07 January 2014

Life As A Startup Consultant

The good, the bad, and everything in 

About twice a year-- in late spring and again in early winter-- a steady stream of resumes come in over the transom from college seniors and MBAs.  We haven't (publicly) posted a job in several years, so I can only assume these eager beavers are attracted to the perceived glamour of consulting mixed with the excitement of the startup world, and this has somehow triangulated them to our doorstep.

For the benefit of aspiring and future startup consultants everywhere (and perhaps to scare off a few wannabees), I thought I’d write a few notes on the "reality of life as a startup consultant".  Here goes. 

The Good

The people. 
Working with entrepreneurs who are out to change the world is awesome.  I'm lucky to spend my days and nights with movers, shakers, dreamers and visionaries…as Steve Jobs put it, the "Crazy Ones."  I compare this with my first few jobs in valuation and investment banking, which were remunerative but stifling and draining; I truly hated to go to work each morning.  In contrast, the passion and energy founders bring is contagious, and fires me up every day.

It's mentally stimulating. 
At any given time, I'm typically working with 3 to 6 different startups simultaneously, which means I slice my time up into increments devoted to each startup.  Jumping from a crowd funding startup in the morning to a hardware company at lunch to a B2B SaaS business in the afternoon lets me exercise multiple mental muscles…think Crossfit for the brain.

It stretches limits.
Startups are by definition doing something new; thus, many of the challenges I deal with on a day-to-day basis are also new-- whether it's structuring a new business model, analyzing a new market, or exploring a new marketing approach. Solving startup challenges is often chaotic, messy, and ambiguous; but pushing the envelope, facing new challenges and blazing new business trails is a thrill, and keeps the job fresh.

It's innovative. 
Related to the above, working with startups means you're always on the front lines of new trends in technology-- sometimes way out in front of them.  I worked with Kickstarter back before there was an "e" in the name, and before anyone had coined the term "crowdfunding." I spent a lot of time with Autonet, a pioneer in connecting the car to the Internet, and with Appbackr, a pioneer in mobile app distribution.  The point is-- staying on the cusp of new tech trends takes a lot of energy, but it's fun to see new industries sprout and blossom, and to know you had a (small) role in making it happen. 

The Bad

The people. 
The flip side of working with dreamers, visionaries, and the "Crazy Ones" is that you're working with dreamers, visionaries, and, literally, the "Crazy Ones."  It's an understatement when I say there are a lot  of wacky people who are starting companies (the old joke is that you call yourself an "entrepreneur" when you can't get anyone to hire you and give you a proper job title :). 

Startup culture tends to be a magnet for the best and brightest, but it also lures all the misfits and kooks (I’ve even considered writing a book collecting the nuttiest inquiry emails I’ve received; there are some insane ones).  Overall it's not that big a deal-- generally it means you have to fine-tune your filters-- but it's still time-consuming and taxing to weed out the big dreamers from their nearly identical nut job twins.

Startups fail.  A lot. 
This has been a difficult one for me to deal with-- it took a long time to build up some scar tissue here.  In short, despite having the right ingredients (good idea, strong team, capital, etc.) and despite putting in the hard work, the vast majority of startups will still fail, for any variety of reasons (market shifts, funding environment changes, CAC is too high, etc.). Even though the high startup failure rate is a known fact, it still materially stings when I've worked for 6 or 9 or 19 months with a team, put in the sweat, blood and tears, been there in the trenches and along for the emotional roller coaster rides, and the company doesn't make it.  I’m not sure it ever gets easier.

Startups are cheap as f*ck. 
From a career perspective, this is perhaps the biggest challenge, and why the ranks of professional startup consultants are relatively thin.  Startups either a) have no money to pay you with, or b) have been trained to think that they should always get everything for free (a practice probably fostered by large law firms that defer fees for some period of time).  I totally get it-- I'm a huge fan of bootstrapping and doing it lean-- but I've noticed a growing sense of "entitlement" among founders who feel that solely by virtue of being a young company, they automatically deserve a free ride. 

Bottom line, getting paid is a challenge. The only solutions I've found are to target startups that have raised some seed money, or  to target founders that were perhaps employee number 5 at their last startup and are now CEO.  These founders have an exit under the belt (= $) and have "done it before", and thus know how valuable it can be to get outside professional help.  

Why You Should Choose This Career Path

You should only become a startup consultant if you, like most entrepreneurs, are a little bit crazy and have so much entrepreneurial DNA you can't handle a "normal" job.  After leaving the i-banking world, I founded one small startup that did ok (small exit) and tried to start another during b-school.  It failed the week of graduation and as such, I had missed all on campus recruiting.  Having zero job offers (or even prospects) was oddly liberating, and I took to heart some advice from a professor-- "find out what you love to do, and do it well enough that people will pay you for it."  I loved startups, I loved consulting, I didn't have any new ideas for starting a startup, so I put these pieces together and hung out the shingle for VentureArchetypes. 

