Entrepreneur Office Hours - Issue #32

How to find the perfect investors and how to make them fall in love with you once you've found them

This issue is about love and fundraising. A weird combination, I know, but give me a chance.

Half the content we might describe as “how to make investors fall in love with you.” In the weekly Q&A, you’ll see I’ve answered a question about how to find a certain type of investor. And, since I’m telling you how to find specific types of investors, I figured I also might as well share an article explaining what to tell those investors once you’ve found them.

Also in this issue, you’ll see that I got to speak with the incredible Sam Yagan, founder of OkCupid. He was also CEO of Match.com for a while, and he’s the man who basically turned Tinder into the behemoth that it is today. Plus, he just took ShopRunner to a big exit via FedEx. In other words, he’s an entrepreneur who knows how to grow successful businesses. Definitely don’t skip his story.

As always, if you’ve got questions, I’ll do my best to answer. Just reply to this email and tell me what you want to know about entrepreneurship. You can ask questions about other things, too, I suppose, but I can’t promise a useful answer.

-Aaron


Here are the 3 Questions VCs Need Answered in Your Pitch

Trying to raise a seed round? In order for VCs to make their investment decisions, they need three important questions answered. Do you know all three?


The College Buddies Who Pioneered Freemium Dating

Online dating came to the Web early, but the first websites tried to play matchmaker for their users. The team at OkCupid thought that didn't make sense. They believed people could choose their own matches, they just needed more potential candidates to choose from. So that's the dating website they built.

Hear the full story from Sam Yagan, OkCupid's founding CEO, on the new episode of Web Masters. Listen now on:

…or search “Web Masters” wherever you listen to your favorite podcasts.


How to Solve the Most Difficult Challenge in Startups

Sometimes great startup ideas only become great when they reach a certain size. So what happens before that? This is commonly known as the “chicken and the egg” problem in startups, and here’s how to solve it.


Office Hours Q&A

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QUESTION:

I co-own a startup. It’s a SaaS software company for online green business certification and sustainability performance management. The co founder and I are raising angel money. Any tips on finding “green investors”?

-Bill Z.

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This is a great question because it underscores what should be every entrepreneurs’ core consideration when fundraising: finding the right type of investors.

Too many entrepreneurs -- myself included in my earlier days -- treat fundraising like a numbers game. They believe successful fundraising is a result of hustle and talking with as many investors as possible. It’s a brute force approach to fundraising, and, to be completely honest, it can work. After all, if you talk with tons and tons of investors, odds are you’ll occasionally talk with the right types in a “law of large numbers” sort of way.

However, just because talking with tons of investors can work, it’s not an efficient process. You’ll spend hundreds -- maybe even thousands -- of hours researching and having conversations you don’t need to have, plus any costs associated with those conversations.

I, for one, took lots of expensive fundraising trips to New York City and the Bay Area that resulted in no investors, and I wish I had all that time and money back. Those were all resources I could have devoted to more important things. Never forget that every minute you spend on fundraising is a minute you’re not doing the thing that actually matters in startups, which is customer acquisition.

As I got more experienced as an entrepreneur, I learned to drop the “spray and pray” approach to fundraising. Instead, I focused my time on customer acquisition, and then I used more of a strategic/surgical/opportunistic fundraising strategy which I’ll describe below.

First, regarding the original question, I’ll note that I don’t have tips specific for finding “green” investors. Instead, the strategy I’m going to describe is applicable for any niche.

Step 1: Know your target investor

I realize this might seem like a silly and/or self explanatory first step, but it’s critical. Too many entrepreneurs think “investor” is a generic term, and anyone who invests in startups will, by definition, be interested in investing in their startup. That’s just not true.

Every (worthwhile) investor has a specific investment thesis. That thesis limits what types of startups they’ll invest in. Trying to raise capital from an investor who won’t invest in your type of company is a waste of everyone’s time, so don’t do it.

At the very least, make sure you know the following things about your target investor: stage; region/location focus; industry/company type; preferred demographic profile; and investment size. If any of those things don’t match your company, the investor won’t invest. Period.

Step 2: Build a list

Build a list of investors who match your criteria. You’re going to have to get a bit creative here with a combination of things like Crunchbase, AngelList, LinkedIn, and some general Google-Fu.

Be prepared for the list building part to take a decent chunk of time because you’ll have to do lots of reading/interpreting to figure out each investor’s thesis based on context clues like what companies they’ve previously invested in. Just remember that a high quality, well-targeted list here is going to save you TONS of time down the road, so suck it up and put in the effort.

Step 3: Get contact info

Once you’ve got your list, it’s time to find email addresses. This should be fairly easy since investors actively want people engaging with them, and their email addresses should be simple to guess.

Start with the Clearbit extension for Chrome. If you enter a domain, it’ll list back emails of anyone it has at that domain, and that’s likely to include the person you’re looking for (assuming the investor is at a firm). Even if it doesn’t have the email of the person you’re trying to contact, the emails it does reveal should give you a sense of how the addresses at that domain are structured (e.g. first_name.last_name versus first_initial.last_name, etcetera).

Other good services for email addresses are Pipl, FullContact, and RocketReach.

Step 4: Setup pre-targeting

This is one of my favorite hacks. Once you have a great list of people and their email addresses, create a Facebook ad campaign, upload your list of emails, and you can micro-target them with (very cheap) pay per view ads about your company. The ads don’t have to get anyone clicking. All they have to do is keep showing up in the social media feeds of your target investors.

This will “soften the ground” for you by helping familiarize those investors with your brand. As a result, when you reach out, the investors you’ve been targeting are going to feel like they’ve already heard of your company and think it’s doing good work. That’s going to make them more likely to respond enthusiastically to the next step.

Step 5: Send an intro email

When you’re truly ready to begin fundraising, start emailing the people on your list with a great cold-email. I’ve written lots of articles about how to send great emails. Here’s one. And here’s one more.

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And that’s pretty much the process. However, before I wrap up this answer, I need to emphasize the fact that, as with pretty much everything else in the entrepreneurial world, there’s no magic solution to finding the perfect investor. No matter what type of investor you’re looking for -- green, SaaS, seed, growth, angel, whatever -- it’s going to take lots of time and research.

I know that’s not what people want to read. They want easy, quick solutions. Sorry. There aren’t any. Get on Google and do your homework. If you’re diligent, and if you apply your research to the process I’ve described above, I promise you’ll find good investors.

Got startup questions of your own? Reply to this email with whatever you want to know, and I’ll do my best to answer!