Look for the right investor to lead your deal, not just the first investor
Today, we’ll talk about finding a lead investor for your deal.
I’m often approached by a startup who has several investors interested in their deal but no one wants to lead it.
This is not surprising given how much work goes into leading a deal which includes setting the valuation, selecting the key terms, and performing due diligence.
For those who don’t yet have a lead investor we start with a convertible note. A convertible note is a debt instrument that converts to equity later. This makes it easy for investors to join the deal without having a lead investor package it up for you.
At some point in the round an investor will express interest in investing but only for equity. If that investor will invest at least $100K then they are a lead investor candidate. You pursue that investor to lead your deal.
Those investing smaller amounts such as $25K will most likely not put sufficient time into negotiating the terms – especially the valuation so they are not good candidates to lead your deal.
You want to be in a position to take investments when they are offered. A convertible note works well for this purpose. Investors signed up for the convertible note demonstrate investor interest making your deal more attractive to the lead investor when they appear.
Thank you for joining us for the Startup Espresso where we help startups and investors connect for funding.
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Copyright (c) 2021, Hall Martin and investorconnect.org. All rights reserved.
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.