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.

#VC & Technology

Comments (Archived):

  1. teegee

    OK, but at what point does a VC’s reputation outweigh their obligation to investors?  Are you saying that taking a financial hit is worth keeping their reputation alive?

    1. fredwilson

      yup, within reason.we certainly go the extra mile but we won’t bet the farm on a struggling companythe good thing is that tech companies these days are way more capital efficient so losing $30mm on a bad investment is really hard today

    2. LE

       “VC’s reputation outweigh their obligation to investors”A great question. It reminds me of an attorney I dealt with who Fedex’d a bunch of documents to Europe which didn’t need to be express shipped at our expense – they should have been shipped at the other party’s expense. When I questioned him he made some casual comment like “this is what lawyers do for each other” or something that sounded similar.

  2. Francesca Krihely

    I hope that that VC relationship does not go out of fashion too soon. 🙂 I’m always curious about when this doesn’t happen: when–after a certain time–the VC no longer believes in their investments, or when the company no longer respects the support of their VC firm. When is the bargain too great or not worth it and when is it acceptable to move on? 

    1. fredwilson

      i think it is acceptable to move on once you’ve given it a good shot. put follow on capital in and the company is still not working. but you have to be candid with the team about what is not working and what you think needs to change.

      1. ErikSchwartz

        I actually had the opposite problem. We were down to the last 3 months of cash, management was telling the investors that the market had changed (smartphones grew faster than expected between 2006 and 2008) and we needed to either change our approach (which would require more money), or package up the assets for sale (which was doable), or just shut it down.The chairman chose to keep down the path we were on, basically denying the market change. They refused to fire me, I stuck it out for another month and then I resigned, they continued on for 4-5 months and ended up screwing over many employees and vendors.One thing a lead investor does is trust the expertise of the CEO they invested in (or they have the balls to fire them).

  3. JimHirshfield

    Love it! Everyone’s on the same team. Work together!Unfortunately, there are too many cases where “caring about their reputation” has caused some folks to act selfishly, enter “defensive posture”, and play the blame game. Start-up death spiral ensues.(I think there are a couple of terms in there suitable for yesterday’s post).

    1. ErikSchwartz

      It gets really bad if the VC is in the process of raising the next fund.

      1. JimHirshfield

        Yes indeed. They need to make sure they’re hands are clean of any dirt when appealing for new funds. 

      2. fredwilson

        don’t get me started erik. that is the worst

  4. Rohan

    I agree with you on it being the only way to do business – sustainable business atleast.It’s a bit like character and personality really.Personality would open doors every once in a while.But only character would keep them open.There’s a nice quote that comes to mind – To be capable of steady friendship or lasting love, are the two greatest proofs, not only of goodness of heart, but of strength of mind.Applicable to any relationship that is personal.It goes right back to our exchanges on business being personal. Business is about relationships unless you’re just in it for the quick buck. And the good guys win, eventually.

    1. CJ

      “To be capable of steady friendship or lasting love, are the two greatest proofs, not only of goodness of heart, but of strength of mind.” Lots of good comments here today, this is one of the best.  Thanks for that.

      1. Rohan

        If the situation was ever reversed, I’m sure you’d do the same 😉

  5. markslater

    seriously though – this type of VC is a rare breed. For everyone that behaves like this, there are 100 who dont.

    1. Rohan

      I wouldn’t necessarily restrict to VC’s, Mark.

    2. JimHirshfield

      True, for sure.

    3. fredwilson

      certainly there are many VCs who don’t approach the business this way. but plenty do. and i think it is easier these days to determine who is in what group.

      1. Mark

        Just curious, why do you think it’s easier? What are some ways that would you go about making the distinction?

        1. JimHirshfield

          You didn’t ask me, but I’ll chime in…We live in a more open society in many respects with the net. So it’s easier to find reputation signals in the blog posts that cover start-ups, the connections we have on LinkedIn, etc. Good and bad exposed.

      2. markslater

        its simple. A seed or series A venture investment creates a business partnership. We are partners – we roll sleeves up together and swing for the fence. Those VC’s who don’t see it like that and choose to invest through the lens of a balance sheet or cap table are either investing at the wrong stage, or should not be in the business. Its war at seed and series A – grab your weapon and lets go. 

