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Chapter 17. The Lead Investor

OK. A flock of angels say they’re interested in investing. Now, how do you get them to write checks? Enter the lead investors.

Not all investment rounds need lead investors. Notably, Y Combinator has popularized the “rolling close,” where investors write checks on a first-come, first-served basis, with earlier investors getting better terms than later ones.

But most venture rounds have leads, and a goodly portion of old-fashioned angel rounds do too. There’s no shortage of confusion about what a lead investor is and what one is expected to do. If the title alone didn’t sound important, after the first dozen angels tell you “Call me back when you have a lead,” you will correctly assume that there’s something there for you to consider.

The role of “lead investor” has no formal definition, and it’s not actually a real title of any sort. But in practice, it usually consists of four responsibilities, presented here in rough chronological order.

Leading Due Diligence

Early-stage startups are risky, and the only way to decide if you’re looking at the next Facebook or the next flameout is to do your homework. A lot of homework. While angel financings usually involve less diligence than VC investments, good angels will want someone to check that:

• The company is properly incorporated with standard paperwork (not something your real estate attorney drew up just especially for you).

• Everyone who’s worked on the product has an intellectual ...