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Is having multiple investors back a startup in the first round a good thing?

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Q: Is having multiple investors back a startup in the first round a good thing?

As a rough rule, every investor that owns more than 10% will act, at least ideally, as a “lead” investor:

  • They will “reserve”, i.e. save, some more money in case you need it and do reasonably well.
  • They will lead a “bridge” financing if you struggling but doing well enough to perhaps earn a little more money from the existing investors. Bridges are tough and stressful. Someone has to lead one …
  • They will help you raise the next round, so long as you hit the metrics necessary to raise one.
  • They will promote and support you to other investors and recruits.
  • They will help somewhat in recruiting, at least a little.

Smaller investors though generally do NOT save any more money if you need it, and rarely help all that much in the next round or other “lead” activities.

So more leads can be good, but there is only so much room on a cap table for investors that own > 10%.

Folks with small ownerships just can’t be leads.

And if you have no lead … you’re more on your own for the next round. That may be fine. Just be aware of it.

More here: Why It Matters Who Your “Lead” Investor Is | SaaStr

View original question on quora

Published on March 14, 2020

Source: https://www.saastr.com/is-having-multiple-investors-back-a-startup-in-the-first-round-a-good-thing/

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