      3. Rajath Kedilaya

        I do hope there are plenty. It’s a great boon for the entrepreneur to know that his investor will stand by him in difficult times. I realized that as an entrepreneur looking for funding, it makes a lot of sense for me to talk to portfolio companies of an interested VC, to understand their approach before signing up!rajath

  6. JimHirshfield

    I should add, without speaking out of school, that I’ve seen USV stand by it’s companies at 2 start-ups – 2 different partners. There was a time when 10gen/MongoDB was something different than what it is today. Dwight, co-founder, had a very different vision. Coming back from Christmas break in 2008 he decided to make a radical change. As the BD guy, I saw how supportive Albert (USV) was and it was refreshing to see him as excited about MongoDB coming out of that “pivot”. (Dang, there I go with buzzwords!)If you’re not aware, MongoDB is a database purpose-built for web applications and is in use by Disney, FourSquare, CraigsList, bitly, Chartbeat, Disqus, and many more. Amazing traction. (Doah!)

    1. Anne Libby

      (I confess to liking “pivot,” and a couple of the other phrases discussed yesterday.   Can it really be wrong?)

      1. JimHirshfield

        Nope. But it _can_ be over-used. 😉

    2. kenberger

      I talked to 10gen (and Albert) around that time about helping with evangelism. Somehow, they wound up pulling off some remarkable magic just after that. I’m not sure how, but in a short time, Mongo became a top topic at the Rubyconfs.

    3. andyidsinga

      mongodb is awesome! – we use it for our service too. I love the gridfs feature.

  7. Elia Freedman

    I am working on a new idea that I (and others) think could be huge and have been thinking a lot about the role of investors. I used to think it was about the money but have more recently decided that it has little to do with the cash and far more to do with the people who bring the money. I don’t know whether I will pursue investment for this new idea or not but I do know that there are a handful of investors who would bring so much to the table, so much that would further me as an entrepreneur and the company as an entity, that I would take their money whether I needed it or not. (Not that you were asking, or offering, Fred, but yes you are in that group.)

    1. fredwilson

      thanks Elia

  8. Tereza

    I recently moved from working off a seed round of convertible debt from individual angels. Tough as CEO to manage a whole bunch of people. It can be a full-time job.So when this next round came in, I was pleased to have Golden Seeds want to lead the round, for two reasons. One, it’s a statement of belief that does impact optics. But the second is that some of the work I was doing shifted to them. It’s a buffer, so I can focus.I can see how as time progresses and milestones are hit or not hit, the fortitude of the Lead makes a really big difference. But early on, there’s very practical benefit.

    1. Anne Libby

      What work has shifted from you to Golden Seeds?

      1. Tereza

        When completing a round, the lead handles much of that — calls people in the network. You can do less prospecting. And then communication is easier. Fewer points of contact.

        1. fredwilson

          just stay aligned with your lead. and your lead’s job is to keep the rest of the investors aligned with you.

        2. Anne Libby

          Ah, that makes sense, thanks.

  9. Tereza

    Actually I’d be curious for some general guidelines on how angels and angel groups handle the concept of ‘lead’ in the context of your definition. Because isn’t some 90-95% of early stage funded by angels, not VCs? There’s a very large gap of un-led Earlies. Is that optimal? How do entrepreneurs get the support/coordination they need to get business done. Once someone says ‘I’ll be lead’ it reduces some pressures.

    1. fredwilson

      find someone like the gotham gal that can rope everyone together and act as a group. sounds like you’ve got that with golden seeds.

      1. Tereza

        Yes, definitely.  The deal process was pretty grueling but they are a machine and once you cross the threshold of investment, the support is amazing — both vis-a-vis coordination across investors as well as drawing on support from their network, which is excellent (size, quality and differentiated).  

  10. Miljenko Hatlak

    This is obviously the only way to do business. Till now I didn’t have a chance to get in touch venture capital, but I would definitively look for a company which is there when you need advice or any other help. The one whose “principals” are known to be ready to jump into the fire, who conduct their business in direct contact with portfolio companies and not through junior partners.One of definitions of verb “venture” from Cambridge online dictionary says: “To venture something is to attempt it when you are likely to be wrong or to be criticized”. So, if VC don’t want to invest into some idea, it is always better to have NO answer. Later on, be ready “to be wrong or to be criticized”!

  11. Tom Labus

    This is true for all business relationships and probably personal ones too.I’ve had partners who wanted to function as clerks but wanted to get paid and treated like partners.  It’s a real treat to encounter the opposite but it’s the exception to the norm, unfortunately. 

    1. Rohan

      That’s always the discrepancy, isn’t it?A lot of people want to ‘be’ successful.. but don’t want to do what it takes to ‘be’ so..

      1. Tom Labus

        Some how they never catch the spark to be alive or ignore it since passion frightens some.