Bottom line, it's a hard business and you're not likely to make a lot of money at it (during my first year in business, we generated only $32k in revenue!). You must simply love, live, eat and breathe startups if you want to make this job a career.  To put it bluntly, if you want to optimize your life for money, you should pursue a path in traditional consulting (BCG, McKinsey) or in investment banking.  If you want to work with startups, the money has to be secondary. 

How To Make A Living At It

So, having spent considerable e-ink telling you how hard it is to make a living, the question thus becomes-- how have I been able to do it for 10+ years?  There is no trust fund supporting this career choice; I've learned via a combination of trial and error, raw hustle / work ethic, and by combining these three main business models:

High volume, repeatable services
This business model usually involves finding one or two main service lines that can be streamlined and performed repeatedly and very efficiently.  For example, in the early days I did a ton of business plans and financial models for startups-- that was the main revenue engine (and to note, I still do a lot of models and decks, as I really enjoy the work).  A few firms in the industry have done a good job of streamlining or mass-assembly-lining this business; for example, MasterPlans and Caycon have built large (and presumably profitable) businesses by cranking out hundreds or thousands of business plans a year.  

Low volume services with a "success" based kicker
An alternate (and polar opposite) approach is to take on fewer startup clients, but get deeply in bed with them and bet on the potential long-term upside of the company.  An example would be a consultant who spends 1/3rd of her time with a startup acting as interim CFO or marketing person, and who takes a few points of equity in the company.  This might also be structured as a small monthly retainer with a significant bonus paid when the startup closes a proper funding round or is acquired. 

The advantage of this structure is the shared risk and upside.  The disadvantage is the point I made above-- most startups fail.  The remedy would seem obvious-- pick really great startups-- but ask your favorite VC, who's highly paid to pick startup winners, if that’s not easier said than done (most VC firms make all their upside on 2 out of every 10 deals; the other 8 either fail or flat line).  Fortuitously, I’ve had a couple clients hit it out of the park and pay off, but I also own a ton of worthless startup stock (and even worse, on more than one occasion I’ve put in 6-18 months of hard, roll-up-the-sleeves work with startups that ended up running out of money).   

Products, books, events, etc.
A final way I've seen startup consultants do well is by productizing their work into something scalable beyond an hourly fee or retainer.  This might take the form of books, workshops, Udemy lessons, software tools (like I’ve done with Foundersuite), an event series (as I’ve done with StartupExits and StartupBD) or even by creating a co-working space or incubator (Founder's Institute comes to mind).  All good stuff, but selling products or becoming a successful author is harder than it looks; the ones who do it well (think Malcolm Gladwell or Eric Ries) do quite well financial.

Finally...How To Get Started

Back to the resumes from the college seniors and MBA students.  How do you crack into the startup consulting world?  The two most common ways of wedging your foot into the door are either by packaging your skills into a discrete offering (the specialist approach), or by gaining and packaging a broad base of experience (the generalist approach). 

For the specialist approach, I suggest finding a tangible, clear, and marketable "thing" you can package and sell-- 409A valuations, MVP mockups, setting up analytics and user metrics, A/B testing services, etc.  In the early days, my “thing” was building financial models; I knew how to build a killer model from my days in investment banking, and I tailored the service for startups (and still build a ton of them today).  The experience gained from helping startups in this way enabled me to expand into a variety of other areas, such as capital raise strategy, exit consulting and startup BD.

The alternate approach— selling your experience-- is a somewhat harder and longer road to plow.  To be able to make a living as a “generalist” startup consultant usually means you've done something unique and rare enough that others will pay you for your general insight.  Typically, this means you started a company, achieved some sort of remarkable result or exit, and are now in a position to coach others.  An example that comes to mind is my buddy Gagan Biyani who founded Udemy, ramped it quickly, then left and consulted to firms like Lyft.  I have yet to see many (or any) recent college or MBA grads make it as a generalist consultant; there just isn’t enough perceived value or demand or to create a real market for a generalist startup consultant who doesn’t have a significant exit or other notable achievement under his / her belt. 


I hope this has been helpful to would-be startup consultants.
  I'd love to hear your story-- what you're doing to get into the market, what service or niche you've focused on, how you discovered or built your business model, and what are the results?  Email me when you get a moment.  Thanks!

Nathan Beckord, CFA

12 August 2013

Announcing the launch of Foundersuite: Software and Templates for Entrepreneurs

We are very excited to announce the launch of Foundersuite (www.foundersuite.com), which is a set of software modules and templates for startup founders.  

Try it out for free, and if you like it, you can use the code "SeedStageLove" for 20% off everything, forever. 

We started working on Foundersuite about a year ago, with the mission of helping startup founders launch, manage, and grow their companies more efficiently and effectively.     

In Version 1.0, Foundersuite’s SaaS tools includes modules for: i) Getting feedback on your new company or product ideas; ii) Running corporate housekeeping tasks; iii) Raising capital in a structured, efficient manner; and, iv) Tracking your progress and updating investors and advisors.

