Some AngelList applicants don’t want to send their pitch to everyone on the list. Maybe they don’t want to send their pitch to angels who have competitive investments. Or they simply don’t want to distribute their pitch widely.
No problem. Use the ‘Custom Intros’ feature when you apply to AngelList:
We can give you custom intros, a mass intro, or both. Most startups ask for both. Even when we’ve already done a mass intro for a startup, custom intros get high response rates — about 50%.
And how do you research the angels you want intros to? Guess.
I hope you’ve enjoyed the introduction to this new introduction.
Don’t be afraid to get multiple intros to a single investor. Fred Wilson:
“One of my favorite VC quotes comes from Bill Kaiser of Greylock. He once said, “when I hear about a company once, I often ignore it, when I hear about it twice, I pay attention, when I hear about it for the third time, I take a meeting”.
“It happened to me this week. I met with Reshma who runs seedcamp, the european version of Y Combinator, on Monday and she told me about Zemanta which came out of last year’s seedcamp. Then I saw this blog post about Zemanta on Techmeme the next day. And then on Thursday, Alex Iskold, founder of our portfolio companyAdaptive Blue, introduced us to Andraz, one of the founders of Zemanta.
“Three hits in one week is absolutely a “pay attention” notice. So this morning I am trying Zemanta out. The image and most of the links in this post were automatically provided by Zemanta.”
Put yourself in Fred’s shoes. His inbox is overflowing with intros to companies that are as good as yours. He has to ignore most of the intros and focus on a few of them. One of Fred’s best filters is the quality and quantity of the people referring your company. And, by the way, Fred went on to invest in Zemanta.
How to get multiple intros
This is what we tell entrepreneurs who use AngelList and StartupList: we recommend doing all of these at the same time,
Email investors directly if they allow it. But first read their profile to see if you’re a good fit. Don’t contact them if you don’t fit their interests — you’re not the exception that proves the rule.
Use one of the referrers they suggest. But don’t spam referrers — you should either know the referrer or the referrer should be open to cold calls.
Use Facebook/LinkedIn and ask mutual friends for an intro. You should either know the mutual friend well or the mutual friend should be open to cold calls.
Send your elevator pitch to StartupList and, if you’ve got a good pitch, we’ll send it to the investors on AngelList — or, if you prefer, specific investors you suggest. 4 weeks in, we’ve already done intros between 15 startups and 25 investors — and gotten 1 startup funded. Even better, with StartupList, the investors come to you.
The idea here isn’t that you should keep bugging investors — the idea is that it often takes three tries to get a meeting.
We launched StartupList 3 weeks ago and immediately updated you on the day after results (75 new angel applications, 7 startups getting intros to 11 investors). Now we’re 3 weeks in and we’ve got great news.
The first startup has been funded through StartupList. The investor is Matt Mullenweg and it’s a Y Combinator company. We’re not releasing the name of the startup right now but let’s call it Startup #0. This is a big milestone and we want to thank Matt, the AngelList investors, and the startups who’ve applied to StartupList for making it happen.
Power Brokers: Our new referral program
We also want to thank you for referring startups to StartupList and AngelList. And we want to single out Rob May (@robmay), founder of Backupify, for referring Startup #0. So we’ve created a referral program to thank you for your referrals. It starts with a list Power Brokers: people who’ve referred high-quality startups to StartupList — check it out.
Here’s what we do for the power brokers. If we select a startup you’ve referred for StartupList, we highlight your name to all the investors on the list (for example). This is an awesome way to build a relationship with the investors on AngelList (and us). Second, we’ll highlight your name in announcements about the startup (see the fine photo of Rob above). Third, we’re brainstorming other ‘thank-you’s’ for the power brokers. An invite-only conference with the angels on AngelList? A demotivational poster? Please share your ideas in the comments or email me.
If you refer a startup to StartupList, please tell them to fill in your name in the field for referrers in the application.
New investors on AngelList
We’re working through the investors who’ve applied to AngelList. There’s 54 investors on the list so far and about 25 of them have asked for intros to StartupList startups — here’s a few examples:
These are just a few of the new angels who’ve asked for intros… go browse all the investors and tweet them a hello.