        1. Rohan

          In many cases, I find it’s the lack of a role model with good values when they were young..

  12. RichardF

    “Do the right thing, in everything you do” – is a basic tenet that my father has lived his life doing and tried his best to instill in me.

    1. Rohan

      Nice job, your father did. 🙂

    2. fredwilson

      i got the same kind of parenting from my folks

  13. baba12

    I met a Professor of Marketing from Wharton at an event a few weeks back in the city, we were not introduced, just met and discussed what we were up to, we ended up discussing how he could be of help and that led to me stating that I needed help finding people not with money alone but those who see the world in a similar way.I think Mr.Wilson means more than just that title of “lead investor” being earned , I think having an investor who not only is in it for the money but is in it because they see something of value beyond  the 10x return they hope to make is fundamental to having a relationship.I always wonder if Mr.Wilson and USV believe that the various deals have/are involved in are fair deals i.e. they don’t come away saying ” those guys are suckers” or ” we got duped”My dad instilled in us this quality which is “In life there are no great deals, at the best you can hope for is a fair deal”Thanks for the post Mr.Wilson

    1. fredwilson

      once you make a deal, you don’t look back. make your peace with it and move on.

      1. JamesHRH

        The same for passing on a deal, too, yes?

        1. fredwilson

          Damn straight. I need to sleep at night.

  14. AVCoholic

    I’m working on my 2nd startup and the largest lesson I learned from my 1st one failing is that it’s not the money that’s crucial (though it definitely makes things slightly easier to be well funded) but the right guidance and mentorship. When I started this 2nd startup, the first thing I did while fleshing out my idea was reach out to people in that arena for their help and advice. There are Angel investors for the money and Angel mentors for the advice. I think a lead VC is the mergence of the 2. They tend to invest after they’ve seen that the entrepreneur might have what it takes to weather the real storms. And they come in with monetary and emotional support.

  15. William Mougayar

    You operate USV almost like a small law firm where each partner’s reputation and work is at stake, day in and day out. That’s how it should be. I think you may have said it before- that the VC business doesn’t scale very well. I’m willing to bet that the VC firms that you admire and respect are probably of the same size as USV more or less. Something gives when there are too many partners and bureaucracy kicks in and LPs can influence things the wrong way. A VC is almost like a magician. As an entrepreneur, I want to buy into the VC’s magic. Let them do their tricks, and I’ll do mine. 

    1. Rohan

      Nice magician analogy, William. And I think the scale point is an issue across business.My uncle is a restaurateur, for example. And it rings very true. Try to scale and it loses precisely that – magic. 

      1. William Mougayar

        Although a great french chef once said “A great chef is one where the client can’t tell if I’m there or not”.

        1. Rohan

          Haha.. That’s what my uncle went for as well.But, 15 years later, he does feel he might do it differently if he had to do it again.

    2. JamesHRH

      legal analogy is good too.When the major big city firms scaled to national level in the 1990’s (in canada), the culture of the firms failed to evolve fast enough.A partner said to me “‘our whole business is based on knowing your partners and knowing they will not do something to put the entire firm, ethically or reputationally, in jeopardy. I am 52 and there is a partner in each office, on either side of me, that I have known 6 months”.He was genuinely worried about his reputation and financial security.Never forgot that you are, basically the company you keep.

  16. Vineeth Kariappa

    The ability to choose a VC is limited to just a few. Since, there are too many people with ideas, most would take money from anyone. Most get screwed. Assume, you liked a concept, and the people behind it, would you go to “any length” to rescue the company?

  17. ShanaC

    Are there ways of getting those people without the money?  Shouldn’t mentorship be inherent in this process?

    1. Rohan

      I think investment provides an ‘excuse’ to mentor.When you are really high quality mentor material, you have no lack of prospective mentees.. hence, this is probably part of the natural selection process. I’m sure they want to (the good guys atleast). Time and energy would be the issue.

      1. awaldstein

        Mentorship means knowledge to share.Many VCs are bankers and investors at their core. There are exceptions of those with operational experience, exceptions of those with deep product experience and just exceptional individuals who have forged a knowledge base out of unique partnerships with entrepreneurs over time.It is not correct to assume that VCs all carry knowledge along with emotional support and of course, financial capital.At least this is my experience. I’m hoping that the exception is becoming more the rule but don’t know that this is so.So, chose your investment partners wisely. Support with mentorship is a great outcome.