Also in V 1.0, we've curated some of the best template bundles for: i) getting your company started; ii) building an advisory board; iii) hiring early employees; and iv) marketing and branding.

We are already hard at work on V 2.0 with across-the-board product enhancements as well as a few NEW tools thrown into the mix-- stay tuned.  

Check it out, let me know what you think!  All feedback welcome.  


PS:  We are building these products to make YOUR life better, easier, faster; so what startup-focused tools would YOU want to see in future releases?   Send us a note, we'd love to hear from you.  We'll be giving away a few Lifetime Accounts to those with the best ideas.  


12 October 2012

Raising Startup Capital Slides -- The Pitch, The Model, and Fundraising as a Process (General Assembly)

I recently led a three-part workshop series called "Raising Startup Capital" at General Assembly's SF office.  Here are the slides I used in my lectures.  

I've included the notes version, as I think there's a lot of useful commentary in there. Enjoy!

Session One:  Building a Killer Startup Pitch Deck + Pitching Hacks

Session Two: Financial Modeling for Startups

Session Three: Raising Capital as a Structures Sales Process

What do you think?  Any tips, tricks, or hacks to add to the mix?  Please share. 

10 May 2012

A Better Way To Ask For Investor Intros

8 Tips To Optimize Your Fundraising Process

About once or twice a week I get an email that goes something like this:  
“We are starting to raise our seed round; who should we be talking to?”
It’s a reasonable request, but unless I’ve just finished lunching with an investor who specifically mentioned that she is looking for a “cloud-based-big-data-streaming-content-gamification-platform-for-RIM-tablets,” the answer is probably the somewhat dismissive “I’ll keep an eye out.” 
It’s not that I don’t want to help.  On the contrary, I absolutely love to connect people when there’s a mutual fit.  It makes you look good, it makes me look good, and investors appreciate it when you bring them good deal flow. 
Indeed, I love making intros. The problem I have with this type of request is that it puts the burden of establishing fit on my shoulders.  Which is not where it should be.  
Let me explain.  Intros work best when they are filtered and pre-qualified, and when there’s a natural, organic match between the two parties being connected.  As Mark Suster says in his excellent piece How To Develop Your Fundraising Strategy: “Qualify your buyers early so you focus your scarce resources on people likely to buy your product;” and, “Spend time researching your buyers and not just pitching them.”  This is not rocket science, but it takes time, effort, and legwork.  And unless you’re paying me to do this, it’s your job as startup CEO.  
So instead of the passive approach of “Do you know anyone?” a much better active method for finding investors is as follows:   
Step 1:  Designate A Driver.  

Raising money works best when one person is put in control of the process and is responsible for keeping it all moving forward.  This is usually the CEO, but sometimes the CFO or BD person should lead the charge.  Quite frequently, however, I see startups that have a general consensus that they need to raise money, but no one is really pushing hard, and pushing it through to yes / no decisions.  It ends up directionless and ineffective; it takes too long, and it becomes a huge distraction.  Raising money cannot be done by committee. 

Step 2:  Start With The Top Of The Funnel.  Treat It As A Numbers Game.  

Our first step is to assemble a target investor list, and the best way to end up with a highly focused list of qualified targets is to start with a very broad list of candidates at the top of the funnel; I suggest you aim for a minimum of 100 investor names.  Start by adding everyone you can think of-- investors you’ve seen speak or present at relevant events, names you’ve come across on VentureWire, TechCrunch or PeHub, folks you’ve met at tech gatherings or found on AngelList, personal contacts, friends of friends, and so on.  Go ahead and add everyone who could potentially be relevant-- we’ll filter it down in the next step.   
Pro Tip:  Build this initial database using a Google Docs spreadsheet or in an excel file stored online using Dropbox, so that everyone on the team can access and add to it. Keep the structure simple-- label your columns with titles like: Name -- Firm -- Stage -- Email & Phone -- Similar Deals -- Initial Contact Date -- Next Steps -- Notes, and so forth.  One related tip-- don’t just list the VC firm name (e.g. Accel, Norwest, etc) on this spreadsheet.  Instead, drill down another level and list the specific partner at the firm that will be the best fit for you.   A super-old example is like this:

Tools:  Angel List is fast becoming my go-to source for building the target list, as it’s an absolutely invaluable resource for efficiently researching potential investors.  Literally, it is the investor party that everyone’s at.  Furthermore, it’s not just angels anymore-- it’s becoming increasingly popular with traditional VCs, most of whom have at least some presence on the site.   And of course, in addition to sourcing leads, it’s a great venue for the outreach process as well-- more on that later.   

UPDATE:  Naval Ravikant sent me this tip for using AngelList:  "Here's a killer feature for building a target list:  http://angel.co/people.  Choose stage, market, location.  Sort by paths. It'll create a personalized list of investors for you to approach, sorted by how easy it is for you to get to them."   
Other useful list-building tools include Crunchbase, Quora, and CapLinked. In addition, subscription databases such as Capital IQ and Pratts are good but expensive; some universities have them so you might get an MBA to help you here.  Personally, I find that scanning the speaker lists of relevant events tends to turn up good leads.  Numerous other sources exist on the web, such as this list of Ron Conway’s portfolio (and co-investors); start to look, and you’ll start to see.

