Role of The Lead Investor

We were awarded one of the highest honors in startup investing last week. 

I’ll tell you all about it and how it benefits you as an investor in just a second…

But before I do… did you hear what’s going down in The Boardroom this Friday? 

We’re opening the doors to invest in our latest AgTech startup, GroGuru.

GroGuru’s patented system monitors crops of optimal moisture levels and increases farmer’s yields 10-20% on average.

They’re on the cusp of scaling massively thanks to their $3M projected revenue in 2020…and project $69M by 2023!

Your one-time ticket to ride this rocketship (and invest this Friday) is waiting for you, right here.

Now, back to the honor I mentioned––We were asked to be the Lead Investor on this round of fundraising for GroGuru.

Not only does that mean we dropped a large sum of cash into GroGuru ($150,000 to be exact, our largest yet!), it also means we’re the voice of investors joining this investment round.

But the role of the Lead Investor goes far beyond that.

Which is why I laid it all out for you in this guide.

 

Taking the Lead

 

They work on behalf of the investors, making sure the terms are fair and constantly pushing for a successful exit. Lead investors also represent shareholders in votes that shape the future of the startup.

Basically, lead investors will make or break a startup deal. That’s why we’re excited to be taking lead on the next Boardroom investment and championing it to the finish line. 

Angels should rejoice when they get the chase to invest alongside a reputable one. 

Get ready, here’s the gamechanger. 

Regulation Crowdfunding — that revolutionized all startup investing — has also redefined lead investing. There are a few new rules to the game now that bring opportunity to angel investors and entrepreneurs alike. 

 

Lead Investors Before

 

Lead investors have always played an essential role in seed funding. 

Back in the day, founders needed access to tight-knit networks of entrepreneurs and venture capitalists to secure a lead investor and find success. 

And these connections mostly relied on peer-to-peer tips and back-room introductions. 

As you can imagine, this restricted the startup and angel investing world.

But now, with the new startup investing “free market” on online platforms, nearly everyone has access, and the opportunity to succeed.

 

Lead Investors Now

 

Today, finding an experienced lead investor is much easier. Startups are able to find leads through online networks and on angel investing platforms.

A new wave of founders and leads are connecting and collaborating from across the globe faster than ever. This has caused the startup world to boom.

Guess what? This benefits normal angel investors as much as anyone. 

Now, you can follow established leaders online and piggyback off their success.

When considering a startup deal on your own, you can find the lead investor’s bio on the investing platform, check out their LinkedIn profile, and make sure they have what it takes to lead.

This puts startup founders and angel investors in a great position to thrive.

 

Regulation Crowdfunding

 

The Regulation Crowdfunding platform WeFunder is doing more than anyone to bring lead investors into the online investing game.

WeFunder has recently allowed startup founders to select a lead investor. 

The lead investors are paid a small percentage of any profits made on an exit to incentivize them. 

This creates an environment where passionate, knowledgeable investors do everything they can to maximize the value of the company.

On WeFunder, lead investors can quickly and easily connect to startups and vice versa. The walls have been broken down. 

Meanwhile, investors like you can see who is leading which project and decide where the most potential is — following leaders with a history of success.

 

Role of a Lead Investor

 

So, what does a lead investor actually do? 

The lead has different responsibilities pre-funding, during funding, and post-funding. 

All the while, they must understand the ins and outs of angel investing, offer value to the startup, and be willing to commit to working with the company long-term.

Let’s take a look at what lead investors do at each stage of funding.

Pre Funding

  • Find founders who have a high chance of success.
  • Commit to and agree with their project.
  • Plant the seeds of a long-term relationship with them.

During Investment

  • Provide a significant amount of funding.
  • Convince other investors to join in the funding.
  • Set terms of the funding that benefit both the startup and the investors.

Post Funding

  • Give advice and direction to the founders.
  • Keep investors updated.
  • Provide assistance during milestones like new rounds of funding.

 

What Founders Look for in a Lead

 

Founders want two things from a lead investor — experience and passion.

It’s critical that a lead investor has led before and has a track record of success. 

Founders look for someone who has brought a company to a big exit before or who has invested in and guided multiple companies that had a successful exit. 

But, having experience isn’t enough. The lead needs to see potential in the project and be passionate about it. 

They need to be believers.

 

How Lead Investors Benefit You

 

So, how does all of this apply to you, the angel investor?

Well, the lead investor can be one of the biggest factors in the success or failure of a startup. 

They don’t just fund a startup — they guide it. The lead uses their knowledge and expertise to push the startup to a successful exit.

This means if you want to find a home run startup, look for an all-star lead.

Beyond being an indicator of success, the lead will directly affect you in other ways.

On WeFunder, you don’t exactly have voting rights. The lead will vote for you. 

Also, lead investors define your investment terms. As I mentioned before, it is their job to make sure you and the founders are both taken care of. They form an equitable and profitable agreement. 

This is why you need to do what the founders do — only ally lead investors that you believe in!

 

A Lead Investor’s Incentive

 

You may be asking yourself, “But how do I know if a lead investor has my best interests in mind?

The truth is, lead investors only want one thing — a profitable exit.

And if I’m not mistaken, that is exactly what you want too.

The lead profits on a big IPO or acquisition just like you. Actually, even more so. 

This is because, on top of normal returns, lead investors also earn Carried Interest

Carried Interest is just a share of profits that compensate fund managers, in this case, lead investors. 

It’s just a little bonus to keep them working hard and looking for an exit opportunity. 

On WeFunder, leads get 5% of all profits made by investors after an exit. So, when you win big and get your payout, the lead investor — who has no doubt worked tirelessly to get you there — get’s 5% of your profits.

The only difference between traditional venture capital Carried Interest and modern Regulation Crowdfunding Carried Interest is that they are taxed differently.

 

Takeaway

 

So, what have we learned?

Well, lead investors are a driving force in a startup’s funding. They ally with the founders early and stay late. They always push towards a startup’s success. Leads can be the fuel that drives a startup from inception to exit.

These individuals are a unique breed of investor. They love to spearhead projects, call in the investors, and guide founders. 

Lead investors always fervently believe in the projects they work on.

And, as an angel investor, you can spot startup potential simply by getting behind a reputable leader. 

You can take comfort in your investment when your lead investor is willing to go all-in and stick their neck out for the company.


2 thoughts on “Role of The Lead Investor

  1. I thought the lead investor got 10% of the profit, at least that is the case for the lead investor in ALBI according to the email I got from Wefunder.

    1. Hey Ken! The way it works on Wefunder is 10% goes to the XX Team (Wefunder’s own team of startup mentors and experts). Of that 10%, 5% goes to the Lead Investor. You can learn more about it here.

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