their rounds.

…and it bites them in the ass.

Don’t be that guy (or gal)!

But before you go out & start hitting up the big dogs, you have a bit more final prep so it doesn’t go bad.

Step 3: Come armed with data.

Assuming you do a deal, you’re 100% going to be discussing terms with any lead investor.

And so you’re gonna get asked this question in some form or another:

What are your expectations concerning valuation?

And your answer CANNOT be dumb, ignorant or misinformed.

But it gets even juicier.

A potential lead might take it further and ask you for an indicative termsheet - so it behooves you to show up with one.

…It can be simple, but it better be reasonable and well thought-out.

If you don’t know what to expect re: valuation, here’s some data to get you started:

Make no mistake, there’s no way you’re going to get the deal that your termsheet proposes.

You’re just showing that you get the most important thing:

You show up ready to do a deal.

Summary

Don’t worry, a legit lead investor isn’t going to take the majority of your company.

You don’t need a lead.

Whenever you’re considering working with a potential lead, come prepared with questions about how they can add value.

After all, you can get money from anywhere.

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