        1. LE

           “Mentorship means knowledge to share.”Agree. But the question is why don’t they then employ or contract with individuals that have knowledge to share that could help the companies? My gut feeling (and please anyone feel free to correct me on this) is that they tread very carefully for fear of not scaring off entrepreneurs. Which to me is like a parent wanting to be friends with their child instead of being a parent. Anyone who is not willing to take advice from a credible source is not worth investing in.And given the VC success rate it’s not like they have this all figured out and couldn’t use an edge with their investments.

          1. awaldstein

            Things have changed.Fred and Brad Feld and a handful of others deserve full credit for tipping the scales towards a transparent relationship between the world of entrepreneurs and VCs.Believe me this is a dramatic….and wonderful…change. I have to use a word banned as of yesterday’s post, a ‘game-changer’ for sure.Just as the social web has put the customer in the center of the world rather than the company, this revolution of VC transparency has done something of the same with the entrepreneur.VCs without public spokespeople, without blogs that matter or without world-class reputations are trying to figure out what to do. I know this from my friendships in the field and also, that a number of big firms are recruiting for resident CMOs to offer out what Fred or Mark Suster or a few others can offer to their portfolios.Again…The game has changed. The definition of smart money is something different. And who we want in our bunker to travel the hard journey to success has changed as well.  Or so I think…

          2. fredwilson

            i welcome more VCs playing our game. but they have to play it well and play it authentically. you can’t outsource your blog to a marketing person if you want it read.

        2. fredwilson

          even bankers and investors, with enough experience under their belt, will carry a lot of expertise

          1. awaldstein

            Agree. Not belittling the value of the experienced investor or banker with chops in any way. It’s the ability to share that knowledge that for me at least, set people apart as great mentors. To your point below re: authenticity is certainly key. And having that along with communications skills is not common.AVC is a rarity and an original approach to community that really works. Not a formula.

  18. Aaron Klein

    To be brutally honest, many of my seed investors recoil at the term “VC” because their data points largely consist of VCs who demonstrate zero commitment to their companies when the tough times inevitably arrive.My response is always to point to the tradeoff…the commitment and follow-on resources that a quality, well vetted VC should bring to the table. But it will be a sales job with them if we ever make the call to take VC money.

  19. Luke Chamberlin

    This sounds like the difference between investing in deals and investing in people. Deals you can walk away from. You don’t walk away from people as easily.

  20. LIAD

    Lead Investor aka Lead Cheerleader. 

    1. fredwilson

      yup, but also lead bad news deliverer

  21. Semil Shah

    Hi Fred, great post, loved the opening line. There’s a recent thread about this on Quora, too, just FYI: http://qr.ae/7gpWG

  22. Adam Bullock

    Hey Fred – how do you get ‘taught’ to be a VC?

    1. fredwilson

      many ways. my preferred way is to do a startup.

      1. JamesHRH

        Fred – I have thought about this a lot since you mentioned the John Doerr ‘losing $30M makes a partner’ comment.I think your history as apprenticing, running a fund, running a firm is the strongest background. Or at least as strong.I fail to see the obvious need for ‘both side’ experience (although I can see that it has some advantages).

  23. GloriaMorfin

    my best friend’s mom makes $77 an hour on the computer. She has been out of job for 9 months but last month her check was $7487 just working on the computer for a few hours. Read about it here CashSharp.com

  24. FlavioGomes

    “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.”That is precisely why USV is considered a premier firm sought after by aspiring entrepreneurs who wish to be part of an extraordinary ecosystem that provides all the supporting elements of success!

  25. Ted Carroll

    “..cared about its reputation and stood by its companies.”Of course. Our investment firm wouldn’t operate any other way.Otherwise your money is a commodity and you are relegated to being a “follower” – or worse. Reputation is everything – even if you occasionally go down with the (portfolio company) ship.

    1. fredwilson


  26. msuster

    I love this post. It’s exactly how I feel. I had a moment at my first company where I thought we’d go bankrupt. We were literally at a pub planning it when a partner GRP (where I now work) called me and said, “We don’t quit companies that easily. Let’s figure a way out of this. Stay confident.”And we did. I’ll never forget that.I try to commit early reputationally to companies in which I invest and support them in the toughest of times. Unfortunately these are the ones you can’t easily blog about due to confidential info & sensitivity of companies. I hope it all comes out in 5 years when the teams feel less sensitive.I wish every VC felt this way. Many do. I’m still old fashioned, too. You make a commitment to your teams and you stand by them. In good times & bad.Thanks, Fred.

