We believed the world didn’t need another commoditized venture capital firm.- Dan Levitan
In the Venture Capital ecosystem, every entrepreneur is looking for capital to develop their business and make it grow. There are multiple types of investors that participate in the industry, which can be classified according to geography, industry, stage of investment and, finally, in followers or leaders. Usually funds are not promoted by their position as a leader or follower in an investment round, however, entrepreneurs need to be able to identify them and make the best decisions.
Founded by Joe Montana, Liquid 2 is probably one of the best quarterbacks of all time. This fund could be classified as a follower since out of 246 investments, he is considered a lead investor in only 7. (Crunchbase)
The main characteristic of Venture Capital funds is to have a clear investment thesis, which specifies the interests that must be preserved for its Limited Partners, and based on this is that the managers take investment positions in each venture.
Knowing the “lead investors” and “followers” will allow the entrepreneur to make better decisions, since every round requires a leader and a syndicate to be successful. The lead investor is the one who, together with the entrepreneur, defines the terms of the round. It also performs the due diligence and takes a dominant position at the closing of the capital raising. Having the participation of a lead investor is the validation of the entrepreneur and the startup in the world of Venture Capital.
Being a lead investor is not easy. It requires a great positioning in the market and competing against other relevant funds in the ecosystem. For example, entrepreneurs in LATAM and specifically in Brazil usually court at the same time Kaszek, Monashees, Valor and Redpoint, among other funds, which are usually leaders in the capitalization rounds.
Once the entrepreneur has defined the lead investor, the formation of the syndicate with others interested in participating in the round begins. Based on the information received, each follower decides whether to participate in the round, given the conditions defined by the lead investor.