How to Get a Lead Investor — and Why the First Order Changes Everything

At the beginning of a financing, you can feel like you are out in the wind. You have the deck, you are talking to people, some say no, some are interested and some want to wait and see.

Then somebody makes the first meaningful commitment. That can change the financing.

I call it the lead order. If you are raising $1 million and a credible investor or group commits $300,000, the exact number is less important than what has changed. Before that commitment you are saying, “We are raising $1 million.” After it, you can say the financing is underway and a meaningful portion is already spoken for. Those are different conversations.

People take comfort from evidence. A credible participant tells other investors that somebody has done enough work to make a decision. Nobody should follow blindly, but psychologically the financing now has something on the board.

Who the lead is can matter too. A respected investor, fund, strategic group or broker may bring credibility, relationships and sometimes additional capital. A meaningful lead may also have views on the terms, which is where judgment matters. I would not become so desperate for a lead that I agree to terms that damage the company.

A large cheque can also create a large ownership position. Think beyond the dollars. What does the post-financing ownership look like? What rights come with the investment? Are there governance or control implications? Capital has consequences.

When I am working an active financing, I do not only ask who might invest. I ask who could lead it. That changes the target list and can change where management spends its time first.

Once a legitimate lead is there, communicate the progress professionally and accurately. This is where disconnected investor conversations can start turning into a financing you are actually managing. Capital likes to flow to things that are moving.

Next, read How to Run the Book and Build Momentum, How to Build an Investor Target List, and the complete Raising Capital guide.

This article is educational only and is not financial, legal, investment, tax or securities advice.