How to Find Lead Investors and Secure Funding for Your Pre-Seed Round

How to Find Lead Investors and Secure Funding for Your Pre-Seed Round

Think of a Lead Investor as your fundraising champion. They're not just a source of capital; they're a strategic partner, with a vast network, and the ability to rally other investors.

So how do you find this super investor and convince them to champion your cause? I spent the past few weeks diving into Alejandro Cremades insights on Fundraising so you don’t have to.

Alejandro is a seasoned Startup Advisor, and a serial entrepreneur who willingly shares his insights on fundraising. He is a Managing Partner at Panthera Advisors and someone I respect immensely. Note: If you are a pre-seed founder and you’ve decided not to take institutional investment, you don’t need a lead investor. What most pre-seed startups need once this decision is made, is a network of Angels. Then the key is to set a cap for the pre-seed raise which you’ll be able to do with a SAFE.

Let’s dive into the blog.

Understanding the Power of the Lead Investor

Imagine your fundraising round as a domino chain. The Lead Investor is the first domino – the one that sets the entire chain reaction in motion. They typically contribute 20-30% of the total round, acting as an anchor for other investors. But their impact goes far beyond just the money. Here's what a Lead Investor brings to the table:

  • Negotiation Expertise: They lead the negotiation process, ensuring you secure favorable terms that don't dilute your ownership excessively. More importantly they are careful not to set aggressive terms, ensuring that you are fundable in the future.

Listen to Casey Williams (Investor at Fenway Summer) sharing this when she joined me on The Venture Podcast.

  • Strategic Guidance: Their experience and knowledge of your industry can be invaluable in shaping your growth strategy. You want an investor with experience investing in the sector you’re building in. Typically they’ve seen a lot of the challenges through the investments they’ve made into their portfolio companies. An example is Fenway Summer, who invest exclusively in FinTech Startups. They understand the regulatory landscapes in this sector and their experience in navigating these would be immeasurable.
  • Network Access: They open doors to potential future investors, partners, and top talent you need to scale. They provide warm introductions to other investors in their network.

The amazing thing about early-stage investing is that most are unable to write checks that cover your entire round. So at this stage, a lot of VCs have a network and operate collaboratively.

  • Board Participation: They provide valuable oversight and guidance as board members, helping you navigate challenges and opportunities. Usually at this stage you will have representation on your company board from an IC member of your lead investor’s firm . Make sure this is someone who shares your vision, be comfortable that you can work with them before you give them the seat on your board.
  • Distribution Channels: They might connect you to valuable distribution channels for your product or service, accelerating your market reach. Early Stage investing is about supporting founders showing early signs of product market fit or helping founders get to product market fit. To get there you need good distribution channels. Nothing better than a lead investor with a good network of portfolio companies. They tend to be connected with marketing teams who will give early advice, start partnership conversations and generally provide guidance on what worked to help you save time and accelerate your path to PMF.

Start Building Relationships Before You Need Money

Don't wait until you’re almost out of runway to start your search for a Lead Investor. Building strong relationships takes 6 - 9 months and it requires dedicated effort.

Here's how to get a head start:

  • Seek Advice, Not Just Money: Position your initial outreach as a request for guidance on your business plan or market approach. This is what’s worked for me in the past. Opening up a conversation about guidance allows the investor to feel like a part of the journey.
  • Showcase Traction: Regularly update potential investors on your milestones and achievements, like exceeding user adoption targets.So I regularly send monthly updates to key investors I’d hope would be lead investors in our round. This keeps conversations fluid. Tell them about partnership conversations you are having. Talk about LOIs you’ve signed, tell them how you’ve increased your MAU numbers. Invite them to a webinar you are hosting. All these touch points are so important in building trust  
  • Become Part of the Ecosystem: Attend industry events, connect on social media, and participate in relevant online communities. I can’t stress this enough, I’ve worked in investment banking for 20 years, we saw startups all the time and typically connect with great ones at regulatory event dinners hosted by regulators. We know that founders attending these events deeply understand their ecosystem and their customer base. With the Venture Podcast, the VCs I’ve interviewed also were very clear about how important it was for founders to attend regulatory conferences.
  • Let Them Lead the Way: Usually, when you're ready to raise funds, a well-built relationship with a potential Lead Investor might lead them to express interest in leading your round. You’ve done the hard work and putting the word out there that you are raising a round usually garners interest quickly. Those lead investors have already engaged with you, they understand the problem you are solving and are comfortable in promoting you to their network without too much of a prompt.