And you don’t need StartupList to get in touch with the angels — you can contact many of them directly or, better, through the referrals they list. But you should still apply to StartupList because it often takes three tries to get a meeting.
Twitter Widgets
I’ve collected Twitter testimonials from AngelList members in our Twitter favorites:
And it’s not fair for me to list just a few of the investors here — they’re all awesome. You should click and browse the entire AngelList. Together, they represent $80M that will be invested in early-stage startups this year.
Angels: How to join AngelList
If you’re an angel investor, apply to join AngelList here. At a minimum, you should have made two $25K angel investments in 2009 and plan to make two more $25K investments in 2010.
Startups: How to contact the angels
Read an angel’s profile before you try to get in touch with him. All the angels have listed how many investments they expect to make this year, their typical investment amount, the markets they invest in, how to get intros, and lots more information you can’t find anywhere else.
Some of the investors let you contact them directly. But, before you do, build a minimum viable product and learn something about your customers by putting it in front of them. If you can’t get that far on your own, go find some idea investors instead. Then send the angels an amazing 150-word elevator pitch.
Don’t send them nonsense. Angels talk to each other and they talk to me. Your reputation is all you’ve got — so please follow our suggestions in the previous paragraph.
And — stay tuned — we’re announcing a sweet new way to reach AngelList soon.
Get AngelList updates
Get notified about new angels on AngelList via RSS or Twitter. And here’s a Twitter list of the angels on AngelList:
Summary: The best way to get a meeting with an investor is through an introduction from someone he listens to. The best intros probably come from entrepreneurs that the investor has worked with. But the specifics of the middleman’s relationship with the investor are more important than the middleman’s day job. Finally, skip intros from (1) investors who don’t have a good reason why they’re not investing and (2) middlemen who barely know the investor.
The best way to get a meeting with an investor is through an introduction from someone he listens to. (You could cold call him but you better have a great elevator pitch and you should read How Should I Approach a VC I Don’t Know?.)
But not all introductions are created equal. Who makes the best introductions? Introducing the Hierarchy of Middlemen:
Entrepreneurs that the investor (a) has backed and made money with, (b) wants to back, or (c) is currently backing (in that order).
Investors he (a) has co-invested and made money with, (b) wants to co-invest with, or (c) is currently co-investing with (in that order).
Lawyers, accountants, and sundry industry people like us.
Communists.
Someone he met at a party once.
This list is really rough.
The specifics of your middleman’s relationship with the investor are more important than this list. So figure out why the investor is going to pay attention to the introduction by asking questions like:
How do you know the investor? What did you work on together? What companies have you sent him that he has subsequently backed? What makes our company interesting enough for you to make an introduction?
Middlemen you should avoid.
You don’t want introductions from investors who don’t want to do the deal and don’t have a goodreason why. An introduction by a middleman who can and should invest but doesn’t want to invest is a strong negative signal. Skip this introduction.
And you don’t want intros from people the investor doesn’t really know or doesn’t listen to—that just makes you look bad. If the introduction starts with “I don’t know if you remember me,” you’re in trouble.
Summary: Here are 3 microhacks for finding a lead investor: (1) If followers have good reasons to not lead, ask them for introductions to potential leads. (2) If you’re early stage, find seed investors who invest in people and high risk startups. (3) If every prospective investor says “we don’t know the market,” find investors who have invested in your market or similar markets.
“Lead investors want at least half the round—and they often want the entire thing. If they don’t want the entire round, they will help you find followers (and some leads will close immediately even if they’re not taking the entire round). They believe your stock is worth more than they’re paying. They don’t need social proof or scarcity to make an investment decision. Like great entrepreneurs, they are mavericks.”
If you’re doing a seed round, you may be able to mass syndicate the financing without a lead. Otherwise, here are three microhacks for finding a lead, in rough order of importance—but you should probably try them all.
If the followers have goodreasons to not lead, ask them for introductions to potential leads:
“Can you suggest any firms who would be interested in leading this investment? Why do you think they would be interested in leading? Would you make an introduction?”
