Investment Process
What is a lead investor?
Quick Answer
The lead investor is the VC firm that sets the terms of a funding round, contributes the largest check, negotiates the term sheet, and typically takes a board seat. Having a strong lead is essential — most VCs won't invest without one.
Detailed Answer
The lead investor is the anchor of a funding round. They do the heavy lifting that makes the round happen.
Lead investor responsibilities: - **Set terms** — Negotiate and issue the term sheet (valuation, governance, etc.) - **Largest check** — Typically 50-75% of the round - **Due diligence** — Conduct deep diligence that others follow - **Board seat** — Usually take a board seat (Series A+) - **Governance** — Active role in company oversight and support - **Signaling** — Their participation validates the deal for other investors
Lead vs. follower dynamics: - Lead: Sets price, does work, takes board seat, writes biggest check - Follower: Invests alongside the lead, relies on lead's diligence, smaller check
Why finding a lead is hard: - Leading requires conviction and resources (time, legal fees) - VCs prefer to follow (less risk, less work) - Seed rounds increasingly have multiple small checks with no clear lead - Party rounds (many small investors, no lead) can create governance problems
Founder advice: Focus on finding your lead first. Once a credible lead commits, filling the rest of the round becomes much easier. A round without a lead often signals that no investor has high enough conviction.
Related Questions
What is deal flow in VC?
Deal flow is the stream of potential investment opportunities a VC firm receives and evaluates. Top firms see 2,000-3,000 deals per year and invest in 1-2% of them. Strong deal flow is a VC firm's most important competitive advantage.
What is syndication in venture capital?
Syndication is when multiple VC firms co-invest in the same deal. The lead investor brings in other VCs to share risk, increase the round size, and add strategic value. Most Series A+ rounds involve 2-5 investors.
What is follow-on investing?
Follow-on investing is when a VC invests additional capital in a portfolio company in subsequent funding rounds. Firms typically reserve 40-60% of their fund for follow-ons, concentrating capital in their strongest performers.
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