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Advice Entrepreneurship Startups Venture Capital

Founders Doing Due Diligence On Investors

Doing due diligence on investors is something that should be discussed more frequently. It’s important for founders to take the time to understand who the investors are, how do they help and support the companies they invest in, how do they react when things aren’t going as well as hoped for.

Spending some time doing due diligence on potential investors can save you lots of grief in the long run. I’ve talked about this often and it’s great in theory but it’s not as easy to do in person. Now that I’m back on the operating side of a startup, here are some tips on how to diligence possible investors:

  • Start with making a list of the investors you think would be interested in your startup keeping a few broad things in mind (use a spreadsheet or a CRM)
    • Vertical the company is in and is the VC firm + partner interested in the space
    • Stage of the company and does the firm invest at this stage
    • Check size that you’re looking for and what the firm writes
    • Any existing competing investments that the firm has made
  • Find people you know that may be connected to these individuals
    • Have a prepared email that you can send to the people you know who can possibly connect you to these investors. The email should be a very short email that explains why you would like to connect to the investor, a summary of your startup and have a teaser deck attached. Some people like to use DocSend but I prefer a PDF.

Once you’ve exhausted your personal network, find 5-10 founders that the firm and the partner have invested in (ideally should include failed startups).

  • Reach out to them on social media, via common contact or a cold email to see if they will chat with you about your startup and provide some advice on your round as well as share some info about the investor(s). If they say yes to a meeting, do some research on them, e.g. understand what their startup does, maybe check out the product, use Crunchbase to get an idea of some of their investors, how many rounds they’ve raised, you can use tools like Workomo (shameless plug) to get some background about them and common interests you might have.
  • Founders can be very open with other founders. Do what you have to in order to maintain that trust. Use the meeting to do your due diligence on the investor. Ask the founder about the firm on your list and how they were to work with through the ups and downs. Make sure you are clear that this is confidential and DO NOT repeat it to anyone, even in conversation. Don’t be shy about getting into details as long as the founders are comfortable sharing. Don’t pry but don’t hold back on asking the questions you think will help you get an understanding of who the investor is and how they work.

In short, make sure you take the time to do your due diligence on investors. It’s critical to know who you’re potentially partnering with for the duration of your startup.

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Startups

Cold Emailing Venture Capitalists and Angel Investors

Although most people recommend getting an introduction to a VC or an angel investor, it is sometimes necessary to send a cold email. Here are some thoughts on how one could frame those emails.

This is what I think the basic structure of the email should be:

  • Why you are reaching out
  • How your startup is of interest to the individual.
  • A little of your background, establishing some credibility.

Example 1

A great example of an email from a founder to an investor is:

Hi Pankaj,

I am physician entrepreneur and I run a health tech startup, <STARTUP NAME>, focused on the digital health space with a focus on diabetes. I sold my previous startup in 2015 and started this company in 2016.

I believe you will find our startup interesting because it has measurable traction, we’re going after a massive market and we’re a team that’s been working together for more than a decade.

We are in the process of raising a series A round and are looking for strategic angels that can help with international growth, business strategy, and ecosystem building. Attached is a teaser deck for your review. I would be delighted to setup some time with you to go through the business in greater detail.

In this example, the founder starts with a quick introduction and continues by adding a little about his credibility, being a physician, and selling his previous startup.

He then explains why this deal might be of interest to me. He might have done a little research or watched previous episodes of Invest Stream to know that I want to see traction in the companies I invest in, as well as, a large market size. He also knows that I care about the team and how well they work together.

He closes with why they would like me to consider investing and attaches a PDF. There’s been some debates on Twitter about the use of PDFs vs. using services like DocSend. I prefer PDFs so I can scribble notes on them and save them for posterity 🙂

Example 2

Hi Pankaj,

My name is Dr. <FOUNDER’S NAME>, co-founder of <STARTUP NAME>, an intelligent telehealth platform.

<STARTUP NAME> is an AI telehealth platform helping doctors to complete clinical documentation accurately and efficiently instead of manual, sloppy, unreadable notes. With <STARTUP NAME> providers have increased productivity and the amount of time they can spend with patients by almost 60 hours a year and are, thus, increasing their revenue by more than 100k annually.

Knowing your investment in <PREVIOUS INVESTMENT>, I think you might be interested in knowing more about <STARTUP NAME>, and what we do with AI to help physicians to be more efficient with their time.

Some of our numbers:

  • 50% MoM
  • +5K consultations
  • +50 physicians subscribed to our platform
  • +10 medical specialties

We are raising our Seed Round, and we would really like to show you more of what we are doing and get your feedback.

Let me know if I can send you my deck, or we can jump on a call next week.

I hope to hear back from you soon,

In this example, the founder introduces himself (also adding credibility that he’s a physician) and gives me quick intro to the company and the problem that it’s solving.

He also shares some of their traction information and shows that he’s researched me before dropping me a cold email (referencing a company I’ve invested in previously).

He then shares what stage they are at and why he would like to talk. I would have preferred if he sent me the deck or a teaser deck but it’s not the end of the world. 

What other examples do you have of a cold email you’ve sent out that’s worked well for you?

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Angel Investing Business Entrepreneurship InvestStream Video Startups Venture Capital Video

How are Pre-Seed and Seed Changing in 2020?

A lot is changing in the startup world. Even before getting hit with COVID-19, the definitions of pre-seed, seed, post-seed/pre-series A were changing at a fast clip. Many early-stage VCs were moving downstream, writing larger checks and investing in later rounds. At the same time, larger, late-stage VCs were either ramping up their scout programs and investing earlier than every before, other VCs were directly investing earlier and earlier. From Silicon Valley to New York City, this has created new opportunities for some, while creating additional competition for other investors.

Join us on the next InvestStream Live on June 9th, 2020 to hear two well known early-stage VCs discuss how they see the landscape changing over the next six to twelve months. What will this mean for the number of deals getting down, the size of the deals, the check sizes and more.

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Shruti Gandhi is the Founder of Array.VC, a Silicon Valley based venture firm investing in category-leading startups that take advantage of data, analytics, workflows, and new platforms to change the way an industry works.

Paul Sethi is the Co-Founder of 2048.VC, a New York City based venture firm investing in founders who are creating companies that have differentiation and defensibility through technology. They are geographically agnostic but invest in enterprise SaaS, AI/ML, FinTech, HealthTech, Cybersecurity, Dev tools, Hardware, Genomics, Marketplaces, and B2C/D2C in cities like NYC, Boston, Atlanta, Austin, Toronto/Waterloo, Nashville, Pittsburgh and more.

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Angel Investing Business Startups Venture Capital Video

The Raise / Episode 110: Who To Raise From & How To Reach Out

Once you’ve reached the point that you’re ready for venture, your biggest responsibility is to organize and execute a fundraising process with the right people and the right intensity.

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Angel Investing Entrepreneurship InvestStream Video Startups Venture Capital

Watch the equity dilution in your startup!

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Raising money for a startup has become a default option for most founders. Very few even consider bootstrapping anymore. That’s neither a good or bad thing and not the point of this post.

Unfortunately, not as many founders or investors discuss equity dilution as much as they should. Too many startups give up too much equity in their startup before their series A and I often see good companies struggling to raise a series A because of too much dilution early on.

What do you think is a reasonable amount of dilution going into a Series A and after closing a Series A?

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