What Exactly Is A Lead Investor?

The term "lead investor" is often misunderstood. I have seen VCs negotiate to be called a co-lead or a lead in the term sheet. But you don't get given that designation. You earn it.

Glenn Kelman (a long time AVC regular) has a great blog post on this featuring former Sequoia partner, now Khosla partner, Pierre Lamond in the lead investor role:

Then Pierre Lamond, the Sequoia partner on the deal, began working out of our office, acting as the virtual CEO.  Pierre made a point of being there the day one of his other companies went public. We looked at a news photo of all the smiling people, who seemed to be living in a gated community, on a planet I would never visit. Then Pierre said “that company was once even more screwed up than you are.”

Glenn describes a strong parental figure providing support, encouragement, and criticism in equal doses. And he goes on to explain why:

That anyone gave us money was a miracle. But once we get the money, we prospered, eventually becoming one of only two technology companies to go public in 2002. I wondered why Sequoia went to such great lengths to get Plumtree funded when it would have been easier to write off the few hundred thousand dollars invested in our company. And the simple answer was that Sequoia cared about its reputation and stood by its companies.

That last bit is the key point. It is what every VC firm I respect and admire does. It is what VCs should do. It is the bargain we make with entrepreneurs when we invest.

I am old fashioned. I was trained by a couple VCs who are Pierre's age. This is how they taught me to do the VC business. It is how I do the VC business. It is how USV does the VC business. And I think it is ultimately the only way you can do the VC business.