What is lead investment?

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What is it really…

Lead investment is the investment that kicks off and draws in the remainder of the investment in a funding round. The lead investment sets the valuation of the company for the round and the lead investor sets the legal terms upon which the rest of the round is based.

What is a lead investor?

A lead investor is an individual or an organisation who will lead a funding round and may also act on behalf of the other investors. The lead investor is usually the first to offer to commit capital into the round, whilst also offering their expertise to ensure that the round is closed successfully. Other investors in the round will lean on the due diligence conducted by the lead investor whether this is explicitly stated or not.

A common misconception about lead investors is that they invest the most out of anyone in the round however, this is not always the case. A lead investor is defined by the fact that they set the legal terms for the round, usually with a big-ticket investment which creates the first set of investment terms upon which the rest of the round is based.

What it means for you as a founder

Since the lead investment sets the company valuation and the legal terms for the investment round, it is extremely important for you as a founder to think very carefully before accepting any lead investment, and most importantly, to consult with a solicitor on the terms that are being proposed.

The quality and caliber of the investor are also very important to consider, possibly even more important than the amount of investment they are offering. This will be a key leveraging point for establishing your credibility within the market and getting additional investors on board, not just in this round but in future rounds. Additionally, a high calibre lead investor can offer in-depth sector-specific advice, guidance on the investment process, and a powerful network of connections that can open new doors for your company. All of this can be invaluable for your business going forward.

The lead investor will generally conduct relatively thorough due diligence on you as a founder and on your business, so this is something you should be prepared for. Due diligence would typically range from a company visit and a few questions to a full and rigorous appraisal, perhaps with outside help.

Crowdfunding lead investment

Lead investment in a crowdfunding raise is a collection of the above types of investor. Collectively, they will set the valuation for the raise.

It is vital to have lead investment secured prior to launching a crowdfunding campaign. The reality of crowdfunding is that many investors will not give a second look at a campaign that has raised little to no investment at the time of launch.

As well as creating a sense of momentum, gaining lead investment will help raise the profile of your campaign and provide validation, making your proposition more attractive to other potential investors.

For most crowdfunds, we advise you to secure at least 75-80% of your lead investment before launching publicly.

Where to start looking for lead investment

Before you start looking for lead investment, make sure you have completed the steps outlined in this webinar. Once you have done that, the best place to start is by thinking about your own network and who within your reach might have the funds to be your lead investor. Map out your network to see who might be able to provide you with funding and how you should best approach them.

Other steps you can take include:

Attend pitching and networking events

Research industry enthusiasts and angel investors on LinkedIn

Research investor networks

Consult our resources on Runway

Download our Angel and VC directories to assist with your investor mapping