After the business plan has been developed, it will be time to begin seeking investors in your startup company. It is tempting to simply ask everyone you know to invest in your idea, but that may not be the best solution.
The lead investor – the person who makes the initial investment into the company – may be the most pivotal decision you make. Careful consideration should go into the lead investor – it will set the tone for the rest of the investors you attract.
A lead investor will be the person that all other investors will look to for the inspiration and innovative thinking that caused them to invest in your company. Most people do not like to take risks alone, and will follow the lead of people they respect and trust. If the lead investor in your company is your mom, other investors may smile, but hesitate to invest their own hard earned cash.
There are a couple of factors, which define a lead investor as a good lead:
- A lead investor needs to be someone who is relatively objective in their thinking, and preferably is not related to you. (Your family can invest – just don’t let them be the first.)
- Another important factor to consider in your lead investor is the amount of the investment. The lead investment should ideally invest in the largest part of your overall need. This sends a clear message that the investor has confidence in your idea and your business plan, and is willing to invest a sizeable amount of money in that confidence. An initial investment that is small may lead other investors to wonder why the initial amount is small, and be reluctant to invest any of their own money.
- The final factor of a good lead investor is to shop around. Consider your potential investors carefully, and then use great discretion in developing a short list of potential lead investors. As the saying goes, you only get one try at making a first impression – your lead investor will be making your first impression for you. Make sure that the message they are sending is one that invokes other investors into buying into your business plan. By selecting and winning an investor who is committed to your company, it will send the message that your company is headed for greatness.