The Fundraising Process- How to get a Lead Investor for your Deal

Funding

How to get a Lead Investor for your Deal

I often have startups come to me saying they have five investors interested in their deal but no one wants to lead the deal. Leading the deal means taking responsibility for the initial due diligence and terms negotiations. There are syndicates in which investors will lead the deal and then take a carry on those who follow but for the most part, you need to find a lead.

Asking an investor to lead your deals is tantamount to saying, “how would you like to do 40 hours of work uncompensated?” When you see how much work it is, it’s not surprising that most don’t jump at the chance.

Convertible Note

Instead of finding a lead, I recommend starting with a convertible note with friendly investor terms. There are many investors who want to be in the deal, but aren’t investing enough to put the terms sheet together. The key is to make it easy for them. Put together a convertible note (or SAFE) with the terms so it’s ready for signing. The Convertible Note doesn’t set valuation and doesn’t include most of the terms you’ll find in an equity raise so it’s simpler.

Some investors don’t like convertible notes. They want valuation set and equity ownership established up front.
For an investor who will invest more than $100K, we invite them to lead the round. It’s too much work for someone investing only $25K. They won’t find the time to do it right.

You just don’t know when that lead investor will come in so you run the Convertible Note till they do. Once the lead investor sets up an equity terms sheet, all the Convertible Note holds convert over to the equity round.

Please note: if you only want a loan and not an equity investment, then you should use a Promissory Note, not a Convertible Note. A Convertible Note implies you are going to convert to equity in the future.


Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies

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