An anchor investor is especially important when:
• Your deal is larger (>$20m equity raise).
• The equity check is heavy (an 8x deal requires ~5x of equity, a 4x deal only needs 1-2x equity).
• Complexity is high (e.g., distress, carveout). It enhances other investors' comfort levels when underwriting something that is difficult to understand if they see that others have understood & approved it (= a version of herd mentality).
• You're a brand-new sponsor with no pre-built capital relationships.
• A seller/intermediary needs "proof of capital" early in the process.
• The exclusivity period is short (<60 days).
• Your investor rolodex only consists of small fish (<<$1m each).
• You want someone to help carry the burden of dead deal fees (if so, you'll likely need to give better economics in exchange).
• During tough macro times.
The main drawback of having an anchor = governance & economics. Veto rights, split economics, etc. Especially beware if they are 51% or more.
