The entrepreneur playbook for sourcing a lead investor in NYC

“We have soft-circled all of the capital we need for the round, except for the lead. All we need is a lead!”

New York-based investors hear this daily from entrepreneurs, and we understand their pain. Securing a lead investor is critical, but it’s a step founders sometimes overlook until well into the fundraising process. Most investors won’t come on board without a lead in place — the firm that generally writes the biggest check and negotiates the terms of the round.

The lead is both the entrepreneur’s financial partner and the “captain” of the investment syndicate. Most lead investors contribute 35% to 80% of the round and take on more responsibilities in return for their significant stake. Those responsibilities typically include negotiating the round’s valuation and terms, introducing the company to other investors and distribution channels, helping identify investors into future financing rounds, and taking a board seat.

Lead investors are critical linchpins to any successful fundraising campaign, providing the startup legitimacy, generating confidence, and reducing perceived risk. Once the lead and the management team have signed a term sheet, the rest of the process often falls into place seamlessly. The time saved by landing a lead from the beginning can then be spent building the business.

Fred Wilson from Union Square Ventures captured the importance of finding a lead investor well:

“’Sit on the sideline’ investors are worthless if you want to get financing done. They don’t impress the kind of investors who have conviction because investors with conviction are going to want all of the deal for themselves (or their friends they will bring in alongside of them). If you are raising a financing of any kind, spend all of your time looking for a lead investor.”

Despite the fact that New York has plenty of lead investors, spanning pre-seed to growth rounds, many entrepreneurs have the notion that they need to head west to find their lead. As proud New Yorkers, we want to dispel this myth and map out exactly how you should go about finding your New York lead.

The playbook

First and foremost, your company must be compelling enough to raise money. Lead investors often have concentrated portfolios and thus do not get to invest in every company that interests them.

For any fundraising round, entrepreneurs with prior investors should first prioritize securing verbal pro-rata commitments for the round, as it creates positive signaling. From there, finding a lead should be the immediate priority. The search and negotiation process can take months, and syndicate investors may hesitate to commit before you have a lead. It is important you have a list of target leads and a fantastic pitch deck from the beginning.

The first, and most reliable, resource for finding a lead investor is introductions by other entrepreneurs, investors, lawyers, or mutual trusted connections. Entrepreneurs should not hesitate to ask potential syndicate investors (that have good reasons not to lead themselves) for introductions to firms that normally lead rounds.

In the absence of introductions, you should start by compiling a list of firms that have a history of leading funding rounds. As a service to NYC-based entrepreneurs, we have assembled a roster of the most prominent lead investors in the city by round, based on Crunchbase data and our experience in the NYC venture ecosystem.

(Note to NYC VCs: If we missed your firm in the roster, email us some of the NYC-based rounds that you’ve led and the names of the people in your NYC-based team.)

This roster is meant to be a resource to get the process started, but you should refine and narrow this list by first identifying investors that invest in companies similar to yours, based on criteria like:

• Sector/vertical (commerce, fintech, IoT, digital health, etc.)
• Customer type (B2B, B2C, etc.)
• Revenue (pre-revenue, specific ARR/MRR benchmarks, etc.)
• Demographics (geography, founder characteristics, etc.)
• Category (marketplaces, hardware, software, etc.)

Another approach is to research similar startups that have already raised capital and assess their investors, bearing in mind that most VCs will not invest in competing companies.

From there, you can isolate investors with appropriate fund and check sizes for your fundraising stage. Fund size and check size are roughly correlated, as investors with larger funds need to write larger checks to fully deploy their capital pool. Thus, an entrepreneur seeking to raise $750K should eliminate a firm whose minimum check size is $5M. As a rough rule of thumb, pre-/early-seed funds are <$100M, late-seed/Series A funds are $100M-$250M, Series B/C/D funds are >$250M, and multi-stage/strategy funds are often several billion dollars.

Some large firms have small seed practices, but it is not normally their primary focus. You should always ask VCs about their fund and check sizes during initial conversations, or alternatively consult sources such as Crunchbase.

The growth and vibrancy of the New York venture ecosystem is skyrocketing, with Savills World Research ranking NYC as the number one tech city in the world ahead of the likes of San Francisco. There is no shortage of passion, creativity, and collaboration among entrepreneurs and investors here. We hope to stress not only the importance of finding the right lead at all stages of fundraising but the invaluable firms available to New York entrepreneurs doing so right here in the Big Apple.

Lylan Masterman and Samantha Martin are Venture Capital Investors at White Star Capital, an early-stage Venture Capital fund.