Where to Find Your Seed Stage Lead Investor

There's no one-size-fits-all approach for finding a Lead Investor. Explore various avenues to maximize your chances:

  • Warm Introductions: Ask trusted advisors, mentors, and existing investors for introductions to potential leads. Over 90% of investments happen because of warm introductions.
  • Target Investors with a Track Record: Research investors who have a history of leading successful funding rounds in your sector. Score My Deck (https://www.scoremydeck.com/) can help you build a targeted investor list based on your industry and funding goals. (We can also tell you if they lead rounds)
  • Online Investment Platforms: Utilize online platforms like AngelList or Crunchbase to connect with potential investors who actively seek out promising startups. There are also other platforms such as Scroobious and FounderSuite. I’m connected with folks in these ecosystems so happy to make an introduction if required.
  • Networking Events: Industry conferences and meetups hosted by regulators and industry leaders offer a great opportunity to connect with potential investors in a face-to-face setting. From my interviews with Pre-Seed VCs on The Venture Podcast, VCs confirm that they prioritize founders they meet in these settings over cold emails and cold pitches.
  • Social Media Powerhouse: Use platforms like LinkedIn and twitter to find and connect with relevant investors.

I especially like Natalie Barbu’s story of how she raised $1 Million. Try to get involved in industry discussions on social media, and showcase your expertise.

  • Direct Outreach: Don't be afraid to reach out directly to investors who impress you. Craft a personalized email, you can use Score My Deck to do this. Highlight your company's value proposition and why you believe they'd be a great fit.Since you are an early-stage Startup, talk about your team and why you are the best placed team to solve the problem you’re solving.

Building a Compelling Pitch Deck and Story

Remember, apart from a warm introduction, your pitch deck is your first impression. It's a crucial tool to capture a Lead Investor's attention and convince them of your problem, solution, market opportunity, and, most importantly, your team's capability to execute.

Here are some tips for crafting a compelling pitch deck that resonates with potential Seed Stage Lead Investors:

  • Focus on the Story, Not Just the Facts: Don't overwhelm investors with a barrage of data and technical jargon. Instead, weave a story that captures their imagination and showcases the passion behind your venture.
  • Highlight the Problem You Solve: Clearly define the pain point your company addresses and the market gap it fills.
  • Present a Unique and Compelling Solution: Explain how your product or service solves the problem in a way that sets you apart from competitors.
  • Quantify the Market Opportunity: Demonstrate the size and potential growth of the market you're targeting. Use data and market research to back your claims.
  • Showcase Your Dream Team: Highlight the expertise, experience, and passion of your founding team. Explain why you're the perfect team to tackle this challenge.
  • Focus on Traction and Milestones: Don't just talk about the future; showcase any early traction you've gained, like user acquisition or pilot programs. Quantify your achievements and demonstrate your ability to execute.
  • Keep it Clear and Concise: Investors have limited time. Aim for a concise pitch deck (ideally 10-12 slides) that delivers the essential information in a clear and engaging way.

Check out a blog I wrote a few weeks ago, If you are looking for a more detailed breakdown on how to build a killer pitch deck.

Negotiating with Confidence: Securing the Lead Investor

Once you've attracted a potential Lead Investor, be prepared to negotiate the terms of the investment. Here are some key things to keep in mind:

  • Do Your Research: Familiarize yourself with standard seed-stage investment terms and valuation ranges for companies in your industry. If you are looking for someone who really understands this space, follow Peter Walker from CartaPeter truly understands the early-stage investor landscape like no one else that I know. He distils all the insights from Carta, a cap table management solution.
  • Understand Their Interests: Tailor your negotiation strategy to address the Lead Investor's priorities and concerns.
  • Highlight Your Value Proposition: Reiterate the potential return on investment and the unique value your company brings to the table.
  • Be Prepared to Walk Away: While securing a Lead Investor is crucial, don't accept terms that compromise your vision or dilute your ownership excessively.

Building Momentum Beyond the Lead Investor

While a Lead Investor plays a significant role, your fundraising journey doesn't end there.

During my time at On Deck accelerator, one thing that stuck with me was the funding statistic about one of the portfolio companies raising a $5 million round.

The interesting part was that an early investor who helped them find their lead investor got on their cap table for $5000!

Here's how to leverage their support to build momentum:

  • Utilize Their Network: Tap into your Lead Investor's connections to reach other potential investors.
  • Showcase Their Backing: Highlight your Lead Investor's involvement in your fundraising efforts to attract additional investors who seek validation.
  • Maintain Open Communication: Keep your Lead Investor informed of your progress and milestones to maintain their trust and confidence.

Conclusion: The Road to Fundraising Success

Finding the right Lead Investor is a carefully orchestrated dance. But by understanding their role, building strong relationships, and bringing them along the journey they will support you in bringing other investors to the table. .

Remember, the fundraising process is a year long process. Score My Deck can be your partner throughout the process, from refining your pitch deck to identifying potential lead investors.

Good Luck With Your Fundraise!