This simple test will tell you whether the follower has good reasons to not lead. If a follower won’t make introductions, he doesn’t have a good reason to not lead. If the introduction doesn’t respond aggressively, the follower probably made a half-hearted introduction—he doesn’t have a good reason to not lead. The follower’s level of effort indicates if he really wants to find a lead or he just doesn’t want to say ‘no’. (Caveat: This logic mostly applies to VCs, not angels.)
If a follower doesn’t have a good reasona priori, don’t ask him for introductions at all. Skip this microhack altogether. An introduction by someone who can and should lead, but would rather follow, is a useless and harmful introduction. It’s a strong negative signal. Go get your own introductions.
Finally, if a follower introduces you to the eventual leader, the leader will rarely cut out the follower. (Investors who don’t accommodate the middleman who gives them introductions stop getting introductions.) You’ll end up with two investors and more dilution. But that’s better than the alternative: zero investors and no dilution.
2. Find seed stage investors.
Every professional investor’s fantasy investment is a sure thing: zero risk and infinite reward. If you’re early stage, you can circumvent this fun fact by doing a seed round:
Focus on investors who go out of their way to invest in seed stage companies with lots of risk, not investors who say they invest in seed stage companies:
“What seed stage companies have you backed in the last 2 years? What exactly did the company (team, product, traction) look like when you invested?”
Does your company look similar?
Find non-professional angels whose primary motivation is working with great entrepreneurs, not profit. In particular, talk to folks who already know you well and are willing to to bet on you.
Seed investors increase the probability of raising money from VCs. High-quality seed investors raise your valuation, provide social proof, and obviate the need for extensive due diligence in the VC round. Many companies close a small seed round and do a larger VC round in a few months.
If you want to skip the seed round, mere commitments from high-quality seed investors have a similar effect. And these commitments provide a strong alternative as you negotiate with VCs. Obviously, if you do the VC round, don’t cut out any seed investors you have committed to.
3. Find investors who know your market.
If every prospective investor says “we don’t know your market,” find investors who have backed companies in your market or similar markets.
Educate investors about your market. It’s your job to convince them the market is great. Find successful companies in your market and figure out how they got there, how long it took them to get there, how much money they raised, how much money they’re making, how much money they would be making if they were as smart as you are, et cetera.
Talk to the management at these companies and see if they will personally invest in your business or advise you. Ask if their company wants to be a strategic investor.
Yet more ways to find a lead.
In Part 3, we’ll suggest two more ways to find a lead investor.
Summary: An introduction captures an investor’s attention, but a great elevator pitch gets a meeting. The major components of the pitch are traction, product, and team.
Yo! This post is out-of-date. For the latest on elevator pitches, investor presentations, and more, check out our free e-book on Pitching.
If you’re building an interesting company, people will offer to introduce you to investors—it makes them look good. In Hollywood, content is king; in Silicon Valley, dealflow is king.
So, what should you send investors? Send an elevator pitch and a deck. We’ll cover the elevator pitch in this article.
Get a first meeting with an elevator pitch.
A great elevator pitch is more important than your deck and less important than the “introducer”. If you don’t have an introduction, the elevator pitch is critical to a cold call.
An introduction sells the investor on reading the elevator pitch, which sells the investor on reading the deck, which sells the investor on taking a meeting. Many investors will just skim the deck and take a meeting if the introduction and elevator pitch are good.
Thanks for offering to introduce us to Blue Shirt Capital. I've attached a short presentation about our company, Ning.
Briefly, Ning lets you create your own social network for anything. For free. In 2 minutes. It's as easy as starting a blog. Try it at http://ning.com
Ning unlocks the great ideas from people all over the world who want to use this amazing medium in their lives.
We have over 115,000 user-created networks and our page views are growing 10% per week. We previously raised $44M from Legg Mason and others, including myself.
Before Ning, I started Netscape (acquired by AOL for $4.2B) and Opsware (acquired by HP for $1.6B).
I've admired Blue Shirt's investments from afar. We're starting meetings with investors next week and I would love to show Blue Shirt what we're building at Ning.
