This is part 2 of 2. Part 1 is here.
Follow me @samirkaji for my always random, sometimes relevant thoughts on the world of venture investing and startups.
In my last post, I described how to effectively ask for a warm introduction to investors through mutual contacts. Of course, the premise of the article was centered around the supposition that most investors today still primarily (or solely) engage only with companies that are referred in by a trustedsource.
However, as many of my readers accurately pointed out, most entrepreneurs simply don’t have robust enough networks that they can effectively leverage for warm referrals to targeted investors. This rings even truer for entrepreneurs migrating from areas outside of Silicon Valley, LA, or New York.
While there are fairly rational reasons why investors are biased toward referred companies over cold inbounds, we know that great companies can come from anywhere. Despite that fact, many investors have bluntly told me that they doubt they will invest in a company that comes in from outside of their network.
I’d posit that this legacy way thinking has sub optimized venture returns by overvaluing social proof and creating unnecessary mental biases when evaluating out of network deals. I’m going to cover this in a future post in much more detail, as I think it’s an important topic to deconstruct.
Further supporting the point, take note of First Round’s analysis of their portfolio, which evidenced that non-referred companies outperformed referred companies by a substantial margin.
Courtesy: First Round Capital Review.
Again, I’ll leave the behavioral psychology discussion for another day.
Instead, I’ll focus here on how to most effectively “cold call” an investor to assure a higher probability of engagement.
The spray and pray approach of messaging investors is as effective as those emails that populate your Gmail promotions folder. As a mildly active angel investor with an AngelList profile, I get 40–50 non-solicited emails a month from entrepreneurs fundraising. Unfortunately, the majority of the emails come off as spammy with very few including “engagement hooks”. Looking at my last 75 inbounds, I counted 9 that I (subjectively) consider to be effective emails. 9 out of 75. That’s 12% for those counting at home.
It’s important to qualify yourself when approaching an investor to confirm mutual fit. It’s simply unreasonable to expect an investor to do homework on you to determine whether there may be a fit if you clearly have neglected to do cursory homework on them. Pre-qualify yourself.
2/ Research firm infrastructure
Once you’ve compiled a wish list of investors, leverage public channels to determine decision-making and sourcing processes of an investor. Most large venture firms have multiple associates whose main role is to source and diligence new opportunities. While getting investment partner time is ultimately necessary to secure an investment, understand process and craft your engagement strategy appropriately. Micro-VC firms on the other hand often don’t have associates, and it’s the partners that are tasked with culling deal flow. Knowing how the firm ticks will ensure you’re messaging the appropriate people.
3/ Be concise
Make sure the length of your message keeps your note above the fold. If your email requires substantial scrolling on a mobile device on the part of the investor, the probability of engagement has shown to be dramatically diminished. Keep it short and to the point. This is not the time for a 1000 word dissertation. Keep it to <150 words. It’ll both be more effective and will help you craft a more impactful pitch. Also, it’s ok to include an executive summary, but I’d counsel refraining from sending multiple attachments — the time for that will come later.
4/ Do some stalking
This may sound creepy, but I’m simply referring to digging deeper to better understand the person you are reaching out. Check the investor’s LinkedIn, Twitter, and FB. Have they written any blogs recently or spoke on any panels? This will help you craft a cold email that will present itself as warm by introducing relevancy. More importantly, it’ll give you clues on the most effective medium and the best time to approach a given investor.
Here, an entrepreneur acquired an investment from Homebrew by engaging with Hunter through Twitter, where Hunter is incredibly active.
Today agreed to terms on new investment w founder I met via Twitter & cold inbound email. Amazing opportunities come from so many places.
— Hunter Walk (@hunterwalk) September 19, 2015
Critically thinking about approach can be the difference between securing investment from a great partner or not.
To help illustrate application, I’ll provide what I think is a good example of an effective cold email.
Thanks for sharing your thoughts on enterprise mobile security on TechCrunch last month. We completely agree, and we’ve developed a security platform focused on the primary pain point Fortune 500 companies face with mobile workflow. Attached is our EC, and a link to our site.
We are raising a $1.5MM seed round, and given your background and firm thesis of investing in seed and mobile infrastructure companies, I think there may be an interesting mutual fit (or at the very least, we can compare notes on the space!).
Would love to get a few minutes of your time. I’m also in SF, so happy to drop by your office on Mission or start off with a call if more convenient. Please let me know what might work best.
Finally, congrats on the recent closing of Fund II!
Warm regards, and look forward to hearing from you.
Why was this email email effective?
– It established common ground early
– Was concise (<150 words)
– Entrepreneur pre-qualified themselves by noting investor thesis
– Clear evidence that entrepreneur did research on investor and offered to provide value (through comparing notes on a common interest)
I’m aware fundraising can be a tricky, and frustrating game to navigate — but I’m confident you’ll find that the ROI on spending a bit more time on approach will be exponential.