A recent Huffington Post article on AngelList reminded me I need to finish this post – my apologies to those that expected me to post it months ago.
There are some fantastic posts about how to get started on AngelList (one of my favourites is Brendan Baker‘s post How to Hustle with AngelList), but I haven’t seen as many written by entrepreneurs that have successfully used AngelList to raise money. Although I’m no expert on the fundraising process, I can say that we successfully used AngelList’s introductions to raise our round.
Here are the rules we set for ourselves as we went through the process.
Disclaimer: be sure to take these with a grain of salt – they worked for us, but might not work for everyone. Best of luck!
1. Before Posting – Find a lead investor
This is the first rule we decided on. It’s also the first rule that was shared with us by someone else. Over lunch this past March, Dan Martell shared this rule with me, and I’m giving it my +1. We didn’t want to post our profile until we could say that someone else thought we were a good investment. When we did post our profile, there was no money in hand yet, but we had verbal commitment from a local investor for $50k of the $500k we were trying to raise. It was meant to get us started, and it did. It made a big difference to our profile as it demonstrated that we had already been pitching and it became a conversation piece with several angels. For a few that reached out, the name and background of this investor were part of the opening conversations – I truly believe that they wouldn’t have reached out if we hadn’t been able to say we already had money committed.
2. Before Posting - Build a great website
This may sound like a flippant comment, but it was actually a critical component of our product and pitch. A great product is a given, but some startups I’ve been around forget their public-facing content. We got our site to the point where we were receiving regular compliments before we posted our startup to AngelList, and it came in handy. When you put your profile up, the team that runs AngelList may send your profile out to investors that are a good fit – this was what happened for us. One of the recipients of the email blast saw the short email summary, visited our website, then gave us a call. This is important: they were persuaded to contact us based on a single paragraph in an email and the quality of our website. We wouldn’t be here if we didn’t have an awesome website.
3. Before Posting - Complete a great pitch deck
The pitchdeck is important, not just because it provides investors with a description of your company, but also because it forces you to condense your business into a few slides. We went through a pitch coaching process with the Venture Services Program at Communitech. Although it was difficult and painful at times, it helped us figure out how to talk about our business in very succinct terms, and it gave us the chance to practice talking in terms that investors would care about. If you’re having trouble pulling your pitch deck together, feel free to drop me a line and I’d be happy to share ours with you as an example.
4. Before Posting - Collect your social proof
Update: 2012-06-06 – There are some great discussions happening about The Death of Social Proof…give this one special thought about what it means in your context. It’s an older answer, but informing the discussion is the Quora answer from Naval (from AngelList) to the question “Is social proof a rational approach to investment selection?“.
The value of social proof is described elsewhere, so I’ll skip trying to convince you. I am, however, offering the suggestion that documenting your social proof before you post to AngelList will help. . Yes, you’ll need to post your social proof to your AngelList profile, but you may also want to dole it out in chunks (see point 9 below), or share specific links with investors while you’re talking to them. Having your list prepared ahead of time will make that process easier, and it will help you keep it top of mind, which will elevate your confidence (not to mention providing anecdotes for your conversations with potential investors).
5. Before Posting - Acquire paying customers
I realize this is easier said than done, but if you have paying customers before you go raising money, it not only puts you in a much better position when it comes to discussing valuations, but it also piques investor interest and helps you calculate the myriad of statistics and numbers that you’ll need to share with potential investors. If you’re building an SaaS company, I suggest reading David Skok’s original blog post on SaaS metrics. Reading this post will help you understand how to prepare your numbers, which will also give you some thoughts on how to acquire the right type of customers. Also, if you time your customer acquisition right, you’ll be able to share numbers as part of your AngelList profile. Updating those numbers regularly also helps (again, see point 9).
6. Before Posting - Be helpful and connected
The last thing I set for myself was to make sure that when people looked us up (the founders in particular) that they would find rich social profiles on networks that offered opportunities to share expertise or thoughts. I don’t know if our investors made it as far as checking us out. I’m including it as a rule because we went through the effort. The networks I’d consider “knowledge-based” social networks include LinkedIn Answers, BrightJourney (formerly OnStartups Answers), Stack Overflow, Hacker News, Quora, etc. I’d been using BrightJourney for a while, so that was the profile I put energy into. Leading up to posting to AngelList, and even after I’d posted, I tried to be a frequent visitor and a helpful one on the site. Like I said, I’m not sure how effective this was (I’ll have to ask our investors on this) but my objective was to demonstrate that we have a capable team that actively learns and is happy to share lessons learned.
7. Before Posting – Build an investor profile/persona
There are many different types of investors on AngelList – it will save you a lot of time and stress if you can figure out the characteristics of the investor you’re looking for. For us, here is a summary of what we wanted:
Single high-tech startup in the HR space is seeking investors that want to build a big company rather than a quick-flip. The ideal partner has way more B2B SaaS marketing expertise than we do,a ridiculously successful track record of good investments/companies, and entrepreneurial experience. Bonus marks for investment experience in our industry and/or networks that could bring in key strategic partnerships. Personality-wise, we are looking for people we feel comfortable with – people we’d want to have a beer with and with whom we can chat about any problems that come up, be they business or personal.
