Lead Investor (Venture Capital) - Explained
What is a Deal Lead?
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Table of ContentsWhat is a Lead Investor in a Venture Capital Round?What does the Deal Lead Do?Attributes of a Lead InvestorMajor Responsibilities of the Deal LeadSyndicate Academic Research on Lead Investor
What is a Lead Investor in a Venture Capital Round?
A lead investor is an individual who serves as a link between a group of investors and fund-raising company. Primarily, the lead investor must also be an investor. She or he is saddled with the responsibility of representing the interests of other investors while relating with a company as regards provision of funds. The lead investor is thereby both an investor and an intermediary between the company that needs funds and other investors.
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What does the Deal Lead Do?
A lead investor is the one who initiates the venture capital in a financial arrangement. Usually, the lead investor has the highest share of the capital that will be given as a support to a fund-raising company. However, in some cases, the lead investor might not be the highest shareholder but just an investor agreed upon by the group of investors to lead and represent their interest in the financial arrangement.
The role of the lead investor is germane to both the fundraising company and the group of investors. Hence, for an investor to lead, he must have an in depth knowledge about venture capital in financial arrangements. With the expertise of the lead investor and his knowledge about funds and infrastructure, a good and professional relationship can be maintained between the fundraising company and group of investors.
Furthermore, the lead investor gives legal advices and establish a stable and reliable financial support between other investors and the company. This might warrant the lead investor to introduce more investors to the company by giving them the assurance that their investments will not go to waste.
The lead investor has to maintain a cordial relationship between a group of investors and the fundraising company. Not every investor can act as the lead investor, this is because there are certain attributes that are peculiar to the position of a lead investor, without these qualities, the lead investor might experience difficulty in convincing other investors and realizing funds for the company. Although, all the agreements in the financial venture are bound by legal documents, the lead investor must also be at the top of his games to ensure that the terms of agreements are fulfilled.
Attributes of a Lead Investor
Below is a highlight of the skills, qualities and attributes that qualifies an investor to be the lead investor;
- Prior experience in venture capital market and legal financial arrangements or agreements is necessary.
- The lead investor must be able to differentiate between private equity and venture capital.
- He must be a professional that is ready to invest his time in the venture capital market.
- The lead investor should have experience with syndicate and business arrangements.
- Passion to ensure the growth of business and relationship with the fundraising company is needed.
- Knowledge of accounting tools and marketing tools is an advantage.
- Must be diligent with work and accountable.
Any investor with the above qualities can take up the role of the lead investor. Hence, the investor with the highest venture capital does not necessarily have to be the lead investor. Any other investor that portrays these virtues can be anonymously agreed upon and appointed by other investors. The lead investor will draw up realizable plans that will be consented to by other investors and also ensure a steady communication with the fundraising company.
The ability to communicate effectively and efficiently with existing investors or prospective investors. The lead investor does not just initiate business with a fundraising company, concrete plans must be in place. For instance, there are some cases where the lead investor will be the only investor on ground and he needs to bring in other investors.
Before the lead investor can successfully have a group of investors, there is need for campaigns and marketing. Marketing or campaigning for the fundraising company through social media platforms, face-to-face approach and other marketing channels will attract other investors to the company.
However, the job of the lead investor does not end at the campaign, he needs to maintain the available investors and increase the investors, doing this entails that the lead investor must be well versed with good administrative skills. Both the group of investors and the fundraising company have a lot of expectations from the lead investor, this is why he is crucial in the venture capital market.
Major Responsibilities of the Deal Lead
There is a number of roles that the lead investor needs to deliver, here are his major responsibilities;
- Administrative roles during and after funding campaigns.
- Make prompt decisions on behalf of other investors.
- Organizing meetings with investors and shareholders of the fundraising company.
- Must act as a liaison officer between the company and the group of investors.
- Ensure legal formalities as regards investment agreements.
- Give an adequate representation of the interest of investors.
- Must have the power of attorney and act as proxy in necessary cases.
- Provision of investment plan and nominee structure.
- Must account for the fund released or received.
- Give timely reports or evidence of payment.
These responsibilities are ongoing and can increase depending on the plan of the investors and growth of the fundraising company. These roles are also not limited to campaign periods, even after successful campaigns, the lead investor must discharge his duties.
The question of whether a lead investor can sell their shares or not is largely dependent on the agreed lock up or lock in period of investment between the group of investors and the fundraising company. Usually, in every venture capital market, there is always a lock in period which is agreed on by the company and investors.
This lock up period is put in a written statement and signed by the investors after certifying all legal formalities. However, this lock up period differ from one fundraising company to another, it might be 2 years or more than two years as agreed upon. During the lock up period, the lead investor cannot sell their shares.
Also, the investors or fund-raising company cannot withdraw their money from the investment. Because the lead investor has the responsibility of assuring other investors of the security and reliability of the fundraising company, a lead investor cannot sell their shares until the lock up period is over.
In a venture capital market or arrangement, a syndicate administrator is simply an authorized person who promotes the shared interest of a fundraising company or a group of investors. This means both the fundraising company and the group of investors can appoint a syndicate to represent them in an investment.
However, for a syndicate administrator to have an authorization, all the parties involved in an investment must be carried along. If a fundraising company wants to appoint a syndicate, there must be an agreement by the funder beam of the company. Also, if a lead investor wants to appoint a syndicate, other investors must give permission.
A syndicate administrator takes on administrative tasks and represents the interest of the company. Aside from serving as an agent that performs that operations of the company, a syndicate administrator has an active role during campaign for the fundraising company since he is a representation of the company.
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