The Importance Of Finding A Lead Investor

Raising funds can be hard, and this is true whether it’s a seed round from angels, or Series A from VCs.

One of the hard things about running a startup, is that it’s rare to find a single individual or firm who will give you all the money which you require. This is because a major problem with investors is that they tend to follow the herd. No matter how much they talk about being willing to back unconventional ideas and take risks, the truth is that they suffer from group-thinking.

This is why most founders usually need to talk to lots of funders in order to raise money. While lots of them promise to offer coaching and mentorship, when it actually comes down to signing a check, you’ll find they can be extremely unpredictable. This is because a lot of investors will play the game of “follow the leader”.

Understanding Investor Mentality

This means that while they promise to be supportive, they are unwilling to write the check unless someone else takes the lead and does so. A clever founder understands this dynamic, and lavishes a lot of love and energy on the one person in the investor group who he feels will become his evangelizsr. If you can convince him, then convincing the others will become much easier. As Cialdini pointed out, social proof can be a valuable influencer!

This could be the person with the deepest pockets; or the one who is the most enthusiastic about your idea; or the one with whom you have the best chemistry; or the one who has been a previous entrepreneur and believes in your dream.

There really is no simple formula for identifying this person, and in fact, as your company evolves, this person may also change. You need to be able to convince the leader and everyone else will pretty much follow.

This can be frustrating for the founder, because how do you get the first person to take the lead and become the lead investor?

How To Hook A Lead Investor

This can be challenging, and I don’t really think there any easy answers. You have to remember that this a relationship you need to build up, because it is primarily based on trust.

This is why it’s so important not to hide your problems or sugar-coat your difficulties. You need to be upfront about your obstacles, especially when you have failed to deliver on the promises you made earlier. Talk about these first – about why you failed and what you’ve learned from them, and why these have made you smarter.

Sometimes the truth is that the next round is going to be a down round. This can be a dampener, but don’t get disheartened. This doesn’t mean you have failed – it just means this is another hurdle you are going to have to overcome. Every funding round gives you a lifeline, so that you can continue towards fulfilling your dream.

Sometimes beggars can’t be choosers, so learn to gracefully make the best of a bad deal, accept what you can get, and continue to focus on growing your company.

[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

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