You’ve been pitching investors and getting good feedback but no one is ready to cut checks until you find a lead investor. It’s a challenge that many Cintrifuse startups stated as one of their biggest problems. That’s why we invited Kevin Willer, Partner at Chicago Ventures, and Jere Doyle, Managing Director at Sigma Prime Ventures, to talk to our entrepreneurs about what to look for in a lead investor and how to find one.
What is a lead investor?
It’s a couple of things really. First and foremost, it’s the investor that sets the terms of the investment. In other words, they determine how much your company is worth right now. That’s an important function and is the reason why most investors wait until your company has found a lead before they start writing checks.
But anyone can set terms and write checks. What you should really look for in a lead investor is an evangelist for your company. You need to find someone who understands your industry and will help your company find other investors and help it succeed. A lead investor can be an angel, institutional investor or a really wealthy person who just likes your idea. It really depends on what stage you’re in.
As Jere put it “Investors are like penguins, they all wait for others to jump in the water before they do.” And finding the first penguin to jump in can be tough but not impossible.
Know How Much You Need to Get to The Next Stage
Seed, Seed Plus, Seed Extension, Series A – the list goes on and on. There’s a lot of different names for different types of investment. And they all mean something different to different people. But the most important thing for you to know is what dollar amount will get you to the next stage and why.
To find a lead investor you need to show them what the next 12 to 18 months looks like and how their investment is going to get you to where you need to be.
Painkillers not Vitamins
Investors want painkillers not vitamins. That is to say build something your customer can’t live without as opposed to something that is nice to have. Investors will do their own research on the problem you intend to solve. If they can’t validate your target customer’s dire need for your solution, then, at the very least, they will tell you to find a lead investor.
Know Your Audience
You need to do some research to find a lead investor. Not every venture company is the same. Some invest in verticals, some invest in regions and some don’t care about either of those things. Before you start pitching investors you need to know what they like and what they don’t like. Bonus points if they have had a successful exit in the vertical you are working in.
Network, Network, Network
The venture capital world is all about networking. As such, you should very rarely reach out cold to investors. As Kevin put it “We never read cold emails. Ever. If you’re reaching out cold then you haven’t done your homework. The best entrepreneurs know how to network into guys like Jere and me.”
Capital Will Be Tight
With talk of market corrections and down markets, it will be more difficult in the next 12 to 18 months to find investors. Investors are going to be more cautions. But it’s not the end of the world. As we’ve heard time and again, you’ll always find money for good businesses.
So when you’re out fundraising in this market make sure you have a great business and find investors that will help you grow it.