Nivi · January 27th, 2008
Summary: Here are 2 more microhacks for finding a lead investor: (4) Incent followers to lead by telling them the truth: there probably won’t be room in the round for followers. (5) The best way to find a lead is to build something that attracts a lead: keep building your company and reducing risk.
4. Incent a follower to lead.
Whenever someone says “find a lead”, you should say,
“We’re happy you’re interested. We’re interested in working with you too.
“We’re looking for a lead and a lead is going to want the entire round. Or he will bring in his own co-investors. Or we’ll build a syndicate out of investors who want to lead. So we may be back but we probably won’t.
“Most likely, the investors who get to participate in this round are those who want to lead. If you’re interested, you can secure a spot in the round by leading and we’ll work with you to set the terms and decide who gets to invest.”
This polite diatribe combines positive leverage (“you can secure a spot in the round by leading and we’ll work with you to set the terms and decide who gets to invest”) and negative leverage (“the only people who get to participate in this round are those who want to lead”, i.e. you may lose the option to invest if you don’t act now.) Their reaction to this message will tell you whether they have good reasons to follow or they just don’t want to say no.
If you have existing seed investors, you can also use them as the bad cop:
“We really like you but my existing investors are pushing me to find a lead and not spend time building a syndicate. Are you willing to lead the round?”
5. Get past no.
“If you’ve got a good idea, market, and team, raising money won’t be your problem.”
“Nobody said this would be easy.”
Your company may not be good enough to raise money. So how do you get good enough? Read Marc Andreessen’s When the VCs say “no”:
“If you’re an investor, you look at the risk around an investment as if it’s an onion. Just like you peel an onion and remove each layer in turn, risk in a startup investment comes in layers that get peeled away—reduced—one by one.
Your challenge as an entrepreneur trying to raise venture capital is to keep peeling layers of risk off of your particular onion until the VCs say “yes”—until the risk in your startup is reduced to the point where investing in your startup doesn’t look terrifying and merely looks risky.”
Marc’s goes on to describe the various layers of risk and, even better, he tells you how to peel the layers away. This is the most useful article on improving the effectiveness of startups that we have ever seen—read it.
Founder risk is the number one reason startups don’t get funded: the team simply does not appear up to the task. If you have a good product in a good market and you can’t figure out why you keep getting rejected, look in the mirror and remove/add people until the team inspires money to fly out of investor’s pockets.
This is the fifth microhack but it should really be the first, second, third, fourth, and fifth. The best way to find a lead is to build something that attracts a lead.
“No one ever got anywhere by lavishing calls on Oprah. The only time I’ve succeeded in my career with Oprah was [when] Oprah called us.”