I often hear of entrepreneurs stuck in their fund raise efforts with several prospective investors but no one willing to be the first invest. That's because the first investor could be the last investor in a deal and no one wants to be that investor. The lead investor breaks down that barrier by providing the initial capital and due diligence that paves the way for others to join the deal.
Here are some key characteristics of a lead investor:
--Provides a substantial sum of capital -- at least $100K. The $25K check writer should not be leading the deal.
--Provides advice as he should have experience in the industry and know well the problem the company is solving.
--Is your leading advocate. By going first, he's putting his reputation on the line. It's important to keep the lead informed as he's championing your deal -- more so than other investors.
--Brings a strong reputation that attracts others to your deal.
-- Performs the initial due diligence. Al investors should be performing their own due diligence but most will use the lead investors work as the basis for their decision. This upfront work can easily reach 30 to 40 hours of work. If the entrepreneur doesn't offer compensation it can be quite difficult to sign up an lead investor.
In finding a lead investor it helps to start with those who know your industry and market. Those with a successful business track record are ideal candidates. They say it takes 7 touches to close a sale. So it takes 7 touches to close an investor.
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