Our profile won’t be a perfect fit for everyone, but by building it up-front, we were able to better qualify investors and be prepared to answer the inevitable question about what we were looking for.
8. After Posting – Aim for < 5 minute follow-ups
This one was the most challenging, although maybe the most impactful, of our self-imposed rules. Follow-up is exceptionally important, but it’s not a binary thing. A great follow-up to an inquiry will not only answer the person’s questions, but is also personalized and timely. When we thought about out target investors, we realized many of them might see a $20k angel investment as a small investment, thus might make impulsive decisions. To capitalize on that behaviour, we gave ourselves the goal of following up within 5 minutes of an inquiry – the idea being that if they are on our profile submitting an expression of interest, then they are thinking about us right now and may be more receptive. We also figured that if an investor was interested in our business model, they might also be looking at other startups with a similar profile, and we didn’t want to be the last one to follow up if they were submitting multiple contact forms.
9. After Posting - Show growth and progress
One of the neat things about AngelList is that it notifies people about the startups they follow whenever there is a change. We actually modified our product release schedule, as well as expected blog/media coverage, to ensure that we’d be able to show an ongoing pattern of buzz, activity, and customer growth throughout the entire time our profile was available. Then, every couple of days, I’d post the new content/change/coverage to our profile as a comment or update. There were several situations where I’d have a second call with an investor a week or two after our initial email exchange and have to clarify that our numbers or progress had been updated and he/she might need to update their records. The risk to this was that some people might be annoyed with information that felt out-of-date, but the upside was that it helped bring attention to the speed of change we were trying to maintain.
10. After Posting - Assume nothing’s been read
This was a surprise to us, and we had to shift our conversation pattern very quickly when we realized that a significant portion (memory tells me about 3/4) of the people that contacted us hadn’t looked at our deck or our documentation – they contacted us based on a cursory look into the AngelList profile, perhaps our website, and maybe our LinkedIn profiles. Once I changed my conversations to always start off with an introduction (letting them know they could tell me to skip over stuff) it greatly improved the quality of our chats. The phrase I used was:
If you’d like, I can kick things off with an overview. I know there may be overlap with what you’ve already read, but we’ve found that with things changing so quickly, it often helps when I run through the basics, incorporating recent changes, then let you tell me where you’d like us to spend more time. Would that work for you?
Only once during our fundraising did I have someone balk at the invitation, and that’s because he had just finished reading everything 5 minutes before, and had some very specific questions. For most others, it was a great way for them to catch up if they hadn’t spent the time to read our slide deck.
If you’re anything like me, it may feel a little insulting the first couple times an investor reaches out without first taking the time to read your material – I know I felt that way. However, once we started taking it as a compliment, things improved. We told ourselves “our pitch looked so hot that they had to contact us before finishing” and things became a heck of a lot easier
11. After Posting - Be awesome and be committed
Another way of saying this is “Promise High and Over Deliver” – we were looking for investors who would commit time and energy to us, so we needed to do the same. When investors asked us for specific information that we didn’t have, we committed to turning answers around quickly and with all possible bells and whistles. There were times when we had to change the product just to get the information the potential investors wanted – for example, we started making changes to our funnel to better record states and we changed our billing systems to gain better insights into our customers. Similarly, we’d go the extra mile whenever possible for conversations – we had calls before 6am ET to field calls from European contacts and calls at 10pm to field west-coast inquiries. We made custom power point decks to highlight key insights, we delivered numerous online demos and we travelled to other cities to meet in person to get to know various investors. These meetings were particularly important. According to one of the AngelList investors we spoke to, “Your AngelList profile sparked my curiosity but meeting you is what got me really interested in your vision.”
All these things placed a ridiculous toll on our schedules, sleep patterns and families, but they gave evidence to our commitment and dedication not just to the company, but also to finding the right investors.
12. After Posting - Be picky, respectful, and honest
I left this point to last, as it was a point that drove all the others. Going into this process we had clear investor profiles in mind (*cough* point 7 *cough*). It was a lot easier to manage our calls when we were honest with investors. We had several conversations with people that were clearly brilliant people, but didn’t quite fit our target profile – rather than being vague on our description, we were honest with them about what we were looking for, and offered to keep them in the loop. This saved us (and them) time. Similarly, once we had a couple of investors closing in on a commitment, we were open with everyone else to make sure we avoided a competitive bidding scenario. This avoided any conflicts, but also freed up our time to really work with the investors that we were primarily engaged with. At the end of the day, we really wanted investors we could trust, who respected us and were honest with us – we tried to set the stage by offering the same.
So there – 12 rules that we followed that helped us eventually close a $1M round from Matrix Partners. If these rules help you out – please let me know! If you find anything missing (or have something to add), please let me know in a comment, and if they fit, I’ll add them to the post.
If you’d like to read more about raising money on AngelList, here some useful posts I’ve referenced in the past: