Investors don’t want to meet you. They wanted to be introduced to you | Hacker News Reader

Investors don’t want to meet you. They wanted to be introduced to you

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155 pointsjaf12duke55 comments

I'm impressed with Jason's posts. He seems to be methodically working through all the misconceptions of inexperienced founders. This is an important and subtle one. Investors assume that if they're hearing about you first from you, you can't be any good. If you were good, they'd already have heard about you, because you'd have found a way to get introduced to them by someone they trust.

Even if investors didn't start out with this bias, they'd soon learn it from experience.

Also, what are your thoughts on the implications of this tendency of VCs as it pertains to teams outside the Bay Area or outside the US, who may have just as much talent and hustle but are forced to work that much harder and longer to get the same intros and connections (at the opportunity cost of spending more time on product & customers)?

Is there a way to bridge that gap and make the process more equitable in different geographies and networks?

EDIT: Removed the first part of my original two-part question because it was less relevant to the OP.

I think that's a bigger problem for finding angels than finding VC. A little angel seed fund can give a startup enough traction to register with the VCs (and afford a trip or two to Silly Valley). But in Silly Valley itself, angels are easy to find and quick to commit.

Those of us out in flyover country have to deal with no local angels at all, or tire-kicking committees that want traditional 50 page five year business plans and take six months to make up their minds. And I'm sure the situation is far worse in places like India.

Investors assume that if they're hearing about you first from you, you can't be any good. If you were good, they'd already have heard about you, because you'd have found a way to get introduced to them by someone they trust.

So you're admitting that they're social-proof whores who refuse to think for themselves, even about the subject matter of their own jobs?

VCs should be mortally humiliated by the fact that the game they're running is, after all is counted, a feudal reputation economy-- all flashes, no substance.

Yet people are surprised that VC, as an asset class, has been a stinker for the past 13 years.

It's not an entirely unreasonable heuristic. The supply of startup pitches is vastly greater than the demand for them. Investors have to filter somehow. Getting a first meeting with any VC is pretty easy, even for someone with no connections whatsoever. There are hundreds of possible paths you can take to get that intro. It's not a big stretch to assume that any entrepreneur with a good chance of success should be able to clear that low hurdle.

Building a successful startup is 1,000 times harder than hustling your way into a VC meeting. If you can't do the latter, it's pretty likely you won't be able to do the former.

It's also 1000 times harder than playing the national anthem on a recorder. But that's not a very useful filter.

To some extent, being able to work a social network (or cold call a contacts friends, and get them to introduce you) is an advantage to a start-up. But it's not really sufficient, and may not even be necessary (since it's something founders will learn as they go).

If it's an enterprise sales company, it's certainly a requirement though.

I mean... pg kinda wrote an essay on this very topic: http://paulgraham.com/herd.html

What? This is no different than any filtering in any domain. Who to hire? What movie to go see? You want someone who personally knows you, whose opinion you trust, to vouch for someone rather than going on a cold guess.

Now this is what I don't get, because usually, that doesn't work. At all. I know from experience that imdb score is a much better predictor of how good a movie will be than a recommendation of a friend, who might have a completely different taste than me. Same with electronics - I know I can make a much more informed decision by doing my own research than most - if not all - people I know, but maybe I just don't know the right people?

Ok, so what's the equivalent of an IMDB score that VCs could use to judge a startup pitch?

This makes me wonder what social network analysis for VCs and start ups would look like. It sounds like this model ensures that the well-connected founders get funded despite the merits of their ideas & implementation efforts.

I don't think it ensures the funding of well-connected founders. It just makes it easier for them. And how do you get to be well-connected, anyway? In a strong meritocracy, previous success is the best. You can become "well connected" by a previous successful (or even unsuccessful) startup, or to be an early employee at multiple successful startups, or to build a reputation on a popular open source project or book or website or etc.

Someone who is well-connected due to their previous successes and demonstrated hard work and talent is a much safer bet. And I'd argue you don't get well-connected just by showing up. That'll buy you a friend or two, but not a network.

Turns out most men are social proof whores. They are much more likely to date somebody who has been introduced to them by a friend they trust.

Oh, and women too.

C'mon. Weak argument here man. Newsflash: We trust the people that... we trust.

Weak argument here man

You're explaing why people are basically racist and xenophobic. Congrats. Unfortunaely, this makes your posture politically untenable / incorrect and dangerous. It also paints VCs with guilt by association. Because, ya know what? they are certainly sexist and racist based upon the data. Unfortunately. Bad news for this argument is tha VC cash comes from Public Pension funds and other LPs which politically cannot support such institutionalized bias against protected classes. Of course, the loophole is that VCs are not employers. So they are legally entitled to be as rascist, mysoginistic, and otherwise discriminatory as they damn well please. But don't go around publicising it.

