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.


  1. First off - MANY thanks to Nathan for investing the time to put this into print.

    I would only add that its critical to keep multiple conversations running in parallel AND at about the same stage with multiple funds.

    You must try not to allow a single VC to get too far out ahead of the pack - particularly when its a "b" player.

    It SUCKS to tell an entrepreneur to walk away from the first term sheet he or she has ever seen becuase the terms are lousy, or the pre-$$ is too low. Creating competition is the only real protection in such a noisy market. In the increasingly common "party" rounds we see these days, its more about signalling and social proof than competition, but the effect is the same.

    Bottom line - don't let a single investor go off the front, unless you can drive the terms. As funding prospects drop out of the running, get more lined up.

  2. There's a lot of great advice here, and much of it could be applied to fundraising of any type, and not just VC funding. I'm applying some of your tips to my fundraising efforts for commercial real estate investments. Thanks, Nate.

  3. Yes, Great Article and Practical advice.

    Thank you!

  4. Amazing article Nathan! Thanks you so much for sharing your knowledge :D