Startups can raise funding even without a lead investor.

In this situation, the startup acts as the lead.

Here are three steps to take:

First, the startup must present investor-friendly terms and conditions. There should be no push back on the terms.

Second, the startup must supply a due diligence package already completed. Consider adding a Reps and Warranties contract to the diligence report to show the startup stands behind it.

A Reps and Warranties contract states that the founder stands behind the due diligence provided and there is nothing omitted. It is a legally binding contract.

Third, standardize the investment amount, such as “each investment unit is $25K”.

Removing the various decision points – terms, investment amount, and diligence compiled – takes care of the lead investor’s role.

The drawback to this approach is that there is no one investor who “owns” the fundraise.

The startup most likely won’t get meaningful investor engagement after the check signing, and there will be little support from investors for helping raise the next round of funding. 

If you don’t need those things, then this method is a good way to raise your funding.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
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.