    1. Rohan

      That’s a cool story, Mark. Thanks..When those stories do come out in 5 years (or less), it’ll truly be an experience on ‘both sides of the table.’ 😉

    2. Lee Blaylock

      Mark, I agree with you and Fred wholeheartedly and (un)fondly remember our “tier 1” VC in a meeting during the dark times talking about a new round say “pencil me in for zero.”   HA!  My guys laugh about that to this day.This was not the original partner to boot, they switched without our input, and not only did he have no clue about our business, but no domain experience either.  He had the gall to tell me one of the things he was most impressed by was the fact we never had even a single post on F#$cked Company during the time and had > 100 people so plenty of people could have complained if they wanted to.  He had no clue about how functional the team was and only cared about his sorry arse.I ended up selling it to a Fortune 500 company, certainly no thanks to him!  And he left the firm not long after.  Wish there were more like you and Fred.

      1. fredwilson

        “pencil me in for zero”yup, that’s exactly what i’m talking aboutit doesn’t only hurt the entrepreneur, it hurts everyone connected to the company including the other investors

    3. fredwilson

      so glad to see you chime in mark. this is an important topic, particularly now that we see VC approaches that cannot and will not provide this kind of support. i am happy that we are not the only “old fashioned” investors out there.

    4. Eric Strait

      Nice reply! Btw, I loved your recent post about the forthcoming Angel investor bubble.

  27. princJay

    Fred, you like to paint the VC as the partner for the entrepreneur, which is admirable.  But why do you not discuss the less endearing sides of our industry.  For example, I find it incredibly distasteful that “standard practice” among other VCs is to not follow up with entrepreneurs after a first pitch (unless they are interested of course).  As my VC friends have explained it, this is the best way to “preserve options” with a company who isn’t attractive now, but may be so later.  Where is the “partnership” in that approach?

    1. LE

      “to not follow up with entrepreneurs after a first pitch”Curious as to what would you suggest would be a reasonable follow up approach? If you were the VC what would you do so that it would not be “incredibly distasteful”?

    2. fredwilson

      we try to do that but we are most certainly guilty of not following up from time to time. it is bad behavior and when we are called on it, i feel terrible.

    3. JamesHRH

      What is sad about that is that entrepreneurs who ‘become more attractive’ don’t keep a list……If you read The New New Thing, you would know that Jim Clark of Silicon Graphics kept a list (to shocking results, to say the least).

  28. Robert Thuston

    …why I keep coming back to your blog to listen to you and others here… because you’re open and you’re committed to people. By being open, I learn…lots… by being committed to people, I’m inspired, which is almost more important.

  29. Geoff

    As a member of the products and services team at Epicentric, which was founded by Ed Anuff and Oliver Muoto, we competed directly against Plumtree in marketing MyYahoo! like portals to enterprises in the early 2000s.  Although Epicentric did not IPO like Plumtree, Epicentric’s products continue to be sold by Open Text, which is the ultimate successor to Epicentric.  Likewise, Plumtree continues to live on at Oracle.  Good post by Glenn Kelman that evoked good memories as well as captured an important point that still holds true today.

  30. Harry DeMott

    I view investing in companies at this stage as getting married.You meet through a warm intro, you date for a while, and if you like each other enough – you get married – with your life cycle being 5-10 years – as opposed to your natural adult life.The question is: are you the type of person who dumps his spouse at the first sign of trouble or sticks around and works it out? are you a “grass is always greener” type?To me, a lead investor is the partner you want to grow old with and you feel that they feel the same way about you.

    1. fredwilson

      i use that analogy all the time Harry. i was offered to look at a round that a company we admire was doing. they wanted an answer in a week. i said, “as much as I like you all and your business, i don’t participate in shotgun marriages” we sat that one out.

  31. Elie Seidman

    I loved Glenn’s post and love yours as well. Kudos to you for setting such a great example. 

  32. Kevin Pillow

    This reminds me of the recent post about when a company is to close for comfort,  http://www.avc.com/a_vc/201… and how an investor has to be committed toward the success of a portfolio company.

    1. fredwilson

      two sides of the same coin. thanks for noting that kevin

  33. GlennKelman

    What a huge honor to break into AVC! Thanks Fred! Some investors want to be assessed for more than just their willingness to outbid everyone else, and some entrepreneurs want true partners, so you have a good match.What bothers me is when you have entrepreneurs who need a mentor, but get an investor who can’t make that commitment. Or you have an investor who wants to make that commitment getting auctioned out of deals.

