For a Lead Investor, we look to investors with intuition, leadership qualities, and someone who has the perspective of investing their own money. What else makes a lead investor?
Last year at LetsVenture, we did a study around angel investing, and what makes a good investor. One of the data points we uncovered was that lead investors have domain expertise in startups they are investing in. We found that the ones who conducted review sessions with the founders (at a fixed frequency rather than ad-hoc engagement) increased the chances of success of the startup by as much as 18 percent. In an asset class where 80 percent of startups are expected to fail, increasing chance of survival by 18 percent is something.
While there are many founder stories and narratives around success and failure, we took the approach of talking to Lead Investors to understand what worked well and what could have been done better. As part of #LeadwithLV, we bring to you stories from Lead Investors – stories of what worked for them, the signals they read and those they missed and the outside perspective from someone who had invested his own money.
Lead Investor Profile: Very successful corporate career, spanning from a career in Design, Arts Management and consumer goods. Public market investor and an active angel investor.
As an angel, very supportive of entrepreneurs – has pitched at events when the entrepreneur needed his endorsement. Received huge multiple on exits.
Here are three case studies from the same investor, to bring diversity in approach
Startup raised $700k in angel round, where he was the Lead Investor. Check marks in all the right places.
Startup raised XX, where the lead investor was leading the round. All the check marks in the right places.
Investment 1: Investor Director took a complete exit. The only reason was that in spite of being closely associated, the investor director was not kept informed about the next round. Not seeing himself being valued, he exited. Today angel investors do not have a representation on the board, for any future right protection.
Investment 2: Investor Director continues on the board, along with the Series A investor. Took partial exit. Angel investors being represented for future rounds.
Investment 3: Amount written off.
If you choose to transition from a lead investor to an Investor Director (post the funding round closure), it is a fiduciary responsibility to the rest of the investors that we insist that founders send regular business updates. In the absence of this, it is even more important that other investors are kept informed if there is a business concern coming up, or if any RED flag is observed (lack of financial planning, founder conflict, lack of business traction as projected during fund raise)
We believe that as an investor director, you should be willing to invest 4-8 hours a month (might be more if the founders need more guidance and help) If this time is not possible, allow some other investor to be the Investor Director.
Even if you do all the right things, spend time with founders and update other investors, a lot of what can be achieved is dependent on the founder. That is the final bottom line. In a space where the risks are high, there can be unforeseen circumstances which could be addressed if investors are kept informed.
If you’re interested to start your journey to become a Lead Investor, tell us here!
In this series, LetsVenture will attempt to break the barriers associated with startup funding by providing a deeper understanding of the ecosystem and helping people #LeadWithLV.