Uhh.... Sure?

Suffice to say I find your comments so absurd that they don't even merit a rebuttal. Consider yours the last word, congrats.

Its no more absurd then the appeal to authority from dating advice. Because if you look at the quantitative analytics on dating, they are pretty strong. They show rampant/pervasive casual racism and obvious self-segregation. The value of trust should not be underestimated, but if you're not going to go through the bother of thinking through the implications you need to hedge any sweeping proclamations.

They are much more likely to date somebody who has been introduced to them by a friend they trust.

That's more of an availability problem, though, not a trust problem.

Now that YC has worked with at least one nonprofit, do you have any suggestions about how this post might translate to that field?

This applies to all selling situations. Social validation solves the biggest emotional hurdle in selling, "convincing the buyer that they have a defensible position and won't look foolish if they make the purchase."

There is a perception issue every consumer asks themselves when encountering a purchase decision, "if you're so smart why aren't you rich?"

This applies to every situation. For investors it's "if you are so good why couldn't you find a way to get someone I trust to vouch for you?"

For a cheap product, it's "if it's so good why is it so cheap?"

If you can't find a way answer the variation of this question in your situation, you will undoubtedly hit a brick wall in selling to that person.

For startup ideas its ," if its such a good idea why doesn't it exist." This is actually why questions like "why now" or "what makes you different" or "how do consumers solve this problem now, without your solution" are commonly asked...

If your so...why aren't you...

While this makes sense logically...logic has a funny way of being built on false premises and anecdotal evidence.

You wrote,"Even if investors didn't start out with this bias, they'd soon learn it from experience."

Considering the core value proposition, and biggest driver of YC's success is it's introductions it promises... I feel a need to question this second part of your statement purely from a potential bias perspective.

It may be true, but can just as likely be built on a false assumption from anecdotal evidence.

Why do accelerators like Ycombinator have online application forms while VC firms require intros?

There are lots of great engineers who don't have a strong network. YC invest early so they care more about your ability to code. They'll happily hook you up with their network if you impress them. It's easier to teach an engineer business skills than teaching a business guy to code.

Ooh, this one is really good. Also heartbreaking as someone who invested a TON of time into making personal investment calls. I definitely learned this one the hard way.

One thing that I would add also is that investors don't seem to want to be introduced to you by their non-investor/non-business contacts, so their friends and acquaintances. I learned this one also because I figured that would be a good approach. What seems to happen in this case is the "stink" on you gets transferred to the intermediary and the investor picks up on it.

If you’re working in any startup hub, you almost certainly have friends that are working on their own startups. Ask them to help you. The first question should be, “Am I ready to fundraise?”

I would actually phrase this another way, "Be honest with me: If I asked you to refer me to one of your investors, would you recommend me to him/her or is my startup not there yet?"

As someone who, like the OP, is often on the other side of that conversation (I've helped startups raise seed funding and get into accelerators), here are a couple tips:

1) Be specific. Which investor do you want an intro to, and why? I know my investors well. Some of them love meeting early-stage startups. With others, you are wasting your time unless you've already raised significant capital. Other times I can't help at all (recently got asked for an intro by a B2C company--I know my investors from a B2B perspective since that's where my company is, and I'm not sure who would be a best fit for a B2C company.)

2) Be real. If you don't have any customers/pipeline, traction, or even a working demo, you're not ready for investment. For some reason there tends to be a pervasive belief that a "napkin idea" can get funded. Maybe 1% of the time, that's true. But even with a previous exit under my belt, I still had to have some form of traction before I got investors onboard. If you have nothing except an idea, please feel free to ask for advice, but don't ask for advice on looking for investors, because I'm going to tell you to focus on traction first.

As it was explained to me, amount of prep work you must do varies by your credibility:

- First-time founder has to show traction.

- With a handful of successful startups under the belt, one can make do with a good powerpoint, a prototype and some customer interviews.

- With a long streak of victories, a napkin is just fine.

Ergo if you're not Steve Jobs, you can't get away with a napkin.

Argues its impossible to find the needle in the haystack, so VCs use other founders to sift the chaff.

But a VC was quoted that they funded zero cold contacts. That doesn't sound like its hard; it sounds they're incapable of evaluating cold contacts at all. I'm guessing they use contacts for their expertise, because VCs lack any.

Why would they run the risk if they have enough warm leads from trusted contacts? The VC money to startup lead ratio is obviously one sided to present sufficient profit motive to invest in cold introductions. If the VC market becomes sufficiently in favour of warmly introduced startups that there is profit motivation in investing in those startups that cannot garner warm introductions then someone will do it. But they will be assuming much greater risk.

The ecosystem changes: sometimes leads are scarce; sometimes plentiful. That can't explain never, ever investing in cold contacts.