    1. fredwilson

      that last point is a good one. it hasn’t happened to us yet. probably because we put it out there hard that we are going to do what we say we will do. we win deals at prices we can live with that way.

  34. Jc_mellinger

    I recently participated in a convertible note with two other angels whom I didn’t know personally but the management team (whom I did know) knew well. Fast forward a few months and the company is successfully closing on its pipeline and acquiring new clients. They want to raise a Series A round that is closer in size to an angel round. One of the other angels works with them to create a term sheet and eventually they share it with me. It was unnecessarily complicated (combining debt and equity) for such a small raise. I debated for a couple weeks and eventually had my attorney draft a more normal, middle of the road term sheet for preferred stock. A couple of takeaways from this experience for me were: I believed in the team more than I thought I did. I wanted to invest in them and I was willing to front the legal expense to get terms with which I was comfortable putting capital at risk. Going into negotiations the team’s idea of a lead investor was someone who would shepard them through the whole process, looking out for their interests, etc. No, no, no, that’s not what a lead does, I explained to them. A lead investor sets the terms, often invests the most money and negotiates on behalf of all other investors ideally crafting a term sheet that others feel comfortable following (this team had never raised vc money before. I am also not a VC, just an individual angel). As it turned out I felt I did a lot more of what their idea of a lead was. I explained protections/terms that they would want and why and I wouldn’t budge on some terms that I wanted. After a couple weeks we closed on a small tranche. This is the first and only investment I’ve done this way but I would and (have already) gone to the mat for this company and will continue to do so. IMHO, as an individual investor, this can’t be done half-assed. For as few companies as I invest in I have to view my role as an unpaid employee whose sole job is to use every soft skill I have to maximize my return. 

    1. FlavioGomes

      An interesting story and its good to hear from other private individual investors in terms of their perspective of the process. Thanks for sharing.

    2. fredwilson

      “I would have gone to the mat for this company”welcome to being a lead investor JC

  35. David Clarke

    With apologies in advance for a terrible pun, wouldn’t a ‘lead investor’ be someone who takes a base metal and turns it into gold? Sounds about right for startup alchemy.

    1. kidmercury

      i enjoyed your pun, gave me a quick chuckle 🙂

      1. JamesHRH

        Me too – never aw the pun (too intent on the topic?).There are a lot of lead investors around startups, in that they think they can do alchemy and then they become an anchor…..

  36. Doug Johnson

    I was beginning to think that I was the only “old fashioned” CEO out there looking for a VC that WILL support, encourage, defend and help a smart company grow.  In so many ways, companies starting out with great ideas, proven traction, enormous revenue potential and a great team simply need the VC support beyond the cash.  It sure would help to find a VC that feels this way along with us.  We all know a VC will expect a return on their investment, but the process in getting there is equally important to we “old fashioned” executives.  Great post.

    1. JamesHRH

      It takes patience, experience and ‘battle scar based’ confidence. Most VCs don’t have the first, because they lack the latter two, IMO.

  37. EmilSt

    We have made our priorities when looking for lead VC. Here they are listed by importance:1. Same culture with us, same vision, potential for friendship 2. Knowledge, experience, mentorship3. Networks, PR4. Money

    1. JamesHRH

      Nice list.

  38. Timothy Sung

    Hi!Have always been reading your blog posts, but never had courage to leave comment so far :D(This blog is actually one of my ‘default’ pages in my google chrome!!!)Anyways, this ‘old fashioned’ style and approach is something that I always find whenever I read about great VCs.And I think those values are what allowed VCs to have so much impact in this world as now!

  39. Deep_Eye_Girl

    @NetBoy:disqus …….I саn`t bеlеivе…..МУ friеnd`s sistеr mакеs 89/hr оn thе intеrnеt. Shе hаs bееn unеmрlоуеd fоr 11 mоnths but lаst mоnth hеr incоmе wаs 7985 USD јust wоrкing оn thе РС fоr а fеw hоurs. Gо tо this wеb sitе,……..http://alturl.com/imh8y

  40. Sean Schofield

    I can tell you how we found our lead investor.  We found a few really good advisors first.  One of our advisors steered us right to our lead investor.  We ended up with two advisors arguing strenuously that we should go with their respective investor as the lead.  That’s what a good reputation will do for you.  The companies you invest in will get you the next deal if you treat them right.