Step 3: Boil The List Down To Direct Hits.  

Starting with the initial list of 100 or so targets, our next step is to filter down to the best 20 to 30 matches.  The filtering process is not difficult, but it can be rather tedious-- basically, it involves scanning the websites of VCs and the LinkedIn bios and AngelList profiles of seed stage investors.  You’re simply looking for reasons to cross off the names of those who are clearly not a fit, thus saving your precious time and improving your hit rate later on, when we start to make contact.  

Pro Tip:  To cull the herd, ruthlessly weed out investors that: i) have existing investments in their portfolio that are directly competitive; ii) invest at a different stage than you are at (e.g. “growth stage” firms don’t generally invest in Seed or Series A, and even if they do, this can lead to signaling problems later); iii) are near the end of their fund (most funds have a 5-7 year fund life; if they haven’t raised a new fund lately, they may not have enough “dry powder” for new investments); iv) are focused on a different sector or vertical than you (e.g. they do enterprise software, you’re a consumer play); v) are run by a**holes (see the commentary on TheFunded, listed below, for unvarnished feedback).    
Tools: TheFunded.com, VC company websites, VC blogs, general Google searches.  It can also be very illuminative to contact CEOs of current or former portfolio companies to get the inside line; an added benefit is a potential warm intro if you develop rapport.  
Step 4:  Tee Up Your Advisors And Referral Henchmen.  

Our next step is to spool up the folks who will actually make the intros.  If you have an advisory board, great-- this is where they can really come in handy (and if you don’t have an advisory board, you might consider building one).  But don’t stop there--  add your lawyers, add your accountant, add your b-school or CS professor to the list, and of course, add all the uber-networkers, “connectors” and startup scene mavens that you know.  Set this list aside for a moment, as we go back into research mode.   

Pro Tip: If your advisors are local, it can be psychologically very effective to hold a fundraising kickoff meeting to get the troops rallied.  Rent out the back room of a restaurant and lubricate with wine and beer; the face to face interaction is much more effective than a conference call, and helps to overcome inertia.  Plus, it introduces a small element of competition when your advisors try to impress by showing off their broad network reach.    

Step 5:  Play The Game, “6 Degrees Of Kevin Bacon (or Rose).”  

Next, we take our filtered list of 20-30 investor targets from step three and overlay it on top of the social graphs, rolodexes, and personal networks of our advisors and other intro sources from step 5.  Essentially, our goal here is to map the best and “strongest” paths in to our targets.  This is largely a function of plugging the target investor’s name into LinkedIn and then using LinkedIn’s “How You Are Connected To” function to flesh out who knows whom. 
It’s a brilliant tool. In many cases, you’ll find there are several people you know in common with the target, so I recommend emailing your first degree connections and asking how well they know the person. Then, soft-circle the connector with the strongest relationship.  
Pro Tip:  Try to find out the context  behind each relationship, and rank the connections on a scale of 1-5.  Massive bonus points if your connecting node is someone the investor has done a deal with in the past (i.e. a fellow investor), or an entrepreneur they’ve previously funded.  And of course, the ultimate homerun is an intro from an entrepreneur who’s made them money in the past.  They’ll take that meeting every time.  
Tools:  90% of this work is done on LinkedIn; to a lesser degree, other social networking sites like Facebook, Path, and Zerply can be useful for finding alternate connection routes.  Recently, AngelList has started to show connection maps as well-- a promising development.  

Angel List 

UPDATE:  Naval of AngelList responds: "AngelList  paths run through many connections-- we let you connect your LinkedIn, Twitter, Facebook, and then also look via mutual companies you may have worked at / invested in.  The more graphs you connect on AngelList, the more paths you find.  The paths are also quality-weighted, can show multiple degrees of separation, and you can sort all investors / entrepreneurs / developers on the site by their path distance to you."    

Step 6:  Polish And Streamline Your Pitch.

