How to Roll Your Own Investor Referrals
Chapter Five Excerpt: Startup Muse available from Amazon
The most common reason entrepreneurs reach out to me is for referrals to potential investors. This isn’t a surprise because the best way to get a meeting with a venture capital firm is through a referral. For most experienced entrepreneurs this is a fairly straightforward process. However for young entrepreneurs getting a referral can be a daunting endeavor. When Frigyes Karinthy came up with the concept of ‘six degrees of separation’ in the early 1900’ s I doubt he had any idea how insular the world of venture capital would become — overwhelmingly male, white, and Ivy League educated. I’m going to share with you a very simple way you can “roll your own” investor referrals even if you didn’t go to Harvard or Yale.
Before you reach out to your network or attempt to roll your own referrals you really need to do your homework. There are thousands of venture capital professionals in the United States and very few of them would ever consider investing in your company. Your first task is to determine which VCs are the most likely to invest in a company like yours. Almost all venture capital firms advertise their investment themes on their websites and blogs. For example, First Round is interested in AI, Accel is focused on Esports, Andreessen Horowitz is looking for mixed reality startups, and so on. Find the firms that share your vision of the world.
Once you’ve identified at least ten firms who are actively investing in companies like yours, you need to identify a specific person at the firm to target. For example, at First Round, Hayley Barna is your go-to if you’re into AI, at Accel Vas Natarajan is your huckleberry if you’re into Esports, at. Andreessen Horowitz Benedict Evans is your man if you’re into mixed reality, and so on. In general, I’d recommend focusing exclusively on people with the title of ‘partner’. There are lots of professionals in most firms with titles ranging from partner, venture partner, principal, associate, to analyst. While there are exceptions, generally, the only people in a venture capital firm who can write a check are partners. Find the partner who has the most experience investing in companies like yours. They are your primary target. With the firm and partner identified it is now time to reach out to your network for referrals so that you can secure your first meeting.
If you strike out with your network it is time to roll your own referrals. The typical VC partner is on the board of 5– 10 portfolio companies. Get the contact information for each of the CEOs of those startups. Leverage resources like Crunchbase, LinkedIn, Angelist, and The Funded to find the right people and their contact information. Once you’ve built your list of portfolio companies for each partner you should consider reaching out a second time to your network for referrals to those CEOs. Assuming you strike out again, the next step is to cold call/ email each startup CEO. Explain that you’ve got a startup and you’re considering working with their venture capital partner and that you’re looking for a reference. Your goal is determine if the partner and their firm would be a good fit for your company.
In my experience, most CEOs will assume that you’re already working with their board member and as a result they will call or email back immediately. They’ve got a vested interest in keeping their venture capital partner and board member happy and they’re also generally curious about the other deals they’re partner is looking at.
Once you get on the phone with the CEO use your time wisely. Ask about the funding process. How long it took to get a term sheet. How long it took to close. Ask about board governance. How frequently do they attend meetings? Do they send their associates to observe? At the end of the day ask them if they’d recommend that you work with the partner — 99% of the time they will. If you’re smart ask them if they have any other suggestions for investors they might talk to — more often than not I’ll get at least two other referrals during a CEO call. Once you’ve talked to the CEO it is vital you IMMEDIATELY reach out to your target venture capital partner. If you wait too long it is likely that the CEO will have asked the partner about your call. Your job is to contact the partner and explain in a voicemail or email that you had a chance to talk to one of their portfolio company CEOs and they recommended that you work with them. In my experience the partner, once in receipt of this message, will be curious enough to return your call or email very quickly. Once you’ve got the partner’s attention it is time to pitch — your goal is to get a meeting. More often than not you’ll get the meeting.
Leverage the assumptions, but never lie. Ironically, once it becomes clear that you’re doing your diligence BEFORE wasting everyone’s time your credibility will rise. Talking to a VCs portfolio companies BEFORE you talk to the VC is a sign that you take your job as founder and CEO seriously.