  41. Inquirer

    FredHow do you think USV’s reputation is impacted from WSJ’s article today:Zynga Leans On Some Workers to Surrender Pre-IPO SharesThanks

    1. fredwilson

      I cant comment on it because we are restricted by the quiet period rules. But i will simply say that when a company is in its quiet period all the mud gets slung because the slingee has been silenced

  42. Franck

    I am not sure you provide a clear definition of what a lead investor basically is. A lead investor is the investor in charge of doing all the due diligence related to a specific round and define the term sheet for that specific round of funding. Now his role can go beyond the due diligence and the term sheet but this is not mandatory.

    1. fredwilson

      you didn’t get the point of my post. i believe that definition is bullshit. that’s what it means to lawyers and bean counters. but that is not what it means in the real world

  43. markslater

    just switched.

  44. Cam MacRae

    that it generated so much argument over the weekend (news.yc, reddit etc.) seems like a watershed in the acceptance of mongo – eliot acquitted himself well i thought.

  45. RichardF

    from what Mark?

  46. Rohan

    I think the reference here was to commitment, Paul. (my interpretation, atleast)

  47. kidmercury

    agreed. in fact, i think the crowdfunding is going to disrupt accredited startup investing, and that crowdfunding is less dependent upon BFF relationships (or at least, that such models challenge our traditional notions of BFF)

  48. fredwilson

    we will see how the index funds perform. i don’t think that is a sustainable model.

  49. markslater

    MS SQL

  50. Cam MacRae

    I don’t. I think crowd funding is a couple of screw ups away from a regulatory noose.

  51. Austin Clements

    Are there any crowdfunding platforms that suggest they provide a return on capital? It seems like crowdfunding serves a different purpose than startup investing.From the entrepreneurs perspective crowdfunding is nice to get an idea off the ground, but if you are seeking large amounts of capital to start a sustainable business then it may not be the best place to go.VCs should be able to offer much more than capital anyway.

  52. LE

    Problem is I can’t see where the crowdfund investors are in any position to evaluate the risks involved or the business potential.No matter how much information is available.To me it is just gambling.And if the amount involved is small enough to not matter then it’s just entertainment.Of course an eco system will develop where people act as gatekeepers. Which brings us back to BFF relationships as you call them.

  53. Rajath Kedilaya

    An entrepreneur in a fledgling startup may or may not need a BFF, but he certainly would love to have a mentor and a sounding board. Good VCs provide that and it can be more valuable than the capital they provide. How will crowdsourcing replace this aspect of VC funding?rajath

  54. kidmercury

    that is undoubtedly true, although in my opinion the regulatory system is in the process of self-destruction. the same is true for startups as it is for regulators: can’t live on borrowed money forever. 

  55. Luke Chamberlin

    I would like to hear more.There are two models of crowd funding currently: faux-investment (Kickstarter, IndieGoGo) and actual investment (Profounder).The platforms that are actually raising “donations” in exchange for a small token of thanks seem pretty safe from regulation. Unless the government is also going to crack down on NPR giving out tote bags in exchange for your $25.When a platform gives investors a chance to get a return on their money, they are already subject to a host of regulations. Using Profounder as an example, they have 50 different “how-to” pages depending on which state in the US you live in. When you get investors from other states or countries it already becomes incredibly complicated. I tried to use Profounder but the regulations seemed so byzantine I gave up.Who do you think is at risk of further regulation?

  56. Rohan

    Aha. thanks for the clarification..

  57. fredwilson

    have you ever been in a cap table or a board room with a non-committed investor?if not, let’s talk when you have

  58. kidmercury

    there are others, but profounder is always the first that comes to my mind: https://www.profounder.com/faqas crowdfunding grows i think the amount of capital it will be able to raise will grow as well. the only real obstacle is regulation; right now investors and entrepreneurs are too scared to challenge regulators in any meaningful way, but as everyone gets poorer that will change too as people realize there are no other options. 

  59. FlavioGomes

    I agree, good VC’s offer almost equal amounts of value in other ways than just the cake.

  60. kidmercury

    small enough for it not to matter is the point — if i could invest $50 a month in startups that come through some quality filtering process, i certainly would. some would spend much more. regardless, we can mix and match to optimize for both investment appetite and startup needs — a win-win. cutting losses and letting winners ride is at the heart of efficient investing, and a more liquid market enables that with greater precision.   yes, in the crowdfunding model, the bff spirit is crowdsourced too. 

  61. fredwilson

    gambling is the correct analogy

  62. Dave W Baldwin

    “Can’t live on borrowed money forever.”Good one!

  63. Cam MacRae

    That you’ve used quotation marks around donation suggests that you’re aware that a 501(c)(3) (or any 501(c) organisation) and Kickstarter et al. funded projects etc. ain’t. apples and apples.Let’s divide these projects into two groups:a) “Donations” to projects of worth e.g. art, OSSb) Speculative preordersBenefaction of type a) is not of great concern unless some bean counter decides to spend the time reconciling donations with income declared. Besides which, we’re talking about disrupting startup investments…Failures of type b) on the other hand, attract the attention of consumer protection agencies, the FTC etc. Can you imagine the fallout if Minimal Inc. had failed to deliver the TikTok? Now imagine Minimal was a brand new venture.So, a couple of screw ups here and there and I have little doubt reams of consumer projection lobby authored legislation will be put into statute.For example, asking Joe Public to speculate will require additional disclosure of risk. For projects with low capital requirements the cost of compliance i.e. issuing a prospectus or similar, will exceed monies raised.I think in the future Profounder and it’s ilk are likely to be restricted to accredited investors. In that case it’s really up to the individual investor to choose how they want their ticket clipped e.g. by a manager or a broker, but it’s hardly disruptive.Edit: Forgot for a moment this is a US blog: “beaner” being slang for accountant aka bean counter. I’ll just change it.

  64. fredwilson

    it can’t, it won’t

  65. kidmercury

    fred is already mentoring entrepreneurs for free here on his blog. if he and others like him are given some financial incentive at little to no extra cost, i suspect they will do more. more importantly, though, an online environment allows online introductions to be made; here on avc.com, for instance, i get to meet and learn from a wide variety of professionals. this type of mentoring is already being done for free. is it as good as BFF mentoring? probably not. is it good enough and appropriate for some markets that BFF investing cannot reach? i certainly think so. 

  66. fredwilson

    it’s a great idea but tricky. it’s like doing 360 reviews. to get the most candid feedback you have to make it anonymous. but anonymous feedback is also suspect.

  67. kidmercury

    agreed, much like how sound quality on an mp3 is not as good as sound quality on a vinyl. but can crowdfunded mentoring reach a level of being “good enough” while enabling such mentoring to reach markets that were previously inaccessible?

  68. kidmercury

    i have this conversation all the time. what’s the difference between gambling and investing? IMHO the difference has nothing to do with the external mechanics of how the casino operates, only with the psychology of the individual playing the game. 

  69. Jc_mellinger

    If you make the choice to invest in a company you should be willing to take the time necessary to really evaluate the company with a critical eye. The devil is in the details and I’m not yet convinced there is a crowd funding platform that solves this.

  70. Luke Chamberlin

    Thanks for taking the time to write this out.In the case of Kickstarter, they don’t sell anything and they at no time collect or hold any money. They are a discovery platform. This is very clear in their terms & conditions. Any contract you enter into is between you and the company you support.If Minimal Inc. had failed to delivery the Tik Tok the company itself would have been liable, but not Kickstarter. There has been plenty of fraud on eBay over the years and it hasn’t attracted the ire of regulators, because they’ve placed themselves in a similar position.In the end it’s a money game. Once crowd funding hits the billions of dollars you might see government get involved. A million dollars might seem like a lot on Kickstarter but to regulators it doesn’t even register.

  71. Cam MacRae

    @twitter-41899343:disqus Any ambiguity in what I wrote above is my fault – I was tired when I wrote it. We’re not talking about some kid’s movie production, but funding for profit businesses. I wasn’t implying Kickstater would be liable, but that funding of type b) will be subject to regulation in the future, and that future is only a few screw ups away.One of the problems with working in fields that are awash with money is that we become insensitive to it… “A billion here, a billion there, and suddenly we’re talking about real money”… but unless you’re a casino or a bank (is there a difference?) when someone makes off with $900k of consumer’s money the consumer protection agencies pretty much always get involved. It takes a lot less to move the dial than you think.

  72. kidmercury

    i compare crowdfunding to public markets investing. have all the people invested in apple actually met the founders and established a BFF relationship with upper management? no. public markets are supposed to have a greater degree of transparency, although this is not often the case — i.e. enron. but anyway, crowdfunded markets will bring about greater transparency. here’s something else to think about: if you could invest $X per year into a fund that would be managed by fred, would you do it? that is basically what LPs in union square ventures are doing. why can’t we all have that same opportunity (provided fred and others like him would be willing to participate, although i think it can be structured in a way where many if not most of such folks would find it very advantageous). i know i would do it in a heartbeat, provided the minimum required investment was low enough to be compatible with my tolerance for high-risk startup investing. such a platform doesn’t exist — YET. but we are still very early on in the crowdfunding game.