How To Prepare Your Startup To Raise An Angel Round

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Editor’s note: Derek Andersen is the founder of Startup Grind, a 12-city event series growing around the world to help educate, inspire, and connect entrepreneurs. He’s also ex-Electronic Arts, the founder of Commonred and Vaporware Labs.

A recent email from an entrepreneur and complete stranger read: “We need to raise money. Who can you introduce us to?” I quickly encouraged him to submit his startup to AngelList but a few days later he returned with, “I messaged the AngelList founder and he didn’t respond. Can you give me some tips?” This post is for you buddy.

Approaching a well known Silicon Valley angel investor cold with the expectation that they’ll fund you, is like walking up to a beautiful stranger and expecting you’ll be planning a wedding by the end of the conversation. For the masses, if you want top tier funding, there is a process or roadmap in most cases you can follow (ignore the geniuses and exceptions). Attempting to bypass it shows a lack of consideration and basic intelligence of how the funding process works.

Why Is There Protocol?

Well known angel investors and VCs are inundated with inbound requests for meetings and funding. A few months ago I interviewed Jeff Clavier of SoftTech VC, one of the top investment brands in Silicon Valley, and who one of his entrepreneurs recently told me was “simply an awesome investor.”  Jeff explained that SoftTech VC receives between 2,000-3,000 inbound email requests for meetings every year. If they took a 30 minute phone call with each team, they would be stuck with 90,000 minutes worth of meetings. Lets say they work 50-hour weeks, it would take them half the year to get through the first meetings. Trust me you don’t want to see the math on the due diligence that would be required.

As founders should we be offended when a VC doesn’t even respond to our cold email? Of course not. After looking at the numbers can you blame them? In most cases they physically don’t have the bandwidth. That doesn’t mean they won’t take a meeting or don’t want to invest, you just need to find the right channel to reach through their filters in a way that they’ll respond.

How To Get A Meeting

I am able to get top tier speakers on a weekly basis for our Startup Grind events even though I rarely I know these people beforehand. The protocol for getting them almost always involves a referral. Here’s an example. We started hosting our events and had around 20 people who would come regularly. I had met a very good but not overly well known venture capitalist and invited him to speak. He had a good experience and encouraged Steve Blank to come speak. Steve had a good experience and encouraged Ann Miura Ko (FLOODGATE) who is speaking this week.

Getting investor meetings is the same process. You need an intro from someone sitting between the founders and the investors. A trusted entrepreneur in the portfolio, an investment partner, or people that have relationships with the investor and can vouch for the entrepreneur. In SoftTechVC’s case, Jeff says they use this social proof to “cut through the deal flow and 200-300 (monthly) opportunities, to get to the top 20-30 to meetings that we’ll actually take each month.” If someone is consistently doling out bad intros to investor friends, then those emails will quickly fall on deaf ears.

What not to do? Jeff says, “Don’t reach out to us by phone, fax, tweet, singing in front of our door, or reaching out to my children – that’s really bad.”

 The Meeting And Followup

When the investment team finally sits down with a founding team, Jeff looks for, “A smart a** team, building a kick a** product, in a big a** market.” While your product doesn’t need to be perfect, most experienced investors would expect to see an advanced prototype and at a minimum some customer development. Jeff and his team look for companies that fit their firm’s clearly identified investment focus. While most firms might not be quite so clear, with a bit of effort you can look at companies funded and make assumptions on what types of markets or categories an investor in interested in.

Any good investor I know will not invest in a portfolio company’s competition. If they have, start pitching to one of the firm’s competitors. Maybe they missed on the opportunity or were waiting for the right team. The best recent example of this is Andreessen Horowitz who having invested heavily in PicPlz, passed on Instagram’s later round because they concluded that “funding Kevin to compete with Dalton would be a violation of the original implicit commitment made to Dalton—to not fund competitors to PicPlz.”

If the meetings go well, an angel will likely engage in a due diligence process where they’ll call references to check on you and the team personally. They’ll speak with market experts to vet the product and opportunity, and they’ll look at the team’s compatibility with the firm. In SoftTech VC’s case all the partners must agree on an investment. If there is any dissent then they will pass.

The Offer, Funding, and Beyond

The length between meetings and receiving an offer or even an answer can vary greatly. Some Y Combinator founders get offers on the spot or in email later that day. Some people meet with you and never give you a clear answer either way. In SoftTech’s case they’ll go from the inital chat to making a decision within 10 days.

If you receive and accept an offer, depending on the type of financing you’re taking, you can expect a wire transfer anywhere between a few days and several weeks. Most VC will not pay in cash or unmarked American US dollars. Take it from someone who has tried.

An investor likely only sits on 5-7 Boards so if you’re gunning for them to take a board seat then do your homework and see how many they’re already on. Following funding Jeff says the best entrepreneurs leverage their investors by being specific with needs and ways to help, or quick phone calls to talk about product or strategy concerns. But he adds, “some early stage entrepreneurs or first timers forget that just because you are spending time with your investors doesn’t mean you’re spending it wisely.”