We are almost ready for showtime here. But before we make first contact, we need to make sure our message is of rockstar quality-- one that will stand out from the clutter.   
Recall that we are using a sniper’s rifle instead of a machine gun for our hunting, which is why it’s critical to have our gun sighted in properly.  This means that our investor story is honed, polished and tight,  that our pitch deck is crisp and compelling, and that the numbers and assumption in our business model / financial forecast are logical, solid, and well thought out.  It means that our customer acquisition and engagement metrics tell a great story (ideally, they are up-and-to-the-right), and that our demo is bug-tested and mother approved.  
To note, having a killer pitch can go a long way toward closing a round quickly.  A good pitch inspires your audience; you’ll find that if you’re really nailing it, then prospective investors will actively open up their rolodex and make intros to others, since a good pitch makes them look good, by association.  
Pro Tip:  I generally advise that startup pitches need to contain a “momentum story” before they’re ready to be told to investors, since the speed and ease of raising funding is directly correlated with the slope of the traction curve.  Without meaningful customer adoption metrics, you’re likely to be lost amongst the other 1500 startups passing across their screen that week.  Massive bonus points if you can walk in and say your servers have crashed 3 times in the last two weeks because traffic is exploding.  
In addition, aim for brevity.  My favorite pitches are extremely minimalist-- brief details on your vision, team, and product, told in a narrative format-- but supplemented by the ability to pitch the numbers.  Once again, metrics speak for themselves; metrics get startups noticed, and more importantly, funded.  As an extreme example, read about Fab.com’s lightning-fast round, here.      
Tools:  Keynote, PowerPoint, Excel, Word, etc.  For do-it-yourselfers, see pitch outlines at VentureHacks and on Guy Kawasaki's blog, and be see these pitch templates on Quora.  For outsourcers, or if you need help, contact VentureArchetypes, we’ll build a killer deck for you (yes, shameless plug, but hey-- this is our blog :).  A good article written by Daniel Odio on how to optimize your AL pitch can be found here. There is also some chatter / prediction that AngelList will standardize the pitch deck sometime in the future.  To present the all-too-critical metrics, use Google Analytics, Alexa or Compete.com, or better yet, take a tip from Fab.com’s very successful fundraise and use RJ Metrics

Step 7:  LIne ‘Em Up And Knock ‘Em Down.  

We’re now ready to rock and roll.  The process here is straightforward-- tee up batches of email intros, usually no more than a handful per referral source, and give them the green light to fire away.  

Generally, it’s best to try to concentrate the funding road show into as short a time frame as possible.  Thus, I usually advocate the “blitzkrieg” approach of hitting the entire target list at once, with the goal of getting multiple first round meetings concentrated into a 2 or 3 week period, and ideally, getting a lot of corresponding buzz and momentum going (which in turn can help accelerate the closing process).  
However, in other cases we may want to test how well our pitch resonates by hitting just a handful at first, often starting with investors a bit lower down our preference list.  Taking this approach even further, we may even want to “A/B test” the pitch by, for example, sending out two different versions in separate batches of 5 and seeing which one generates more meeting requests. The decision here is really up to you-- but in general, if your pitch is killing it and generating a consistently “hot” reaction, go for the blitzkrieg approach.  

Pro Tip: The best tip I can offer here is to make it extraordinarily easy for your referrers to make the referral-- remove all unnecessary friction from the process.  This means writing a custom email (with a summary teaser or a link to your AngelList profile) so that your connector can simply hit the “forward” button to send it along to the target.  You can also include the "hashed URL" supplied by AngelList for sharing information, including the confidential part, in this email if you choose. (To do so, look for the "share link" on your AL profile.)  In general, the email you write should go something like this:  
“Hi Nathan, I see you are connected to Lewis at ACME Ventures. I would love it if you could introduce us.  
As you know, we launched CatBnB to make life better for the 82m cat owners in the U.S. when they go on vacation.  Since launching our closed beta 3 months ago, we have had nearly a million cat owners register, and 75k have already boarded a cat in their home.  We’ve recently introduced our subscription model and to our delight, 15% of our users have upgraded.  It now costs us $3 to acquire a new paying customer, each of whom generates an average $12.50 ARPU.   
We will soon be looking for funding to scale. I see that Lewis has a background in exotic cat breeding and has just raised a new fund. I’d love to show him what we’re doing.” 
Then, as the referrer, I can simply forward this on, and if I’m feeling particularly helpful, append a brief note like this: 
“Lewis, I’d like to intro you to Scott Shepherd, founder of CatBnB.  Scott was the engineer #3 at Facebook and his co-founder, Janet, was a top salesperson at Salesforce.  I’ve been advising them since inception and they know how to execute; they are (selectively) starting to talk to investors.  Take a look at their AngelList profile and their exec sum, attached.  I will leave it to you to to connect; let me know what transpires.  Best, Nathan”  

By keeping it easy and lightweight, you make it easy to send, and by ensuring you have a tight elevator pitch and some attractive metrics, you make your referrer look good in the eyes of the investor-- all of which are things that will help to increase the participation rate by your referrers.  
This approach has the added benefit of serving up “two pitches for the price of one”-- we’ve got the short teaser written by the founder, as well as a supporting blurb or endorsement written by the referrer-- all in a super short, tidy, and power-packed package.  It’s these little nuances that can make or break your first contact.  
Step 8:  Push, Nudge, And Outright Ask For It-- Drive The Deal Home.   

When you are raising money you are selling shares of stock, so do what any sales pro does and treat it like a sales process.  Channel a bit of Alex Baldwin from Glengarry Glen Ross and repeat the ABC’s after me-- “Always. Be. Closing.”   You don’t need to be a pushy a-hole here, but this is no time to be timid, either; instead, your goal should be to drive each discussion forward, all the way through to a yes-or-no decision.  Most investors will respect this tenacity, as it’s a signal that you will be aggressive with the business (and thus, their investment will eventually be worth something). 
Get outside your comfort zone, and politely but firmly ask your target for a commitment.  Put it in concrete terms; ask if they will come in for a specified amount-- $50k for example, if it’s a seed round.  In many cases, you may get a contingent yes-- they’ll put in their amount only if you are able to raise the full round.  In such cases, ask if you can formally mark them as “in” on AngelList and when speaking to other prospective investors.  Getting the first domino to fall is always the hardest part, but it will help generate momentum down the line.   
Tools: The key here is to stay on top of 20-30 investor discussions all at once, and to keep the momentum going with each one.   So we return to our trusty excel spreadsheet or Google doc on a daily basis to track our progress toward a yes / no with each target.  Update it frequently by adding things like Date of Last Contact / Next Steps / Issues to Overcome / Result, and be sure to follow up quickly on all diligence items.   
Pro Tip:  Amplify your offline progress and momentum by promoting it online.  In other words, hustle like hell to set up real-world, face to face meetings and get firm (or at least semi-firm / contingent) commitments.  Then use the results of your offline hustle to generate more leads on AngelList via frequent (yet meaningful and meaty) status updates.  Also, encourage / nudge your AngelList followers to re-share, “like,” or otherwise forward on your updates to people who follow them.  This in turn will often get the attention of more investors and generate new intro requests, ultimately creating a ‘virtuous cycle‘ that will help you close the round faster.    
One additional link while we’re on the topic-- one of my all-time favorite blogs posts on “closing investors" is from Travis Kalanick, founder of Uber.  Check it out here

  • Turn your next capital raise into what it really is-- just another sales process. 
  • Take ownership of the process  by building a robust investor funnel, then by rigorously filtering and pre-qualifying your target list.
  • Layer the social graphs of your referrers and advisors on top of this target list to find the best and strongest path in to each investor.    
  • Polish your script (pitch) and make it uber-easy for your referral network to make the warm intro.  
  • Ask for the commitment; go for the close.  
Try it this way the next time you’re raising money.  I think you’ll find your signal-to-noise-ratio will increase significantly.  It’ll take less time, be more fun, and your odds will be significantly higher.  
Please let me know what other tips you have, and how these techniques work for you, either in the comments section or privately by email: nathan at venturearchetypes dot com.

13 July 2011

Hacking Angel List

7 Tips For Raising Startup Capital

AngelList is an amazing thing.  No, let me rephrase that-- AngelList  is a freakin' phenomenon. 

Since launching just over a year ago, 2,250 investors have joined, over 400 startups have raised money, and according to co-founder Naval Ravikant, about 20 new inbound companies per day sign up.


In case you’ve been adrift at sea for the past 9 months and have no idea what I’m talking about, AngelList is a hugely-successful online service that matches early stage companies with angel investors.  It is similar in concept to a “stock market for startups” where privately held companies post information about their businesses and a filtered list of angels, HNW individuals, and VCs can follow the companies, take intros, and ultimately invest.

I’ve had two portfolio companies “list” on AngelList, and I’ve also started wading in as an investor member.  In addition, I have another two startups that are getting ready to raise funding rounds, and AngelList will likely play a very big role in our capital raise strategy.  As these startups get ready to make their debut, I thought I’d synthesize a few observations, tips, and suggestions for making the most of this powerful new funding vehicle. To wit:

1.  Land a lead investor before going live.  This is the best tip I can give, yet the hardest one to achieve.  Nonetheless, it’s critical for success, as AngelList is a momentum-driven platform where “hot” deals get hotter, but the unwashed masses (without any existing investors) often stall or are neglected.  This could eventually change, and I do believe Naval and gang are working hard to create a system where any quality startup-- even “raw” companies-- can raise money on the system.  But at present, AngelList is more useful as a tool to pour fuel on an already-burning fire, than it is to get the fire lit.  In other words, use it to round out a round vs. trying to source a new round.

Granted, getting the first domino to topple is usually the most difficult part of the game-- as a rough proxy, plan on spending 80% of your time and effort closing Investor #1, and the remaining 20% locking down the rest.  As needed, be ready to offer sweetheart terms to the first person to take the plunge.  In short, do whatever it takes to make sure the “Current Investors” field on the AngelList application form is not blank when you go live.

In addition, you get massive bonus points on AngelList if your lead is “someone who has done something”-- in other words, an investor who is not your dad or your dentist, but a recognizable personality or industry expert.  Here’s why: I believe that the long tail of investors on AngelList are paying close attention to what the “head" investors are doing; in other words, of the 2,250 angels, perhaps 10% are very actively taking intros, making comments, and otherwise generating buzz for certain startups, and the other 80-90% tag on when a startup starts to heat up.

Thus, there is tremendous marketing value in a name brand lead, and the more effort you put into finding one-- even if s/he is investing a relatively small amount-- the easier the rest of the process will be.  A good place to start is the first 3 or 4 pages of this list here, combined with LinkedIn's "How You're Connected To..." function.    

