Top ranked sell side investment analyst turned angel investor shares thoughts on startups and early stage investing.
Thursday, April 23, 2015
Raising Money From Strangers: Working The Intro
Raising Money From Strangers: Working The Intro
Startup founders, going all in to the process of raising money from angel and VC investors, can increase their chances of success by having an organized and focused process. I offered my thoughts on this, based on my experience on the angel side of the table, in my "Get Serious" post. (See the full series HERE.)
I talk about about drawing up a list of target investors ... using tools like angellistand crunchbase to help with discovery side and then other tools, so linkedin andconspire for example, to work out who you know who in turn knows those targets.
But I didn't take on the: "OK I have names ... but now how do I work the intro?" question. Having had a fair number of founders come back to me on that after that post here's what I think - the approaches that follow are some obvious entry points, listed in increasing order of effectiveness.
1. Comes in Cold = #FAIL
So Angelist and Linkedin might be good ways to triangulate on your targets but they are pretty much useless when it comes to connecting with any active investor - well, this one at least. In my case this is for two reasons: a) I get enough referrals or meet enough founders at in person events that I simply have no bandwidth to review cold incoming inquires. I suspect I am not alone in that. But also b) sorry: you just failed a test. If you can't find a way to get a warm intro or otherwise make a creative connection to me then my assumption is that you aren't what Paul Graham calls a "formidable founder". And that is what any investor is looking for!
2. From a Non-Investor (so an investor ... just not in your company)
So you identify an active investor you know who seems to know me. You validate that and ask them if they will make an intro for you. OK so now you are making progress. Assuming the person is someone I know/respect then I will pay attention to the intro and at least review the materials. BUT this route can suffer the obvious credibility challenge - "Thanks for referring Joanne to me. But her business isn't something you wanted to invest in. Errr ... so why should I?" (That's less of an an issue where Joanne is not in a space the referrer is active in, so the "not an investor" part is less of a red flag.) Still option 2 is a heck of a lot better than option 1. Also intros from service providers fall into this "tier" - so better to get an intro from a known startup attorney for example than a cold call. But you get more traction if the intro comes ...
3. From an Investor in your company
Now you are making real progress! You have an investor in your company who knows me. Maybe they even offer to make an intro without you asking them. Or maybe you ask them and they say "Sure, will do." I am definitely listening now. I know that, because the person making the referral has skin in the game, they aren't objective. But ... they have skin in the game! They believe. I assume they did due diligence and, assuming I trust their judgement, this is something I want to hear about. (I made an investment end last year through a chain exactly like this - thank you Jerry Neumann! Jerry has the coolest early stage investor website out there btw.)
4. From an Entrepreneur
Statement of the blindingly obvious: Founders are busy people - but they know what it takes to do what they do. So when a founder I know recommends another entrepreneur I pretty much always "take the call." By spooky coincidence just as I was writing this paragraph I got an email from Gillian Morris of Hitlist with a "would you be interested in meeting this founder?" message. I replied "yes" - immediately. Why? Because I know Gillian won't by wasting my time, I know when she infrequently makes an intro like this it is for a good reason and crucially I am pretty sure she is a damn good judge of other founders.
5. From an Investee Entrepreneur
An intro comes in from the founder of a company I am invested in. So the answer "yes" is easy and in this case there is a higher level of commitment.Part of my role as an investor, as I see it, is to make value added (I hope) intros that might benefit my investee founders. And in return if they make an intro for me I feel pretty much obligated to respond positively and return the favor. Of course, if the investee founder that pings me has a business that is rocking, then the fingers typing the reply message work even faster - this isn't just a recommendation from an entrepreneur ... this is one who is making me money!
6. They find you
The connection nirvana is of course where investors contact you. Much lower IAC (investor acquisition cost!) than endless pitch meetings. As leads for your cap table build out plan they come in pre-qualified, at least in the sense of having demonstrable interest. And the way they find you can be multi faceted. Having a glowing write up across the tech media can obvious generate interest. And you can proactively work to generate that sort of earned advertising. But being visible and engaged through social media in the normal course can do it for you too. So blogging interesting content on your space and pushing out there. A specific example: I invested in Snaps a while back after I saw something founder and then CEO Vivian Rosenthal put out on twitter. I think we got into a twitter convo which promoted me to look into the business some more. Then an in person meeting when I got more interested. Then some due diligence ... and in due course I wrote a check. It happens!