Filling out your round through angel syndication is something entrepreneurs need to be savvy about. Having a basic plan and strategy in place for approaching the syndication process is fundamental. However, the key success factors are engagement and speed. It boils down to whether or not you can engage investors enough to start writing checks, and doing this as quickly as possible so that you can get back to your real job - running the business.
Leveraging Angel Groups, Online Platforms and Events
When time is of the essence, working with professional angels in groups can provide the jump start you need to create a domino effect and engage many potential investors quickly. At first blush, working with angel groups may seem demanding due to the multiple hurdles that are part and parcel of a group's structured process. However, there is big upside.
Active and professional angel groups do these deals month in and month out, and they syndicate all of them, so they know how to do it properly and have many regular syndication partners they can introduce you to. This is great because of the valuable connections you will meet, in addition to the time you will save if you would have had to try to hunt down these individuals on your own. Working with groups can be demanding, but not when you consider the alternative: how many gallons of coffee you would have to drink to meet with all of those investors 1:1? The groups are powerful people concentrators and you should take advantage of every single introduction offered. You have to follow-through, however; you cannot rely on your lead investor to do all the work for you.
Because it is your round to fill, your best approach is to own the process while leveraging support from your lead investor. For example, sit down with your lead investor and put together a strategy to support multiple waves of introductions. Work together to identify and prioritize which introductions to do in the first wave, and in the second, and any in subsequent waves. Prioritize them by fit and value-add and don't chase second tier investors (i.e. those with less fit and value-add for your company) until you are sure you will need them and have room in the round for them.
Once the introductions are in place, take ownership of the process of getting that money in. This is an important handoff because, in addition to your deal, your lead investor will have many other deals they are working on at the same time. From a role perspective, think of your lead investor as a source of advice and introductions, not as a staff member to go and get the money for you.
Another very time-efficient way to find syndicate members is to keep your eye out for regional syndication events held by local angel groups and startup support organizations. However, in your enthusiasm for taking advantage of these events, it is also important to be very cautious of for-profit conferences. These events use a "pay to pitch" model. It is generally advisable to stay away from these events unless you've heard firsthand feedback from a CEO who has used the conference and can vouch for its value and legitimacy. In the United States, the Angel Capital Association can be a fantastic resource in finding events and groups to work with. In addition to formal events, the local angel groups in your region may also get together regularly and informally to network and share deals. These can be a great resource and you can find out about them by networking with the angels you meet.
Finally, it may also be possible to meet investors by listing and marketing your deal through an online platform for accredited investors. But, again, be careful about the platform and the model. If you go this route, do your research. Online platforms vary in terms of their success rates and the quality of the investors you will be introduced to. In most cases, personal introductions by your lead investor and other 1:1 networking are going to be your best bets.
Understand How Investors Think
Having a strategy in place and doing your research to focus your efforts is important is because it leverages your time, and as noted, time is of the essence when you are syndicating a deal.
Why is time so important? A key risk of taking too long is the risk of letting the deal become "over-shopped." This happens when investors hear about something over and over again and begin to suspect the company is having difficulty raising money. The stigma that results from this perception is extremely hard to overcome. When you get pitched all the time as active angels do, you are always wary--you tend to live in filter/triage mode, and it is human nature to quickly get tired of hearing about something you have already mentally processed.
The best way to get investor attention and to catalyze action is to enhance the perception of scarcity. Nothing gets an angel to move quicker than the fear of missing out. You can obviously project this if your round is nearly full and the scarcity is real. However, there are also ways to "manufacture" a little scarcity or urgency.
For example, after a first close you might choose to communicate that the company raised enough in its first close and therefore is going to have its second and final close on a specific date. The key is firmly communicating that you will be closing on a specific date regardless of the additional amount raised, or whether people are in or out. The idea here is to create certainty (i.e. date) from vagueness (i.e. total amount to be raised) and use that certainty to your advantage. No matter how you close the first round, creating the perception of scarcity is essential. At the same time it's important to avoid overdoing it. Investors are very experienced at recognizing when they are being gamed by a fast-talking entrepreneur who is just hustling to get some people into an under-funded round. So be authentic, straight-forward, "non-salesy" and professional.
Professional communication with investors also helps to build credibility. That's why it is important to create and use a tracking system to help you remember to circle back to early contacts. As the process evolves, it is often worth revisiting early introductions. For example, although some investors may not be comfortable as a first-mover, they might be much more interested and enticed to act once they learn that a large amount of money has been committed by quality investors and the round has momentum toward a final close.
Raising money through syndication is an exhausting distraction from the business and you need to get from start to finish as fast as possible. Remember, the longer you are out raising money, the greater the chance that you will let the underlying business falter and sputter, which only makes raising that much harder and longer. Knowing where to find investors and how to leverage engagement quickly is critical.
One final trick for spurring action is to always be ready with a professional closing package. When an investor expresses interest, you need to be ready to move quickly and get them the documents and instructions they need to invest without delay. Remember how investors think--we're highly active and can become distracted by the next new, shiny opportunity. So be ready to engage up before we're on to something else. Next up is our final installment in this syndication series--syndication traps to avoid.