Risk can be mitigated by doing some diligence. It sounds to me like the only diligence VCs do (are capable of?) is "what does some other smart guy think?"

I'm not trying to paint VCs as incapable, but this story makes it so likely. Zero cold contacts invested in? Zero ability to evaluate leads on their own? That's pretty damning.

Warm intros have a built in safety net, too. In a downside, the credibility of the referrer helps to blunt the damage to the VC's reputation. Also, the potential upside from other deals coming through that system, which is lost or diminished by non-investment, offsets the immediate loss. These are some important political dynamics. So, as a result...its not just the "information" efficiency that is at play.

You're missing a third category here. "Cold contact" implies that the startup contacts them. I imagine the really-smart VCs are going out, doing research/watching the market, and cold-contacting the startups, with nobody having reached out to them first.

they get a tax incentive to take risks and not taking it is cheating I think. Super-connected people will attract money no matter what.

They can also call themselves a hedge fund or an investment bank and stop pretending if they are afraid of the risk, they can invest in oil extraction that is always in need for capital and is of absolutely no risk.

So is it the same meritocracy(1) of being accepted on a top university?

(1) http://www.justiceharvard.org/2011/02/episode-08/

Possibly so. People have limited time to process evidence to come to a decision. So they seek out the types of evidence that provide stronger signals. That may cause some false negatives, but since you know it now, that's pretty much your problem. No one owes you an investment in your startup.

(I think this is far less of a problem than access to education, as someone in the position of founding a startup is already on a very high tier of agency and privilege compared to the vast swath of society. Also, you're "born with" connections to startup founders at a far lower rate than you are born with connections to universities, in general.)

Great link, though, thanks!

As someone on the East Coast, I feel this is the main reason everyone wants to immediately leave our town to go to the West. We have plenty of VC's around our area, but the network hasn't been built so only the very high up know anyone.

Forget about investors. Bootstrap your Company. When you are successful, don't mind them. They like to reap where they have not sown.

I was at an event with VC Peter Thiel (founders fund) over the weekend. Someone asked him to contribute to a charitable event during the Q&A. He made the point clear: If you want me to do something for you, come through a trusted friend. I only invest personally if you've been recommended by a trusted friend.

I think Jason is overly focusing on one side of the relationship (i.e between the startup and the introducer) when I'd argue in actuality a lot of the value of the introduction depends on how well placed the introducer is to evaluate you.

For example I would rank introducers as:

1) People who are superstars in your field (i.e Peter Thiel if you're a payments startup) or have great track-records in backing super-star companies across fields.

2) People who are experts in their field and the VC trusts. For example if you're in an adjacent space to a current portfolio company, getting an introduction from that portco (or even a reputable non-portco) carries a lot of weight. Or investors who have a track record in your field.

3) People who are customers of your product and the VC trusts. If your customers are gushing about you that makes for a great intro, if a portco emails their VC saying "there's this product that we use and love and the company is raising money" that'll get attention.

4) People who are well placed to evaluate your product/startup and have some relationship with the VC. Similar to (2)/(3) but they don't have to have a strong relationship with the VC. The VC trusts them because of their expertise not because of their relationship.

5) People who are well positioned to evaluate you and your team personally and the VC trusts. So for example people you've worked with in the past who will personally vouch for you.

Below that you basically have introductions from people who (a) Aren't in a position to evaluate your business and (b) Aren't in a position to evaluate your team. So it's basically a case of "we met these guys the other day and they seemed smart and had a nice demo" - i.e. the VC might spend a bit of extra time looking at it as a favour to the introducer but it's unlikely to be significantly better than meeting at an event, etc.

At that level a bunch of other factors come into play. If an investor is super-into your space or if you've got a strong resume/team they'll likely look at you regardless of how you came to their attention.

> This is an important and subtle one. Investors assume that if they're hearing about you first from you, you can't be any good. If you were good, they'd already have heard about you, because you'd have found a way to get introduced to them by someone they trust.

Yes, the investors do "assume", but, for information technology investing, their ROI for the past 10 years sucks (details in a Fred Wilson blog).

VCs don't know the right people to know a significant fraction of people who are really "good". A really "good" startup entrepreneur likely won't know anyone a VC will "trust".

If a VC can't evaluate my work from what I write, then they won't be able to be effective on my Board; I won't be able to hope to be successful with them on my Board; and I won't be able to have them on my Board or have them invest.

I want to be successful in business, but on average VCs are not very successful. Khosla had some recent, sharp remarks on VCs.

It's not what you know, but who you know.

Its not who you know, but who they know.

Its not who you know, but how they know you.

It's not what you know, but how you think

It's not what you know, but how who you know, know, know how you think.

another top tier VC once told me that out of the thousands of business pitches he receives in his office every year, his firm has never funded one that came in completely cold.

