When raising money, startups sometimes ask me how I would add value as an investor. I think it is a great question that unfortunately often gets unspecific answers.
This post by David Hornick of August Capital (a VC) is the best I've seen at laying out how investors can add value in general. And I'm sure each investor can do a little bit in the categories David lays out: recruiting, raising equity, raising debt, introduction, strategic advice, save time, create a Keiretsu, PR, and making exits happen.
The best place to look for specifics is in an investor's portfolio companies. It seems like it could be like asking a family member for a reference, but I've found that startup founders are very candid with other founders about these kinds of topics.
I would get some of those founders on the phone and just ask them how the particular investor has helped them, how much they've been involved, etc. I'm confident that if you ask my portfolio companies you'll hear the following from them.
Relative to other investors...
Where I can add the most value:
- Raising a seed round. I led the last two deals I've done in the sense that I put together the syndicate of the right angel investors, negotiated the terms for them, and made sure it all closed quickly, fairly and without incident. For both deals we used the open source Series Seed docs, which kept things extremely low cost (actually zero legal on our end). I'd basically like to continue filling this role.
From the company perspective, I think this is quite appealing, especially if you are not a super hot company and not in the valley, which is the space in which I operate. One minor quibble I'd make with Paul Graham in his recent investing essays is that for a lot of startups it takes a lot longer than a few days or weeks to raise a seed round. The median is much longer because most companies fail to raise anything, and the mode I see seems to be somewhere at 4-6 months.
- Day to day business advice, i.e. been there, done that. I've been doing this startup stuff for a while now, pretty much all by myself or with one other person. So I've done most startup things, i.e. from incorporation papers all the way to an exit and everything in between. Moreover, I want to be closely involved. For most of the companies I'm involved with, we try to have frequent Skype chats (weekly to every few weeks) to discuss whatever is in front of them.
- Domain Knowledge. If you're trying to do something very specific that I've already done or am researching, like engineer a viral loop using email, spider and organize a lot of structured content, SEO, etc., I can be incredibly useful.
Where I can add average value:
- Raising a Series A round. Truth be told, I'm looking to invest in things that if all goes decently well, a Series A round may not be strictly needed because the company would be profitable. So if it is raised, it should be easier to do so because of the traction they would have. Nevertheless, things don't always go as planned, and so it is important that I cultivate relationships with the right VCs who could help fund portfolio companies. I've been actively working on that, especially locally. For example, I'm bringing Open Angel Forum to Philly next year and have been meeting essentially everyone in the city involved in funding Internet startups.
- Introductions. You can see from my LinkedIn who I'm connected to. Again, I'm actively expanding my network all the time, e.g. through my Traction Book interviews. It's definitely improving, but there are certainly many investors with more substantial networks. A lot of this related back to amount of deals. Frankly, I haven't done that many, but this should of course improve over time.
- Hiring. This seems to be a major problem for startups. I actually started a local hackathon group three years ago (200+ strong now) to help make connections between people interested in startups, hiring being one type of connection. And I have introduced people that have resulted in hiring, but the problem is still a big one, especially if I continue to invest nationally. That is, things I do in Philly, like copy good programs from other cities, won't help a company in Boston (unless they don't mind a virtual hire). I think what we really need is an organized startup job board (yes, I know there have been some), that is promoted by major startups/startup hang outs and has a barrier to entry to applicants, like HN karma or something. This is half baked atm, but maybe someone will run with it.
What I can't do:
- Get you on Techcrunch. Or PR in general for that matter. Honestly, I haven't really figured this piece out yet, though I have been doing interviews on it to learn more. Duck Duck Go has had a lot of good press, but it has pretty much been unsolicited or based on warm intros. I would like to say I'm working on meeting the right people in the press, but I'm not. I just don't have enough time right now, and I don't like to travel.
- Get you traction. Yes, I am slowly working on a book on getting traction. That means I can tell you lots of strategies that you should check out and even tactics within them. But that doesn't mean attaching me to your startup will actually get you traction. In fact, I want to invest in things that have a spark of traction already.
- Help much with managing employees. I really haven't managed many people, so my experience is very limited here. But I do try to include people in seed round syndicates with varying (and relevant) experience so there are investors to go to for this kind of advice.
- Help with big company politics, sales cycles, etc. Same story.
Clearly each startup needs help in different areas. So depending on the particular startup I could be very useful, or not so much. I hope this post helps you figure that out.
I should also say that I'm willing to help without investing, i.e. dole out infrequent informal advice or become more of a formal mentor. If you need some advice, I suggest writing to hacker angels or techstartu.ps. I'll see it, and you'll get in front of other people that could potentially help more.