The term “lead investor” is often code. Just like the word “quaint” is code in the real estate business for “small.”
Let me know when you have a lead investor.
Loosely translated, these words often actually mean “I’m not ready to commit.”
You see, many angel and seed investors view it as their job to establish a “free option” on investing in your company. They have no incentive to commit early so they tiptoe up to the line of commitment, making sure not to cross it. By telling you that they’re potentially “in” if you have a lead investor, they establish the free option to decide later. After all, they are so close to commitment, you’ll likely come back to them first once you do have a lead investor. It’s a way that they feel safer and don’t have to be an early committer.
Fight through this using direct communication. Break it down. You can ask them what it is about a lead investor that will cause them to commit. Perhaps they will say they want well defined terms. Perhaps they will say they want to ride on the due diligence and pricing of a professional. Perhaps they will say that they just need to see the terms.
Ask them to commit with the assumption that you’ll later have those things. Tell them you’d never hold them to their commitment if they didn’t like the terms once they’re established later. If they truly want to invest and they want to be helpful, this is what actually helps you. Commitment, even if it’s soft based on assumed conditions that you’ll ultimately satisfy.
And if you’re an investor, consider no longer using the “once you have a lead investor let me know” gambit. You can be much more helpful by simply defining the conditions under which you will commit to invest. And if you’re not ready, just say you’re not ready and be clear about what you need in order to make the decision. And most of all, if you’re a no, just say no! That will save everyone some time!