Six degrees of investor separation
Monday, April 4, 2011/
You have an awesome business model, have prepared your investment documentation and are all set to raise capital. Just one small hitch – where the hell do you find investors?
Venture capital will often talk about the 3Fs as your first source of funding (friends, family and fools), but let’s say that you have exhausted this and the time has come to look externally.
Most VCs won’t even take your call because in their eyes, you are a schmuck and they are all knowing.
Okay – that is a little unfair, but you could be forgiven at times for gaining that impression from them.
There are events where you can pitch your idea and there are angel networks made up of groups of small but sophisticated investors who pool funds to invest in people just like you.
The trouble is that they rarely end up investing in anything at all – the process is a bit like herding cats.
What about the pitching events? Well, they are rarely attended by really serious investors, who more typically rely on their really serious relationships to bring them really serious deals.
As Kermit said, it ain’t easy being green.
So where do all the businesses you read about on this and similar websites find their seed or start-up funding?
Nearly every entrepreneur I have spoken to has told me it comes down to networks. That’s how it was for me too.
What if I don’t have a network of rich angel investor types?
Even if you do, it won’t necessarily help. I knew lots of successful corporate folks prior to starting my old business, and only one of those people invested.
The rest of them met with me, smiled paternalistically, and advised me to stick to my day job.
But then they did one other very important thing. They all said some variant of the following words: “You should really meet X”.
I ended up with 13 different investors. Other than one, none of these investors were in my personal network when I started fundraising.
They were all contacts of contacts and sometimes contacts of contacts of contacts.
I have come to the conclusion that most people genuinely want to be helpful. It is not pleasant to have to say no to a budding and passionate entrepreneur who is trying to live out their dream.
Many investors would love to help but live by the adage that they didn’t get rich being stupid. And most people will think your venture is stupid.
However, giving you a few names to talk to is an easy way to help you out, without having to risk their own cash.
Having a chat never hurt anyone, and if you are a decent, engaging person who doesn’t pick their nose during a meeting, then connecting you with some other folks is no big deal.
And this is where you find investors. What starts off as a small personal network can very quickly explode into a large net of potential investors.
Remember that you may only need one person to invest in you, but you may need to invest the time to meet 100 people to find that one.
Sahil Merchant founded Mag Nation, a retail chain specialising in mainstream and niche magazines, in 2005. Prior to this, he worked for management consultancy McKinsey & Company and spent a year working at the World Economic Forum. He recently exited Mag Nation and now advises companies on how to embed ‘consumer-centricity’ into the way they work. He writes about entrepreneurship here and Tweets here.