<\/h2>\nYou pitch to an investor \u2014 an individual, an angel group, or a VC fund \u2014 and you\u2019re likely to get the response: \u201cSounds interesting. Let us know when you have a lead investor.\u201d<\/p>\n
Nice, you think. They\u2019re interested. They\u2019re going to invest once we sign up a lead.<\/p>\n
If you pitch to Chemical Angels and don\u2019t have a lead, I\u2019ll actually be the one giving you that message. Then I\u2019ll move your application from \u201cpre-screening\u201d to \u201chold for lead\u201d in our database.<\/p>\n
So apologies for the misunderstanding. Your application hasn\u2019t been immediately rejected, so you\u2019ve passed the first hurdle. But we\u2019re still a few more major hurdles from being \u201cinterested\u201d much less \u201clikely to invest.\u201d<\/p>\n
So here\u2019s what investors mean by \u201cwaiting for lead investor\u201d and how you should use that information.<\/p>\n
What is a Lead Investor?<\/h3>\n
Let\u2019s start with the basics: what is a lead investor?<\/p>\n
Every round needs one investor to take the lead. (And yes, despite rumors to the contrary, this includes the pre-seed round.) The lead negotiates the deal terms with you and conducts thorough diligence. In most cases, they become the largest investor in the round and join the company\u2019s board.<\/p>\n
Other investors rely on the lead for a variety of reasons. Usually that comes down to not having the resources to conduct a thorough diligence process ourselves or not having the required level of expertise in your industry. We may also not have the financial wherewithal to be one of the largest investors in the round.<\/p>\n
Chemical Angels is not a lead investor. Our investments are small. We have technical expertise, but not the marketing, finance, and legal resources required for thorough diligence. We\u2019re not prepared to negotiate deal terms and draft\/review the investment documents. (Tech Coast Angels, the other angel group where I\u2019m an active member, is much larger and is able to lead deals.)<\/p>\n
So we\u2019ll only consider a startup once you have a lead investor with set deal terms. We strongly prefer a lead investor to be another angel group or small VC fund. We don\u2019t consider an individual to be a lead, nor a strategic investor, an accelerator, or an economic development agency. We\u00a0need an objective third party who\u2019s examined the company in painful depth, negotiated fair terms for all\u00a0investors, and made the decision to invest.<\/p>\n
What Happens Before You Have a Lead?<\/h3>\n
If you apply to our group, we ask right on the application if you have a lead investor.<\/p>\n
If you don\u2019t have a lead already secured, we could just tell you to wait until you do. But we\u2019re interested in hearing from as many startups in our sector as possible. We might even be able to introduce you to potential lead investors. Plus, the fundraising process is convoluted and takes a long time, so we want to get started in parallel.<\/p>\n
A 5-minute introductory pitch isn\u2019t a significant time commitment for you or us. So you get a short time slot along with 20\u201325 other startups the first Thursday and Friday of each month.<\/p>\n
The following week we get together to pick 4 startups to invite back for a full 30-minute pitch. In most cases, those startups already have a lead.<\/p>\n
The rest we other applications into 2 groups. The first are ones that we\u2019re not interested in, usually because they\u2019re at too early a stage for us to consider, but also because they don\u2019t fit our sector, don\u2019t have a competitive moat, or just haven\u2019t garnered interest among the group. Sorry. If that\u2019s you, I\u2019ll send you a polite decline.<\/p>\n
The remaining applicants are ones that might be a fit, but don\u2019t have a lead investor. The proposed deal terms might be absurd, but we assume those will get adjusted to something reasonable in negotiations with the lead. Those startups will get a polite message from me saying they\u2019re on hold for a lead.<\/p>\n
And there your application will sit in our database on hold until we hear back from you.<\/p>\n
What Happens After You Have a Lead?<\/h3>\n
Congratulations, you landed a lead! It\u2019s a huge milestone in your raise, and unlocks the rest of the process.<\/p>\n
Now you can go back to all those investors like us who told you to reach out when you have a lead.<\/p>\n
Does that mean we\u2019re ready to invest? Uh\u2026no. It means we\u2019re ready to begin the process of considering whether to invest or not. Here\u2019s what happens next.<\/p>\n
If you had your 5-minute presentation a month or two ago, you\u2019ll be considered along with the current crop to invite for a full pitch. If it\u2019s been longer than a couple of months, we\u2019ll ask you to give a 5-minute update, which really is no different than a fresh 5-minute intro pitch.<\/p>\n
If you\u2019re one of the four companies selected, great. Now you give a full pitch to the group. If not, sorry.<\/p>\n
If there\u2019s interest after the full pitch, we\u2019ll set up a small committee of 5 or so members for a 1.5 hour call to dive into the gory details. If that goes well, we begin a diligence process.<\/p>\n
Our diligence process includes talking to your lead investor and reviewing their diligence report or investment memo. We\u2019ll also want to speak with customers, review patents, meet industry experts, and perhaps plan a site visit. We\u2019ll review all of our concerns and see if we\u2019re comfortable.<\/p>\n
If everything checks out, the diligence committee votes on whether to recommend investment. Then we prepare our own deal memo and bring it to the full group for a vote to invest from our member fund. Individuals are always welcome to invest, no matter what the group decides, but most follow the decision of the diligence committee.<\/p>\n
So What Does Hold for Lead Really Mean?<\/h3>\n
If we\u2019ve told you that your application is on hold for a lead investor, we\u2019ve decided there\u2019s a good enough fit that we\u2019re keeping the process open. But that\u2019s still very early in the process of deciding whether to invest.<\/p>\n
You\u2019ve gone from about a 1 in 50 chance of investment from our group to about a 1 in 10 chance. Your odds have improved by 5x. While that\u2019s still far from even a 50\/50 call, it\u2019s great progress. You\u2019ve identified the right group of potential investors.<\/p>\n
You\u2019ve also convinced a key investor that they should invest in you. Now keep going and convince the rest of us that we should, too.<\/p>\n<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":"
Hint: It doesn\u2019t mean we\u2019re ready to invest as soon you find that lead You pitch to an investor \u2014 an individual, an angel group, or a VC fund \u2014 and you\u2019re likely to get the response: \u201cSounds interesting. Let us know when you have a lead investor.\u201d Nice, you think. They\u2019re interested. They\u2019re going […]<\/p>\n","protected":false},"author":1,"featured_media":7060618,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12034],"tags":[2214,3990,13177,4086,7519,6605],"dealstore":[],"offerexpiration":[],"class_list":["post-7060617","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-angel-investor","tag-angels","tag-circle","tag-investor","tag-lead","tag-means","tag-pitching"],"yoast_head":"\n
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