One morning during my office hours at Cafe Express I had the opportunity to meet with an entrepreneur who is just beginning the process of looking for seed/angel capital for his startup. He had a deck, an idea, a team and was hoping to get some help finding potential investors. I could have made a few referrals, but figured it would MORE helpful to share my own personal experiences raising seed and/or angel capital.
Thesis One: Money Ain’t Equal
When we began looking for seed investors for ViewMarket (an ecommerce marketplace for video content creators) we intentionally sought out investors who’ve had success in the space. For example, we thought Dave McClure would understand the ecommerce aspect of the business from his early experience at PayPal. Next we thought Christine Tsai would would understand the video part of the business from her early experience at YouTube. Finally, we thought Will Bunker would understand the analytics side of the business from his experience as one of the Match.com founders. Once we secured funding from these three we knew we were onto something – they helped us validate our own thinking. Had we raised money from local real estate or oil and gas investors we we’d still be wondering if we were on the right track. Smart money CAN be very smart.
Thesis Two: Smart Money Begets Smart Money
Eventually, if you have any level of success, you’re going to raise a Series A investment from institutional investors (VCs). The fact that you’re earliest investors are familiar with the space and had their own successes will give you a big leg up. First, it is very likely that these engaged angels will help introduce you to the same investors who funded their prior companies (presumably the VC made a lot of money on this deal so they’ll take the meeting). Second, other investors, when they learn that seasoned/successful/known entrepreneurs have risked their own money to help you launch they’ll be curious and want to meet.
Given these two thoughts I recommended that the entrepreneur do the following:
- create a list of all former/current startup competitors.
- create a list of all startups that have ‘pain’ that his product solves.
- create a list of the investors in the above companies.
- create a list of the founders of the above companies.
- reach out to the investors to ask advice about his product and ask for referrals to potential seed investors.
- reach out to the founders to ask advice about his product and ultimately ask for investments.
Only AFTER the entrepreneur had secured an investment from two of these angels should he move forward with a broader conversation with more financial investors. This process will save you a LOT of time. If you can’t convince someone who’s had experience and success in your space to invest – you might want to keep working on your idea before raising money. Remember, most startups fail. If you can find a few entrepreneurs who’ve been there and done it in your space you’re much more likely to find success – leverage their experience. Good luck!