UPDATE / COUNTERPOINT Naval responds: "Thanks for this. I vehemently disagree with this first point, though :-) The majority of companies-- probably even 75%-- that we send out now and raise money have no lead and often no investors, e.g. .  It's just that companies that don't have something else obviously special about them need that to get past our bar.  The rest of this post is pure gold. The conveyor belt and watering hole analogies are spot on."    

2.  Focus (a lot more than you’d expect) on building “social proof.”  When you list your startup on AngelList, you populate fields such as Company Description, Traction, Management Team, and so on.   Many of these fields are similar to the information displayed on Google Finance or Yahoo Finance for a publicly traded company.  But one very clever field you’ll find only on AngelList is a category called “social proof.”  This is where you name drop key people, both inside and outside the company, who are involved-- Advisors, Referrers, Endorsers, and Current Investors.

This is a hugely important field, for two reasons.  First, unlike a publicly-traded stock, most startups do not have much (if any) revenue, profit, or other financial metrics for investors to analyze and compare; thus, angels are relying on “who you know” as a filter (and presumably, are assuming that someone among this bunch has done their due diligence).  Second, due to the sheer number of startups listing on AngelList, it is efficient for investors to filter for those that have attracted name brand folks.  Spend the time and legwork to connect with influencers who can signal that your startup is In With The In Crowd.

But don’t stop there-- prod your social proof folks into action.  Get them to generate buzz on the site and amongst their peers.  Have them promote you using the Follow and Share buttons, and have them Comment on your status (feed them soundbites to talk about, if necessary).  As with other social networks, these actions get pushed out to their followers, and they may be amplified if Naval or another AngelList uber-member “likes” that comment.  In short, get your social proof points talking.  

Let me give you a quick example using one of my advisory clients, a startup called Zerply.  Zerply worked it pretty hard and did almost everything right to generate positive social proof:
  • Jonathan Nelson, founder of the networking group Hackers & Founders, originally referred us in --> instant street cred
  • The team met Naval at an event, and he sent out a “cultivated email” to an initial group of hand selected investors --> very valuable initial buzz and endorsement
  • Startup networker guys like Adam Rifkin and Brendan Baker became Endorsers and commented on Zerply’s profile --> more buzz, particularly among these users’ followers
  • Zerply's CEO Christofer kept the company's profile updated with current screen shots and traction metrics --> demonstrating both business momentum and the team’s design prowess
  • I and another advisor Nicolai added a few Comments such as an announcement of some NY Times coverage --> further reach within the AngelList news feed
  • A few prominent angels including Dave McClure put in money, and were added to the profile --> additional credibility, momentum, followers, intros, etc. 
...And so on; momentum begets momentum.

3.  Stand up, stand out, and get noticed.  When I initially explain AngelList to founders who are considering it, I use the metaphor of a fast-moving conveyor belt loaded with startups rolling past a line of angels who are scanning them as they go by.  It’s a highly-efficient system, yet the trip down the belt goes pretty quick, and if your company doesn’t get noticed and plucked out of the masses by an interested investor (or three), you’re dumped into a bin at the end of the line and are quickly buried under the avalanche of new startups in the queue behind you.  It is then very difficult to claw your way back to the top of the pile.

This happened with one of my startups in the social marketing space-- we went out with no lead, and with a ho-hum profile.  Traction was good but not outstanding.  The product demo was still a work-in-progress, and we only had one other advisor (aka social proof point) involved.  As a result, that company was ignored on first pass, and it took an extraordinary level of hustle to generate enough interest to close the seed round.

Appearances and presentation count.  I suggest you learn from our mistakes.  To do so, make sure that:
  • you show Screen Shots that are compelling, and your links point to stellar demos (that are not password protected)
  • you have Traction Stats that are meaningful, and that tell an up-and-to-the-right story
  • you frame said Traction Stats in a compelling manner, and you dress up your profile with eye-catching charts and graphs showing your momentum 
  • you portray each co-founder in a favorable (and well-rounded) light, with bits from your bios that prove credibility and an ability to execute
  • you have recruited Advisors, Endorsers, a recognizable Referrer, and ideally, a Lead Investor.  
  • you have set your valuation and raise amount in the sweet spot of the majority of investors on the system (e.g., a $500k - $750k raise at a $2m -$6m valuation) 
  • you get a quote from Robert Scoble or another accessible-yet-trusted entrepreneur as the icing on your profile cake.
Doing this work upfront-- before going live-- will make your profile “pop” and as a result, you’ll be hard to ignore.  Call it "peacocking for the investor mating dance."

4.  Pare your company down to its “Hollywood pitch” soundbite.  As mentioned, there are simply so many quality startups running through AngelList that it’s critical to have something unique in your pitch-- something that spurs investors to stop and take a closer look.  In short, you need a hook.  For many popular startups on AngelList, the format that works well is similar to the Hollywood pitch, where new movie concepts are sold to studios by references or mash-ups using the familiar-- e.g. it’s “Ghostbusters meets Waterworld.”

