Key takeaways
- The lead sets price and terms; followers accept them.
- Followers still own their own decision and should check key claims.
- Many rounds wait until a lead commits.
What a lead investor does
- Agrees valuation, instrument and terms with the founders.
- Runs the main diligence and often shares a summary with co-investors.
- Takes a board seat or observer role in many priced rounds.
- Helps fill the round by introducing other investors.
An example
A fictional seed fund agrees to lead a $2 million round with $1.2 million, sets a $10 million post-money valuation and negotiates a board seat. Two smaller funds and a syndicate join for the remaining $800,000 on the same terms, each doing lighter checks of its own.
Leading versus following in a fund's process
A fund that leads needs a full diligence record, because co-investors will ask for it. A fund that follows still needs to confirm the claims its own memo relies on. A shared due diligence checklist and a clear record of which claims were checked, by whom, help both.
Common confusions
- The lead is not always the largest cheque, though it usually is.
- Co-leads share the lead role; terms are still set once.
- A lead's diligence does not replace your own, especially on the claims your memo depends on.