Q: Our insiders are very supportive and want to invest in the next round. They want to use their pro rata rights. How can we leverage this support to attract a lead investor?
A: Leveraging insider support can be a strong signal of confidence in your company, but to attract a lead investor, you'll need to strategically position this support. Here’s how you can approach it:
Highlight Insider Support: It’s great that your current investors are supportive and interested in reinvesting through their pro rata rights. This demonstrates their belief in your company's potential.
Signal Potential for Increased Investment: While insider support is valuable, emphasize to potential lead investors that your current investors may be interested in investing beyond their pro rata allocations. This signals growing confidence and commitment.
Propose a Syndicate Term Sheet: Instead of pursuing a traditional lead investor, consider proposing a syndicate term sheet. This approach involves securing commitments from multiple smaller investors who collectively provide the necessary funding. This can create a diversity of perspectives and support around the table.
Showcase Insider Insights: Highlight the unique insights and industry knowledge your current investors bring to the table. This can further strengthen your pitch to lead investors by demonstrating the quality of support and guidance available.