In the startup world, this becomes “We are Airbnb for puppies”.  This approach does seem to be quite effective, and the shorter the hook is, the more memorable it becomes and the less friction with which it spreads among investors.  Just be on the lookout for any investor soundbite fatigue (comparisons to Uber, Pandora, and Airbnb all come to mind).  Further, as HubSpot CEO Dharmesh Shah recently tweeted, “Saying you are [x] of [y] is shorthand for describing your startup; it’s not really a long-term strategy.”

As an alternative, consider using a super-short description of what you actually do, e.g. MogoTix is "Simple, social, secure mobile ticketing."  Another approach is to have a teaser that doesn't actually say that much, but is very intriguing; e.g. TracksBy is "The most viral way to launch music" or Pipedrive is "If Apple designed Salesforce."  Clever.

5.  Tweak your profile, tweak it again, then tweak it some more.  Startups can game the AngelList system somewhat by making frequent changes and updates to their profile information.  Essentially, when you update something, it shows up in the News Feed as “Acme Corp updated their profile” and you can get viewed again.  However, I’d suggest that startups not overplay this card, which would quickly become annoying to your followers and prospective investors.  Update your profile frequently, but only when you have actual, real news to report (e.g. you’ve just added another 10k users or inked a distribution deal with Oracle).

6.  Do (at least) one thing exceptionally well.  Naval covered this point beautifully in a recent talk he gave to the Founder’s Institute members called “Anatomy of the Fundable Startup."   Here’s the nut of his message:  “investors are trying to find the exceptional outcomes, so they are looking for something exceptional about the company. Instead of trying to do everything well (traction, team, product, social proof, pitch, etc), do one thing exceptional. As a startup you have to be exceptional in at least one regard,”  Of these five categories: (1) Traction, (2) Team, (3) Product, (4) Social Proof, (5) Pitch/ Presentation, which ones do you have?  What can you work on prior to debuting on AngelList?

7.  Use AngelList as a resource for self-directed hunting.  Despite your best efforts and despite following these tips to the letter, there’s still a good chance you might not get much attention on AngelList.  Indeed, quite a few interesting startups generate just a few follows or comments, but not that many intros.  Others are more or less ignored.  In short, investor interest is not distributed evenly on AngelList; rather, it tends to cluster around a couple dozen companies.

If interest in your startup is lackluster, then take the matter into your own hands, and go on an active hunting trip.  AngelList is quite possibly the single largest and best collection of angels, all gathered in one place-- like a watering hole on the African Savannah, “all the great animals” are here.  Thus, why not use this resource to research profiles of money folk, form a short list, craft a really poignant and targeted intro, and go after these angels directly instead of hoping they notice you?  Ideally you can use your personal network, attorneys, advisors or LinkedIn to find a warm intro; significantly less likely, but still possible, is to form a connection on Twitter or a cold email.  Regardless of the form factor, put them on your radar, and there’s a good chance you’ll find a way to get to them.  Don't just passively wait to be discovered.

Bonus Tip:  Create a catalyst to close the deal.  This tip applies broadly to raising capital vs. being purely AngelList-specific, but it’s worth mentioning.  Second only in difficulty to landing that first lead investor is wrangling the rest of the cats toward a signed term sheet.  Investors drag their feet.  As long as they're not at risk of getting bumped from a deal-- and assuming that the valuation is not skyrocketing--  it is in most prospective investors’ best interest to watch and wait as long as possible before actually handing over the check.

Thus, it helps to have something on the horizon that will encourage investors to get off the fence.  Setting an artificial deadline is rarely effective; you’re asking for their money-- they can ignore this.   Marginally better is a deadline with some actual basis in reality, like the fact that you’re about to head off to Israel for 3 weeks.  But my favorite is a deadline triggered by something that has the potential to a) suddenly generate a lot of investor interest; b) ramp up the startup’s valuation; or c) all of the above.

As an example, one of my startups is participating in Dave McClure’s 500Startups accelerator program.  At the end of the program a few months from now is Demo Day, which will bring startups and investors together for pitches and meet-n-greets.  We know there will be a ton of frenzied press and buzz leading up to this event, and we know our startup is well positioned vis-a-vis the other startups demo-ing.

Thus, we are using this event as a catalyst to help close a near-term convertible note.  Investor psychology is always driven by fear and greed; so at the same time we are overtly selling investors on the opportunity (greed), we are also subtly signaling the possibility of missing out on the deal when it heats up at Demo Day (fear).  It’s amazing how fast investors can move when motivated in this manner.

I hope this list provides a few good pointers for making the most of AngelList.  AngelList is a true a gem of a resource for startups seeking capital, and Naval and Nivi do a fantastic job of measuring, tracking, tweaking, and all around improving the site on a near real-time basis (seriously, it blows me away-- every time I check in there are new features).  Start playing around with it and get to know it.

Is your startup on AngelList?  Have you raised money?  If so, I look forward to hearing what has worked well for you (and what hasn't)-- please email me at nathan (at) venturearchetypes (com)  or you can follow me on Twitter @startupventures.