(Note: This post was transcribed and edited from this video)
In this article, I’m going to talk about how to get a lead investor for your startup. This is the process I used to raise multiple rounds of funding at Kindara.
So how do you find a lead investor for your fundraising round when you’re building a social impact company or a tech startup? I’m going to do a longer article about this because I think this is a really important topic and it warrants more discussion, but I’m going to do a brief one here because I want to get an answer out there.
The 3-step process for getting a lead investor is as follows:
Step 1: Make a list.
Who would be the perfect investor to lead your round? Answer that question by making a list.
Research different funds. If you’re at the angel stage, research different angel investors and find a shortlist. Maybe 20-30 people who would be an excellent fit to lead your round because they’ve invested in other companies who are at similar stages or they have invested in similar products.
Or they just jibe with you, you liked their blog, you like what they say on Twitter, it seems like it could be a match etc.. Make the list and beside each person’s name, list the reason why you think they would be a great lead investor for your round.
So now you have a list of 30 people and from that list hopefully, you’re going to find one or two or three you want to lead the round, that’s the goal.
Step 2: Sell the dream.
You are now going to network to these people and get warm introductions.
I’ve talked about that in other articles. Get warm introductions to these people and sit down with them and sell them on the dream, the big vision. The big context of your company. The big change that you’re going to make in the world. The world that you’re creating that your company is making possible that is currently not possible now.
It’s very important at this stage when you’re searching for a lead investor that you sell the big why of why you’re even building this company. Because this is going to be a long-term intimate relationship with your lead investor, and you want to be really clear and honest with what your building and why, and then see if they’re a fit.
This is kind of like an interview process. You’re interviewing them, they’re interviewing you and you’re trying to figure out if they would be a good fit to be your lead.
If it does seem like they would be a good fit, that’s when you move on to step three.
Step 3: Make it a limited time opportunity.
Step three looks like having a lot of balls in the air. Dating more than one person at once. You need some carrot which is you’re selling the dream and the opportunity to lead this exciting round, and be a part of this exciting company.
And you have the stick which is, “I’m also talking to other people. I’m also dating some other people. I don’t know if I want to go steady with you”.
You need both, in my opinion, to get someone to get into the pool with you (or getting into bed with you or whatever analogy you want), and actually lead the round.
And the way that I did it at Kindara, and the way that I counsel the people that I work with now to do is this is: don’t open the round until you have a lead. My advice is to do this process before your round is open.
One of the mistakes that founders make is to open the round when you have no commitments and broadcast, “we’re raising money”. And sometimes you have to do that if you’re an accelerator but often you don’t have to do that. And I think it’s a much better strategy to not open the round, but instead to make your short list of investors, go talk to them, find people who might be a match and say to them some magic words which are along the lines of,
“we’re not raising money now, but we will be soon and you’re someone who I would consider asking to lead that round when we do raise money, would that be of interest to you?”
You’re presenting them with an opportunity to participate in something that is going to happen in the future that is potentially going to be exciting, it’s the first step in creating this company.
And if you have on your list a few people who would be a good match and you follow this process, chances are the combination of the carrot of, “I really like you and value your input and our relationship, and I would like to go deeper with you” And the stick of, “we’re going to be opening this raise and I’m talking to some other people but of all the people I’m talking to, you’re one of the people who I’m looking at to potentially lead the round” will compel someone to say yes.
And when they do, you do a handshake, maybe you sign a one-page term sheet or something. And now you have your lead and then you can go and open the round with the announcement that “so and so is leading the round” and it makes it so much easier for everybody else to get in the pool. It makes it so much easier to close the round.
And that is the super quick 3-step process for how to find a lead investor.
If you want to go deeper on that, reach out to me. If you are building a social impact company I’d be happy to do a free strategy session with you.
To your success, – Will