Are You Raising Capital For Your Company? Who’s Your Lead Investor?
I felt like a little kid waiting for that letter from Santa. I kept checking the mailbox.
A few days earlier I completed the legal terms and amount from my first investor for my newest company, the Shift Group. My investor told me he was sending the check and our contract in the mail.
More excited than the actual money he was sending, this meant I now had my lead.
The Importance of Landing a Lead Investor
Most entrepreneurs raising capital don’t understand the importance of a lead investor.
A good lead brings far more than actual money, they also bring their reputation in the investing community. And their confidence in being first to invest in your business. [NOTE: This is most true for businesses raising multiple rounds of capital, or intend to scale the business to a large size.]
Just like getting your house appraised by an independent expert, a lead investor does this for a startup business.
This can be crucial to your success, because most “sophisticated investors” will require it. Sophisticated = accredited investors, those that have the capital to invest regularly in startups and the Securities and Exchange Commission allows them to.
Most sophisticated/accredited investors, angels, angel groups and venture capitalists do not have the time to do what the lead investor has to do: negotiate the terms of the investment, agree to them and then invest money based on them.
As such, these other investors will often tell you to come back after you have gotten your lead. And this lead needs to be someone they can look at their bio and say, “Wow!”
So, how do you get a lead investor?
Finding investors is like herding cats. It takes extreme patience and follow up. And being super-organized.
The hardest part, no one likes being the first investor. No one.
What sophisticated investors look for in a startup investment (in order of importance):
- Trust and like the entrepreneur
- Exciting business model
- Like / respect the team
- Business model in an area they understand / have experience with
- Business shows ability to make a strong impact: financially, as well as a growing group of investors demand impact on our communities and planet.
That’s usually it!
Sure, it helps that you have customers already, your competitive advantage is solid, high barriers to entry, and your Intellectual Property is locked up, but without these first five, the rest really don’t matter.
Notice the first item on that list above: relationships take time.
And just like dating, all too many times entrepreneurs will ask the investor to invest in them, way too early in the game. It’s like asking a woman on your first date if she’d like to marry you.
How to find your Lead, ASAP
- Identify the traits of a lead for your business: things like industry they come from, reputation in the investment world, their ability to help you find other investors, and so on.
- Get organized: split your list into two categories: Investors and Introducers Investors are those that could invest, Introducers are those that can recommend investors to you. Next, for both lists, categorize them from A – D (A = the best of the best, D = cool, but not your first choice).
- Network up the wazoo: first start with your “D’s”, and work up to your “A” list. This allows you to practice and make your mistakes on the less important leads. Leverage your referrals! Word-of-mouth is gold here. Investors like to have an entrepreneur recommended to them from a source they can trust.
- Be very social: take time to get to know the potential lead investor. Be friendly. Don’t rush them. Smile a lot. And most important: be authentic!
- Build up your team: when you have really great folks on board, it makes it so much easier for investors to get interested.
- Play names off each other: “So-and-so is interested in investing, if I can get you to invest as well.” And various versions of this. Be careful to be authentic and not name-drop too much. That will backfire on you.
What I train entrepreneurs raising capital is to budget at least six to nine months for this. And that is after you have your business materials and financials together.
Usually they tell me they will raise it faster. Rarely does that end up being the case.
But it all fades a way quickly when that first check come in the mail.
Action Steps for the Week
Raising capital? Cool!!
Expect to scale up your business to a large one? Or expect to bring in multiple rounds of investors?
If so, got your lead? If not, you’ll need one. A good one.
- First, identify what would make the perfect lead investor.
- Then research those people you know who would potentially fit that bill. Also research who you know who might know people who would fit that bill.
- Next, look for key people you would love as your lead. Whether you know them or not. Come up with no more than 5 (3 is optimal). Then research to find ways to get in front of them, or someone close to them.
- Remember to build your team. Really, really focus on this, as it is so incredibly important for these lead prospects.
- Lastly, have fun. Investors love getting involved in businesses that they think will be fun and rewarding for them. If they see you having a blast, that will rub off on them quickly.
How to find YOUR lead investor?
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