What to do with non-lead investors?

Jason Yeh
October 22, 2021

Non-lead investor says they’re interested but doesn’t offer to make intros to leads 🚩🚩🚩

Calling out and explaining this red flag was originally going to be the first example in a piece covering a series of short red flags within fundraising. Instead of going a mile wide and an inch deep within a stale meme, I’m going to hone in on this somewhat ambiguous concept.. It’s a great opportunity to share more details on: 

  1. What a non-lead investor is
  2. How they operate / What you should expect
  3. How you can leverage them

What is a non-lead?

To start, it would be helpful to understand what a non-lead investor is. While simple sounding, this is not so crazy of a starting point because many founders I talk to don’t realize that “Lead Investor” isn’t a formal term that the NVCA or some set of laws defines. It has a loose definition at best. In my essay comparing leads with co-leads I offered this simple description of a lead investor:

In the most traditional sense, a pure lead investor is 1) going to have at least 50% of the round and 2) will set the terms 

So with that directionally accurate description of a Lead, a non-lead is a bit easier to define:  An investor who has less than 50% of a round and who won’t provide you with a term sheet.

How they operate / what you should expect

Most of these non-lead or follower investors draft off the diligence and conviction of lead investors. This is not to fully slam followers because, you know what? Even lead investors often draft off the diligence and conviction of investors before them (ever heard of Theranos? This is a topic for another time). 

The strategy is effective in the sense that they don’t have to devote as much time or resources to the selection process. If a lead investor they respect does the deal, then they can say “good enough for me” and write the check. On the other hand, it means they have to put much more effort into developing relationships with founders and lead investors. Founders and lead investors are both the providers of their investment opportunities as well as the gatekeepers. A follower needs to both see the opportunity and be let into the deal. I urge founders to recognize this power dynamic and use it to their advantage.

By my calculation, follower funds can only leverage 2 things to help them get into deals: greed and guilt.

Greed is the follower fund’s ability to convince a founder or lead investor that they will help the company be successful. In other words, can they show some actual value? Very few VCs have differentiated value so this one is pretty soft which leads to…

Guilt. Guilt is usually the main lever these funds pull. Were they nice to you? Try to help you? Give you compliments? Make you say you’d find room for them? If so, won’t you feel terrible if you don’t let them come in? This might seem silly. And that’s because it is but it’s also true. 

How you can leverage them

The biggest thing you should take away from the last 2 points is that non-leads can do very little for you on their own at the beginning of a fundraise. Founders are far more deferential to all investors than they need to be. I advise founders to always give the “being chased” vibe, but even more so with non-lead investors. Non-leads need to fight to get into great deals and so a founder can take advantage of that from the beginning. If a follower fund even nominally expresses interest, a founder can and should use that to make asks. Ask them to connect you to more investors. Ask them to intro new business. Ask for advice around the company. Ask to refer new hires. Ask!! Because if that investor wants to curry favor with you the founder, they will have to prove their worth and deliver.

Which leads me to the original red flag...

It is incredibly easy for any investor who doesn’t lead to very superficially express interest. “This is great!”, “I love what you’re doing”, and “So impressive!” are some of the greatest hits from non-lead investors that don’t actually mean anything. Even “I would love to invest” holds very little weight coming from a non-lead investor since the unspoken understanding is “...when you get your lead”. They can always back out of a verbal commitment if they don’t like the lead, pointing to circumstances that changed between when you talked and when you found a lead. If a non-lead investor is ACTUALLY interested in being a part of a round and truly has conviction, they will WANT you to find a great lead and make moves to help you pull that round together. They will offer to make introductions and do what they can to excite a lead so that they can potentially be a part of the round. If they don’t...well then, it’s a red flag 🚩🚩🚩

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