Definition of a Lead Investor
A lead investor is an investor who acts as a link between a group of different investors and the company that they’re investing in. On top of investing in the company themselves, the lead investor is also responsible for representing the other investors.
By definition, a lead investor is usually the first person to invest in a company. Many lead investors are members of the private equity or venture capital industry or have worked with similar companies in the past.
In most cases, the lead investor is the entity investing the largest amount of capital into the company, although there are exceptions to the rule. In some circumstances, they might also be whichever investor the other investors have appointed to represent them.
Due to the role that they’re expected to fulfill, lead investors are usually required to have plenty of experience when it comes to venture capital, fundraising and finance. They may also need to know the industry that the company operates in.
Lead investors often provide legal and financial advice to the company, fulfilling a role in which they help both the company and the people investing in it. Done well, it’s a system whereby everyone benefits – the company takes on investment and receives advice, and the investors reap the rewards of the company growing in value.
It’s the lead investor’s role to work on plans and proposals and to achieve buy-in from the other investors. Other day-to-day tasks for a lead investor include:
- Administrating fundraising campaigns
- Making decisions on behalf of the other investors
- Facilitating communication between investors and the company
- Providing regular reports to investors
- Sitting on the board of the company
- Facilitating later fundraising rounds
Can a lead investor sell their shares?
The answer to this question depends upon the specific agreements that are in place between the lead investor and the company in question. However, in many cases, the lead investor agrees to hold on to their shares for a predetermined amount of time unless they’re released from their obligation by the company.
What does it take to be a lead investor?
A good lead investor has one or more of the following attributes:
- Industry-specific experience
- Prior experience of venture capital
- Legal expertise
- The time required to provide expertise and advice
- Passion for the business and what it does
- Attention to detail