Jason Freedman is the co-founder of 42Floors, making it easy for everyone to rent office space. He’s a two-time Y Combinator alum and blogs regularly on humbledMBA. This post was originally published on the 42floors blog.
F**k it, we'll do it live!
I remember when I first started fundraising for my first company, my investor network was pretty weak. Not only did I not know many investors, I also didn’t really know how to pitch them.
I‘d basically take any meeting I could with any investor at any time. I went to conferences, meet-ups, pitch competitions. Every investor was an opportunity for an elevator pitch. I was doing whatever I could, trying everything to succeed. I figured this it what it took. This was hustle.
It was also stupid.
One day, I met a prominent VC at a conference. I started my elevator pitch. But in a rare moment of candidness, he told me that he doesn’t go to conferences to meet new startups. He told me, “By the time they get here, they’re already picked over.”
Here I had thought this man with deep pockets of other people’s money was evaluating me and my pitch. But empirically he knew that he wasn’t going to find his next investment that way. He was there to build relationships with the most successful founders so that they would introduce them to startups they liked. I’d been wasting my time.
Investors don’t want to meet you. They wanted to be introduced to you.
It’s a huge difference. Another top tier VC once told me that out of the thousands of business pitches he receives in his office every year, his firm has never funded one that came in completely cold. In other words, the only way to get their investment was through an introduction.
It makes sense. The job of a venture capitalist is finding a needle in the haystack. And it’s just not functionally possible to do that by evaluating every single one. So investors rely on their network to do the first round of vetting.
This little insight should dramatically change how you raise money. Instead of trying to build a network of investors, you should be building a network of introducers. And not all introducers are created equal. Here’s a guide to help you.
How to get warm introductions
1. Get intros to your friends’ investors
If you’re working in any startup hub, you almost certainly have friends that are working on their own startups. Ask them to help you. The first question should be, “Am I ready to fundraise?”
You need to ask this not only for the answer, but also to see just how warm your friend’s introduction will be. If they like you, but they don’t believe in your startup yet, then it will be impossible for them to hide that perspective from their own investors. But once you get the go-ahead, you should absolutely ask them for introductions. And not to get too bogged down in logistics, but here’s how you should do it:
Send them a fresh email requesting an introduction to a specific investor with enough information that it can be forwarded by your friend without further editing and short enough that the investor can read it on their mobile phone. Assume that no attachments will be opened and that no links will be clicked.
2. Get introductions from entrepreneurs that are not yet your friends
If you are not yet friends with everyone in the PayPal mafia or the YC alumni crew, your friends list may not reach as far as you need to go. That’s not a problem because most founders are willing to help out other founders when approached in the right way. I regularly introduce other startups to my own investors, and it’s a win-win for both sides.
When you are approaching another entrepreneur for an intro, you need to actually sell them on your startup because an entrepreneur will only make an introduction to her investors if they believe there is high likelihood that that introduction will result in an investment; it affects their own credibility when it doesn’t.
And secondly, they want to spend very little time getting involved because their job is their startup – not helping you raise money.
But with that said, it’s much easier to get a meeting with another founder than it is to get a meeting with a prominent venture capitalist. The trick is you have to ask first for fundraising advice, and not for introductions.
When you go to another founder for advice, especially if you approach a non-famous founder who doesn’t get this request too often, they’ll love playing the role of teacher and giving you helpful feedback. And if they get excited about what you’re doing, they will offer to make that introduction for you.
3. Get intros from your early investors
The second that wire comes through, you need to turn your early investors into evangelists. They are now your best source of warm introductions. But you have to help them be helpful. They don’t know who you’ve already talked to and where you need help.
When I was seed-stage fundraising, I liked to keep an investor wish-list on a Google doc. It was a list of 20 investors I wanted to meet in order of general priority. Whenever I would get a new Angel on board, I would show them that list and they would respond back with who it is they knew. Immediately I would send them a fresh email for each new intro. BOOM! Three to five more investors in the pipeline.
4. Stay organized
You need a well organized investor pipeline. This is where you keep track of each investor that you’ve approached as well as those that you would like to approach.
A good fundraising process will involve 40 to 60 meetings, so it’s impossible to do this just in email. This document should not only keep track of your status with each one, but also who you have in common with each person. I like to go through this list methodically checking each investor name on both LinkedIn and Facebook to see what possible introduction I have available to me.
I then try to balance each potential introducer out so that the people who can provide the best introductions are evenly distributed. Asking for three introductions is totally fine, and five is probably pushing it, unless she is either close friend or already an investor.
Your goal by the end is to have 40 to 60 introductions. Our travel startup took about 60 meetings, as did our office space startup. If you raise your round in the first 10 meetings, then kudos to you. And when you do get your round done, be generous with your time and pay it forward to other entrepreneurs.
And, if I personally can be helpful to you. Ping me on Twitter. I’ll do whatever I can.