Editor’s note: Brendan Gill is the co-founder and CEO of OpenSignal, a startup that crowdsources data on mobile networks from consumer smartphones. Prior to that he founded a California-based e-commerce company after retiring from a brief lifeguarding career. You can find him on Twitter as @brendan_gill.
Stefano Bernardi recently wrote a good cautionary post about the difficulties of raising investment in the US. He’s not wrong – the odds are stacked against you – but I don’t think European entrepreneurs should be discouraged.
“This event was off the charts”
Gary Vaynerchuk was so impressed with TNW Conference 2016 he paused mid-talk to applaud us.
Founders need investors that offer more than just money: they need ex-entrepreneurs that have experienced exits; they need super connectors that can make deals happen and they need battle hardened veterans that have seen bubbles come and go many times over. The fact is that there are many more people who meet that description in Silicon Valley and having them as partners can make a huge difference. But how do you raise capital in the US? Rather than the vague and oft-repeated advice to “hustle your way to intros” I want to provide specific, practical tips we learnt whilst raising our seed round in the US last year.
Don’t book your flight just yet, there’s a new wave of European funds that are comfortable with pre revenue startups, know how to move fast, and won’t ask for 5 year cash forecasts right off the bat. They also regularly network with funds in the US and can be one of your best sources for intros to US funds/angels they like to co-invest with. I’m thinking of the likes of Connect, Hoxton, Kima, Number1, Playfair, EC1, Team Europe, Passion etc (Disclosure – Passion is an investor in OpenSignal). If you get one of them on board they could contribute to your round and potentially introduce you to a US fund to lead.
Closing a deal can take a long time. The standard US Visa Waiver program is 90 days and you’ll want to plan for all of that and start your research and reaching out to people in advance. A successful investment will usually involve a partner meeting where anywhere from 2-6+ people with ferocious travel schedules need to be in the same room. No one warned us but some of these meetings can take weeks to schedule so you need to factor this in and hit the ground running when you land at SFO.
Whilst many investors are still based in the 40mile stretch that lies between San Francisco and San Jose (“the peninsula” in local parlance) there has been a clear trend towards San Francisco in recent years. Staying in SF is more fun but staying on the peninsula can save you some cash. Either way you’ll be travelling between the two a lot and you’ll be far better off if one of your group drives as the CalTrain service is limited and slow.
ZipCar is really useful for this and you can sign up with a foreign license but do it well in advance as it takes time. For apartment hunting I’d recommend Airbnb and PadMapper and try not to stray too far from SOMA or Palo Alto as those are the epicenters of action for the city and the peninsula respectively.
Decide with your co-founders in advance what the plan is. Are you prepared to move to the US or are you staying in Europe? Are only some of the founders willing move? Based on this, filter your approach. Use Crunchbase, AngelList and other resources to see which investors have made investments in Europe in the past year.
Don’t waste time with a US fund that doesn’t invest internationally under any circumstance. Those that do will still expect you to have a US parent entity in which to invest so that the investment terms are subject to US laws. If you are already incorporated in Europe and have external investors make sure they are willing to re-incorporate. Factor in another month at least if you are know you will need to re-incorporate.
We didn’t have a large network in the Bay Area when we started and found this to be our biggest limiting factor. You’ll want to cast the net wide and reach out to as many people as you can. Portfolio companies are a great (relatively untapped) resource for this and we found the best way was not to open with an ask for an investor intro. Instead, find a company that you have something in common with and ask advice on something specific and relevant. Be respectful of their busy schedule and show you are willing to be helpful by offering something in return.
One tactic that worked very well for us was offering local knowledge to Series A funded companies that were going to be opening European offices. Then, once you’ve had a bit of a back and forth you can see if they will be willing to do an intro to one of their investors.
This is a great chance to get a few minutes of uninterrupted attention from investors. Check sites like Ohours and look out for ad hoc ones at conferences (Startup America often organize them) or the recent ones put together by London investors. Don’t be afraid to email or reach out to investors on Twitter and ask if they have any scheduled, the ecosystem needs more of them.
Getting industry veterans to join your advisory board can bring real credibility when it comes to convincing investors to write large checks and they can also put you in touch with investors they have worked with in the past. Use LinkedIn to find 2nd or 3rd degree connections with a background in your industry and browse through those that list themselves as advisors on AngelList.
The Founder Institute has some great guidance on what you should offer in terms of equity and open source docs to keep the legal costs down. I’d suggest targeting a few advisors that know the startup/investing world well and a few that can offer industry specific advice and contacts backed up by 20-30+ years experience.
Just do it. Right now. It’s the most meritocratic opportunity to get in front of top-tier investors and amazingly Nivi and Naval somehow manage to provide individualized feedback to a large proportion of startups that list themselves. Fill out your profile in depth and if you present a compelling story there is the potential your startup might be sent around to a long list of potential investors.
The jury is still out on many accelerator programs, but one thing that is certain is that the top programs have great investor connections and know what those investors want to hear. Pitching is not simply presenting facts – you’re selling an opportunity and an accelerator will groom your pitch until you can sell ice to an Eskimo.
The likes of Y Combinator and Angelpad are open to foreign teams and with programs like TechStars now running in London (disclosure: I’m an investor), this a great way to leapfrog towards raising a larger round in the US.
Ask for another intro even if an investor doesn’t invest
Some people will caution against this and obviously if you have the potential for a warmer intro you should take that instead, but if the limiting factor (like us) is simply the number of introductions you can get then you need to take every opportunity you can. You’ll be swimming against the current but we managed to get to a yes directly through an intro from a fund that didn’t choose to invest.
There are many valid reasons it might not be a fit for a particular investor so don’t be afraid to ask and they can also introduce you to useful people outside the investor community (who also might have investor contacts).
Do your homework
More than 50% of what you need to do is research. It’s not glamorous – you need to put in quality time with your computer, day after day. You need to create a long hitlist of VCs/angels and other potential targets and research them in detail. You want to go into every investor meeting knowing their investment thesis, their professional history and even their last few tweets. Find a connection; deals are personal relationships after all so look for common ground.
When it comes to talking terms make sure you know your liquidation preferences from your pro rata rights – Brad Feld’s Venture Deals is a great overview. Learn how the industry works and how investors’ incentives are set up so you can understand how they think, e.g. read up on the standard 2/20 fee structure, portfolio theory and avoid obvious errors like pitching a seed only fund to lead a Series A.
Above all, keep going. The nature of fundraising means it’s guaranteed that you will face many rejections so you need to make peace with this fact right now and focus instead on how you are going to react when this happens. Pick yourself up, try again and console yourself in the knowledge that there are many other startup founders out there who know exactly how hard it is to keep putting yourself out there and respect you for doing it.
Image credit: Michael Reuter / Flickr