Venture capital: does it matter if you lead the round or follow?
Just wanted to understand how people will view one’s experiences. In the evaluation of a deal, do firms look at your experience differently if you have done deals where you are not the lead investor?
I think the signal is stronger if you have experience leading rounds. It means you set a price in conjunction with the founder and stick your neck out for others to follow.
However, depends on the firm you are looking to join. There are firms that have a strategy to rely on investors that can lead but still be “helpful” by getting on the cap table.
Short answer - yes. Generally the lead investor will negotiate the terms and structure the deal, lead the due diligence, and will work with the company on allocation in the round. It’s an involved, tactical, and highly competitive process to get into pole position. Ultimately, as an investor you need to be able to build significant conviction, rather than herding into a round.
Whereas some investors that almost never lead - like most Family Offices (read ‘dumb money’) often rely almost entirely on the DD done by the lead VC and are attracted to the brand of the lead, like moths to a flame. Therefore, it’s much stronger to have a body of experience that includes leading deals.
Thank you both for the above, very helpful.
What about if we do our own independent DD, but are not able to lead the round (especially for larger tickets). Would this largely discount my experience?
I don’t think it will be viewed quite as favourably, but if you’re able to talk intelligently about your investment thesis and the DD process you went through to corroborate it - then it should be fine. No-one is going to discount genuine deal experience to zero just because you’re following.
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