Referring to Chris Sacca (http://lowercasecapital.com/prospecting/) perhaps?

Majority of VCs/investors (particularly in the bay area) don't give significant importance to cold approach. Lot of savvy founders are aware of this.

Investors can want whatever the heck they want, but wanting is not getting.

I know plenty of people high up in US business and academic research, but those people and the VCs don't know each other.

VCs and I don't know the same people.

Bluntly, the VCs are a bit below my 'circle' of business acquaintances.

In particular, the fraction of VCs I would hire into my company is tiny, so small to be nearly invisible. Why? Because their technical qualifications in information technology, etc. in a word suck.

I mean, would you hire a VC? For what, BizDev? What if a VC gave you advice on how to invest your IRA?

How many VCs can code, productively with today's technology? How about be a system administrator for a high end server farm or network?

"The single most important decision you will ever make is with whom to do business."

Extra credit for the source.

This is the sort of thing you need to be aware of, in all areas of life, if you want to be successful. People have filters, and you're fighting a stupid, uphill battle if you want to get through them. Spend that time going around them. It doesn't matter if you're looking for funding from that top firm, a date with that gorgeous woman, a job in that blue-chip, or a visa to visit a post-Soviet wonderland.

Everything worth having comes from others, and a confrontational attitude is the worst one, if you're trying to get through filters, that's how they perceive you. If at any time it feels like you're beating your head against a wall, that's because you are. Take a step back and figure out what you're doing wrong.

Thank you Jason. I direct a not-for-profit foreign government and private foundation incubator based in San Francisco. We just completed a one-month quasi-accelerator for companies that came to the US. None were ready for VC funding and we made this clear. Despite our best effort to get the entrepreneurs to focus on customer development, many spent their time on VCs and angel networks. They got meetings but not much else. We are going to make sure that all new companies participating in future accelerators read your post.

This leads me to the question: How you get networked with people that know investors, when your startup is in a non-hub place? (like, not in United States or Europe)

Another thing you can do if you are are a practitioner in a particular domain is to let your vendors and partners know that you're open to doing due diligence calls on their behalf. Then if you do take a call, be circumspect but honest in your advice/feedback.

That can be great for building your network for the day when you might want funding, advice, or 3rd party intros.

So many hoops you have to jump through to "do a startup" (I want to differentiate between starting your own company).

It's starting to look like less freedom and more BS compared to working for BigCo.

The actual sense of the title of this thread is just not true. My experience is that plenty of information technology (IT) VCs are plenty eager to talk seriously without any introduction except an e-mail from a startup founder.

What I learned, to my great surprise, is that apparently the VCs are under some quite severe constraints. So, they are forced, from whatever, to ignore essentially everything about a project I learned doing projects in business, academic research, and for the US DoD.

Instead, for an IT project they want to see, as about the second thing, some running software. That there might be a lot of crucial work before such software, work that makes the software itself trivial, just is not in their experience and is nearly always way beyond their nearly always rather meager technical backgrounds.

So, for the running software, they want to "play with it", likely essentially to look at the user interface (UI) and estimate how well many users will like it.

For more, they want to see some forms of 'traction' which apparently they use as a surrogate for accounting data traditional in commercial bank lending or private equity investing.

For a deeper look, they like simplistic 'patterns' based on past history of IT VC taken fairly narrowly. So, they have a fundamental problem seeing or evaluating something that is really new, even if, say, the US DoD problem sponsors could see the power and value.

So, I have a list of 40+ VCs eager to "play with" my software when it goes live. I got an introduction to none of them and for each of them just sent e-mail. They responded with e-mail and at least one phone conversation. They are impressed enough with the 'market', the 'technology' to the (meager) extent they and value it, and the goals. Then they just want to see it working, hopefully also with 'traction'. How much? One VC firm said 100,000 unique users a month. With my site that might be $12,800 a month in revenue at which time, with my low 'burn rate' of a sole proprietor solo founder, I should be on a nice path of 'organic' growth and still 100% owner.

Yes, my situation is not 'standard', but neither are successes in the VC business.

The VCs need to learn how to look at and reliably evaluate work that is new, typically just on paper; US research academics and high end US DoD problem sponsors can; VCs cannot. So far maybe that lapse has not much hurt them. But, generally, gotta tell you, the VCs are way, way behind the leading edge of US science, technology, and entrepreneurship.

Not to kill the messenger-- OP is right-- but that "only our kind, dear" stance is an arrogant attitude for people who are spending other people's fucking money.

Fuck all of those emasculated half-men who can't bite down on a decision themselves, but must slurp down the pre-chewed, half-digested chyme of social proof.

I could say a lot more but it's already obvious where the good people stand.

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