Best,
Marc Andreessen xyz@ning.com
415.555.1212
Your email should be no longer than this example (which is already too long).
Dissecting the elevator pitch.
Let’s dissect this pitch:
Subject: Introducing Ning to Blue Shirt Capital [A useful subject line!]
Hi Nivi,
Thanks for offering to introduce us to Blue Shirt Capital. [Reiterating the social proof of the introducer.] I've attached a short presentation about our company, Ning. [Did you notice the attachment?]
Briefly, Ning lets you create your own social network for anything. For free. In 2 minutes. [What is the product? What does it help the customer do? Who is the customer?] It's as easy as starting a blog. [What's the metaphor?] Try it at http://ning.com [Link to the product, screencast, or screenshots.]
We built Ning to unlock the great ideas from people all over the world who want to use this amazing medium in their lives. [What's the big problem or opportunity?]
We have over 115,000 user-created networks and our page views are growing 10% per week. [Traction.] We previously raised $44M from Legg Mason and others, including myself. [Social proof and more traction.]
Before Ning, I started Netscape (acquired by AOL for $4.2B) and Opsware (acquired by HP for $1.6B). [Team.]
I've admired Blue Shirt's investments from afar. [Why are you interested in Blue Shirt?]We're starting meetings with investors next week and I would love to show Blue Shirt what we're building at Ning. [Call to action and subtle scarcity.]
Best,
Marc Andreessen xyz@ning.com [Contact information—how thoughtful.] 415.555.1212
[OVERALL, TEH EMAIL USEZ GOOD GRAMMAR, PUNCTUASHUN, AN CAPITALIZASHUN, AS WELL AS SHORT PARAGRAFS AN SENTENCEZ.]
Summary: Angels make more introductions than VCs because angels need co-investors. You can’t clear the market in series–you can only clear it in parallel. Tranches are dumb–they have zero upside and catastrophic downside. Two investors aren’t always better than one. Finally, a ‘very special’ message to graduating Y Combinator founders: don’t do deals on D-Day and feel free ping us if you want additional help.
Adam Smith from Xobni, a Y Combinator company, calculates that angels made 5 times as many intros as VC investors while Xobni was raising a Series A:
“We spoke with 16 angels and 12 VCs. Angels made 24 introductions; VCs only made four. The average angel introduced us to 1.5 other investors, but the average VC only introduced us to 0.33 other investors. That’s a 5x difference!
“So angels can be helpful even if you’re raising a mostly VC round.”
First, angels usually take a small piece of a Seed or Series A. If they like the company, they need to make introductions because they need co-investors. VCs usually don’t want or need co-investors–if they like a company, they want to buy as much as they can.
Second, some angels are followers, not leaders. They find a company they like but they don’t want to lead the investment. So they introduce you to a top-tier firm like Blue Shirt Capital and say to themselves,
“If Blue Shirt wants to invest, the company must be good. Plus, Blue Shirt will do all the work, and I’ll go along for the ride. I know Blue Shirt won’t cut me out since I introduced them to the company—firms that cut out the middleman stop getting intros.”
“Our series A didn’t happen quickly. We excited the people we met with, but we were timid about getting started having recently closed a $100k angel round. One firm had interest, so we thought “We better talk to someone else to make sure we’re getting a good deal.” That incremental approach went on for a few months. We were always in late stages with one investor but just beginning the dialogue with another. Deciding to raise money should be an atomic decision; don’t try to just dip your toe in.”
You can’t clear the market in series. You have to do it in parallel. You can’t create an auction by meeting investors one-at-a-time. The only way to get a market clearing price is to meet a lot of investors at once.
On eBay, everybody bids at the same time, over a short and arbitrary period of time. That drives the price up. They don’t bid one-at-a-time over a timespan of ‘whenever’.
