Are you struggling to find a lead investor for your business?
Finding the right investor is more than just identifying those that invest in your industry and life cycle stage. Investors, and in particular lead investors, are commonly going to take an active advisory role in your company.
Alignment with your lead investor on values, belief systems, and overall goals is essential. When you are faced with this decision, realizing this is a long-term relationship that will impact your company’s future is an important aspect to your success.
What Defines a Lead Investor?
The definition of a lead investor varies on who you ask:
1. Someone that helps work with the entrepreneur to organize the other investors and any soft commitments.
2. The first person who invests in a particular round. However, this does not necessarily mean that your first investor will provide the greatest amount of capital.
3. Someone who provides the highest amount of capital in a syndicated round.
Regardless of which definition resonates with you the most, it is important to know that our lead investor will be an important one to the success of your business. Keeping that relationship positive and professional will expand your capital even further down the road in various aspects.
Why is Choosing the Right Lead Investor so Important?
Beyond providing essential operational capital, lead investors have other effects on a company. To start, securing a lead investor will provide a level of comfort to other potential investors. Nobody wants to be the first to show up to the newest and hottest night club, right?
Similarly, every investor or investment fund combs through their deal flow, looking for the right opportunity. Having a noteworthy first or lead investor can shorten a financing round, for it conveys a sign of trust.
Without a lead investor, other potential investors will have reservations, even in the best of market circumstances. As we’re all experiencing this challenging financial climate, entrepreneurs need to take every possible step to reduce the perception of risk.
Securing a lead investor is critical in that trust-building process. They signal that there is a future promise of an ROI and solidify the team and business model are strong. Partnering with a lead investor who places a sizable initial investment signals confidence, and like a gravitational magnet, pulls in other investors more easily. This helps propel your valuation and closes your round at the desired amount
Finally, investors travel in circles. Landing your lead investor gets you access to their network of influence, again improving the likelihood of closing your round more quickly.
Where are the Lead Investors?
While success depends on networking and follow up (Remember: The noisy wheel gets the deal!), there are a large number of tools to help streamline this critical part of the job.
For starters, entrepreneurs can purchase subscriptions to sites like CrunchBase and Pitchbook. These sites provide endless amounts of data, from who has raised capital, when, and how much. They also show the investors that are backing each company.
Finding investors can be done without purchasing expensive tools. Sitting down and doing research on Google or inside LinkedIn can reveal investor networks in your area. Most large cities or entrepreneurial communities have investment funds, accelerators, and groups that are always searching to build upon their deal flow.
After putting in the work to network, build relationships, and develop your pitch, entrepreneurs can also apply to pitch competitions, further exposing them to high net worth individuals. If you still need help, you can always hire an investor relations ninja to help open doors and make introductions
Finally, if all of this isn’t working, you can work on the other side of the equation and network with recently funded companies. Communicating with other founders in your space and life cycle stage can help open opportunities for networking and capturing investors, all while possibly teaching you valuable information about their experience with their personal process.
The Importance of a Good CRM
The best way to find a lead investor is through prioritization of your leads and management of those relationships through a CRM, or Customer Relationship Management platform.
The main benefit of utilizing this tool is to organize and assist with communication and to respond to any requests promptly, such as providing information or updating pitch materials to potential investors.
Key metrics to prioritize investors by include:
· Their track record as a lead investor
· Their ability to syndicate
· Knowledge and experience in your space/business stage
· Ability to interact with and manage other investors if necessary
· The amount of capital they have to deploy
This certainly isn’t an exhaustive list, and there will be other factors to consider. As you go through the process of raising capital, remember that patience and positivity are essential. Raising money is a brutal process, and the road is riddled with many who will say no. Just keep building and remember that timing is everything, and eventually, your day will come.