Editor’s Note: Each week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at firstname.lastname@example.org.
Q. How can I meet investors? And how do I work with them?
—Early-stage startup looking to raise money for a consumer company
There’s an adage that says, when you are looking for money, people give you advice, and when you are looking for advice, people give you money. Personally, I think both are invaluable so recommend sourcing opportunities where you can get guidance and funding. I also think it can be best to seek out these resources before you need them. In other words, always look to build your relationships—not just when you are asking for something.
The startup market is crowded, but I believe these three tips could help you get in front of investors.
Put yourself out there and build relationships. You can’t wait to get discovered. Find ways to meet the very best people and listen to their advice. Consider joining an incubator like Y Combinator in order to gain insights from experts who want—and know how—to help. This will also grant you access to great investors and the opportunity to participate in demo days, which allows you to showcase your company to a large audience of interested investors in a short period of time. It could take months—if it was even possible—to get on this number of investors’ calendars. (I also believe this kind of participation leads to higher valuations as it adds credibility and validation.) Leverage other watering holes as well. Try to get onstage around your product launch at events like TechCrunch Disrupt and other industry gatherings. Join a communal working space and talk to people.
Approach investors at the right time. The right time depends on how many funds exist to chase the idea. Generally speaking, later is generally better, but always leave yourself with negotiating leverage. (If you hold off until you are almost out of cash, you will end up with the potential of being perceived as desperate and thus less powerful on negotiations.) I always appreciate seeing entrepreneurs who are so excited and committed that they had a fair amount of “sweat equity” invested before raising funds. This is more attractive to me than a team that raises money on an idea and their reputation.
Look for investors with more than money; prize sophistication and experience. Family and friend rounds are often done earlier than any formal rounds and they present an attractive option. However, my personal advice is that raising money from family and friends can be risky—unless they are experienced investors. These are people who you will have in your life for a long time and you are asking them to invest at one of the riskiest times of your company. It may be the greatest gift you provide them, or it may be a source of pain over the Thanksgiving table for years to come. Proceed with caution.
Generally, seed investing happens with angels (which may or may not be friends or family) and formal rounds led by VCs (A, B, C rounds) happen years in. There should be about 18 months runway between early rounds. Because your investors will be with you for a long time, and because their ownership will often come with influence, chose investors wisely. They should be people who can offer advice and experience, and who want to help you succeed.