As for how to create an auction, here’s the short version:
Jump on your desk, kick your laptop across the room and declare a start to your fund-raising; set up 10 investor meetings for the same week; you will probably end up meeting only 4-6 of them due to scheduling conflicts; tell them “We plan to sign a term sheet in 6 weeks, if we don’t have an offer by then, we’re going back to using sweat equity to build the company“; signal your valuation by saying “We want to raise $X from n investors with no more than Y% dilution, including the option pool,” (Y = 15%-25% per investor plus a 10%-20% option pool dilution). In a tight process with VCs, there are three meetings; one with the original partner you were introduced to; next, you meet the original partner with a few other partners; finally, you go to a partner’s meeting; there may also be an intermediate meeting where some of the partners come to your office to refactor your code and eat your food; if some investors are being slow while others are moving along, tell the slow ones, “By the way, we are on second meetings with three funds.” If things go well, you should receive 2-3 term sheets; reject the ones that explode the next day: “We told other investors that they have until the end of the week to send us term sheets, we can’t break our promise.” Negotiate the offers over the next 2-3 days and get your favorite investor to the terms you want. During closing, keep your other prospective investors warm in case the deal blows up; but don’t break any binding no-shop or non-disclosure agreements in the process.
Auctions and artificial deadlines create a positive feedback loop of social proof (“Other people want to invest, don’t you?”) and scarcity (“Hurry up or the deal is going to disappear”). That’s what closes deals. Auctions also force you to fail or succeed in a few weeks. Either way, you will soon get back to creating value for your customers.
Finally, don’t use the a-word (‘auction’) when you’re raising money. Investors don’t like it. Auctions are “taboo” when you’re selling part of your company to an investor, yet perfectly dandy when you’re selling your whole company to an acquirer. Don’t say, “We’re running an auction to get the best deal”, say “We’re looking for the right partner to help build our business.”
Tranches are dumb.
Adam writes:
“Traunching is bad for the company. If your investors exercise the traunche(s) then it means that the company is now worth more than they’re paying you, so you’re leaving value on the table. You might want to raise a smaller round and go to the market again when your valuation is higher.”
Tranches are generally stupid. They have zero upside and catastrophic downside.
At best, tranches give your current investors a right to invest at yesterday’s valuation if your company is doing well. If your company is doing poorly, your investors will figure out how to get out of their obligation to invest. The tranches will probably have material adverse change clauses that allow your investors to get out of their obligation. Almost all tranches are call options for the investors, not put options for the company.
If your investors back out of a second tranche, you will need to figure out how to manage the negative signal that your current investors don’t want to invest in your company, even at yesterday’s valuation. Remember the Golden Rule:
“He who has the gold rules.”
Get the gold while you can. If your prospective investor wants tranches, say:
“Currently, we’re focused on raising this round, not the next one. Let’s negotiate the next round at the next round.”
Two investors aren’t always better than one.
We disagree with one claim in Adam’s article:
“… you want to have more than one major investor. If one firm is out of line then the other firm will be there to say “This is unreasonable”. You’ll get more varied inputs. Having more than one major investor means you’ll take a little more dilution, but I think it’s worthwhile.”
Yes and no. There are good arguments for bringing on one or two investors. We don’t have a strong opinion either way.
If you have two investors, you can play them off each other during closing if one of them is being slow or demanding, you can split them on the board so one of them votes your way, you can split them when they vote their protective provisions, et cetera.
But, the additional dilution of two investors is usually significant, about 10%-15%. And you don’t need two investors to remove the unreasonable terms that Adam wants to avoid, you can just run an auction:
“We have an offer that doesn’t include [egregious term X]. I hope there is some flexibility on your side because I would really like to work with you but I have a fiduciary duty to our shareholders.”
It’s easier to remove unreasonable terms when investors are fighting to win a deal–they’re more likely to collude if they’re co-investing.
Graduating YC Founders: Don’t do deals on D-Day.
Me: Dude, we should offer to help the Y Combinator companies with their term sheets.
Naval: Don’t we already have a blog for that?
Me: Yes, I’m sure both of our readers are well educated by now.
Naval: It doesn’t matter anyway… the good YC companies will get snatched up on demo day–savvy investors will force quick decisions.
Me: What’s the rush? The YC founders should spend a week to get multiple offers. Good investors compete with their merits, not exploding offers.
Don’t be afraid to get multiple intros to a single investor. 
