5 Criteria for the Best Lead Investor
“The guy is incredible. He is a true partner,” Bill said of his lead angel investor.
After raising millions for his most recent early-stage venture, I was surprised at how effusive Bill (not his real name) was about this guy.
Bill is a serial entrepreneur. He is a visionary and a promoter. I’ve known him for a few decades, and he is always on the hunt for a big, intractable market problem to solve. He’s got one now, and many investors have piled on betting on a big payout.
But getting to a big payout means building a great company. And building a great company requires the luck of market timing and assembling a great team of people to take advantage of it. This team almost always has a talented lead angel working right there with the entrepreneur. Not in the day-to-day operations. That’s the entrepreneur’s job. But in helping the entrepreneur on priorities and effectively communicating the opportunity to investors.
At one point I stopped Bill and asked, “Why are you so excited about this lead investor? You’ve worked with a lot of them. I’ve never heard you talk about an investor like you are talking about this guy.”
He said, “He gets startups. He understands how hard it is to build something from nothing. He understands this phase of business building, and he understands entrepreneurs.”
“Every entrepreneur wants a lead angel just like yours. What would you tell an entrepreneur to look for?” I asked.
Here are Bill’s criteria for the right lead angel investor.
Treats me with respect. When we talk, he treats me like I am smart and experienced. I feel like he listens to me and values my observations and decisions.
Takes the time to understand. He has the patience to hear me out. He really wants to understand what I am dealing with and the priorities of the business.
Works toward an agreement on the problem. He always, always wants to be sure we have agreement on the big problem needing to be solved right now. He is my financial partner. To this end, his mission is to help me define the milestones and keep me moving toward them. This is the basis for the next investment round.
Puts the work in. He is not just asking for information. He takes the information. He digests it by asking great questions and reformats it so it better presents our opportunity to investors. And then he makes the calls to keep the investors engaged in the business. All this helps me focus more of my time on building the business.
Advises at the speed of a startup. The biggest competitive advantage of a startup is speed. Established companies do not run at the speed of startups. So I need a lead investor who is there when I need him and will provide advice and feedback at startup speed.
As I look back on my most successful investments, the ones that really moved the needle on my net worth, I embodied these criteria. As I entered a new phase in my life, I found myself not willing to check all these boxes. This means I’ve moved from lead investor to passive investor.
And if I learned one thing from all these years in angel investing, it’s this…
Angel investing is a contact sport.
Here’s how to make money.
If you are an entrepreneur, find this kind of lead investor. If you are a passive angel investor, you, too, must find this kind of lead investor.