Dharmesh Shah


Recent Posts

Raising Money On AngelList: 21 Tips From Two Active Angels

By Dharmesh Shah on August 10, 2011

The following is the result of a collaboration between Ty Danco and Dharmesh Shah. Ty is an angel investor and startup mentor (you should be reading his blog). Dharmesh is founder and CTO of HubSpot, runs OnStartups.com and is an advisor to AngelList. [Note: All the smart useful stuff in the article is Ty, all the feeble attempts at humor are Dharmesh]

AngelList (AL) connects promising startups to a sterling network of early stage investors. AL has been getting a blizzard of well-deserved press of late after Venture Hacks released the networks 18 month statistics. But not a lot has been written for startups on how to best use the service. Here's our take in small, bite-sized pieces.good egg

1. The Fundamentals Still Apply As Time Goes By

AngelList may be a game-changer, but most of the same rules are still in place. Angels still look for the same elements in a startup as always: a strong team; meaningful milestones; a differentiated product in a big potential market; capital efficiency and so on. Therefore, the excellent advice listed in OnStartups, Venture Hacks, AVC, Ask the VC, Both Sides of the Table, and the like still applies. What for now is unique to AngelList is the speed and efficiency with which they can harness an all-star network of active investors in front of a breathtakingly large, qualified stream of startups. Whereas B.A.L. (Before AngelList) you could mess up a presentation in front of an investor group and not worry too much (there's always another potential investor around the corner if you look,) putting in a half-baked effort on AngelList is a cardinal sin. First impressions count, so make sure you crush it!

2. There's a great primer already

"How to Hustle with AngelList", by Brendan Baker is the definitive how-to guide discussing how to make it onto AngelList, how to set up profiles, etc. It covers all the basic mechanics and throws in a few proven tactics. If you have time to read only one article on AngeList, that's the one.

3. Talk to People Who Have Had Success

With over 400 companies having raised money on AngelList in its first 18 months, this is easy. As Alex Cook of Rentabilities mentioned in this Boston Globe article, there's a learning curve involved, so make a point of talking to entrepreneurs who have previously used the site before you list. Who has been successful? Here are a few notable companies.

Quora has many dozens of questions on AngelList, as does OnStartups Answers and of course Venture Hacks, whose founders run AL. By the way, there is a high overlap between people who are active on Quora and the community of investors you want to attract.

4. Get a champion first

The first anchor investor is the hardest. Always has been, always will be. And for Angel List, it is important enough to be ranked #1 in Nathan Beckfords excellent post entitled Hacking Angel List. For instance, Rentabilities already was a winner of the 2010 MassChallenge, but they waited until they had won over Dharmesh as an investor/endorser before tackling Angel List. Nivi of AngelList will argue that it is not necessary to have a champion if one has a great team and traction, and he has several examples of this. But we respectfully disagree: just as your odds of success drop dramatically if you pitch to an angel group without already having a champion in the room, the same applies here. So don't launch prematurely. And, even if Nivi is right that you don't absolutely need a champion if you have enough traction and an awesome team, it can't hurt.

5. Don't wait too late in your rounds fund raise before you apply

Localmind is a company I invested in which had no trouble raising money, but they wanted to attract a few more angels with domain expertise and geographical diversity. Within days of listing on AngelList, they had identified 8 strong, deep-pocketed angels, all of whom could have strengthened the company. With only limited $dollars left in the round space left, they could only squeeze in 2. When I asked Lenny Rachitsky, the CEO about what he learned from the experience, he said he had wished he had started working with AngelList earlier.

Whens the best time? Others may disagree, but Id suggest getting your application in when your round is anywhere from 20% to 40% subscribed. With that head start, it should attract interest pretty quickly. If you get oversubscribed, thats a good problem to have.

6. Before launching on AL, mentally assemble your dream team of investors

If you cant dream it, you cant build it. Your ideal team may be 100% angels, you may wish to have some local micro-VC or it might be as simple as a pair of massive VCs and an industry insider. But rRegardless, the majority of investors should already have complementary holdings in your sector.

More importantly, assess what elements you need besides money, because the AL membership has their tentacles everywhere. Knowing what you need but dont yet have not only helps you get it, but it also sends a strong positive signal to angels that you understand your needs. Approaching investors who clearly dont invest in your sector is the telltale sign of a rookie.

7. Research the network, and target your angels

You can use filters to look for angels who have invested in your sector or in complementary companies. I invested in HealthRally because its CEO did just that and found me. While I don't always monitor the AngelList feed (just as you might not stay current with Facebook traffic or a Twitter stream), I got a very targeted letter from Zach Lynch, the CEO of HealthRally. He noted my investment in GreenGoose and other health tech firms, and then made the connection that one of the other GreenGoose co-investors, Esther Dyson, also had committed to HealthRally. Besides showing excellent progress to date on a shoestring budget, Zach demonstrated to me the type of targeted, "rifle not shotgun" marketing discipline that his company will need to land a few strategic partners and megaclients.

8. Get Personalized Intros

Ask all of the angels who are backing you to endorse you to their own followers. If they are not already on AngelList, ask them to sign on and do so. Helping syndicate a round is what angels do, and AL has found that personalized intros from an AL investor get opened far more than a generic profile. This is the original angel skill, (after all, Howard Lindzon calls his fund "Social Leverage" for a reason,) but now it's so simple it can be done to all of an investors AL followers with one mouse click. Using the Rentabilities example, Dharmesh has many people watching his recommendations, and when he gave the company a thumbs up, more than 100 people followed the company, and over 30 asked for introductions. Clout (and Klout) matters.

9. Spend a few calories (and maybe dollars) a good name.

For many of you, AngelList might be one of the biggest initial exposures your startup will have. And, theyre some very powerful people. Its worth spending a little bit of time and energy getting it right (it gets harder to change it later). This is particularly true if you have a consumer (B2C) startup. I guarantee you that folks like Jason Calacanis care a lot about your brand and domain name. I do too. Here are some quick tips on naming a startup. Dont obsess over the name, but its worth investing a little time on this.

10. A video is worth 1,000 slides

No one can tell your story better than you. Make a short killer, video and include it in your profile. I made my first AngelList investment in UpNext after I saw the link to the companys interview on Untethered.tv. If you can, include one. Especially if it can showcase a quick demo.

11. Get your website right first

This should be obvious. Even if you just have a well-done landing page with a good design and a good URL name, it's a plus. Every angel is going to click through, and most won't go further if your website sucks.

12. Remember Inbound Marketing, baby!

Yeah, I know that going through AngelList qualifies as traditional outbound marketing, but sophisticated angels will check on their own to assess your knowledge of the basics. Do you show up in Google search results at all? Do you have mentions in social media? Do you own the company name on twitter and have you tweeted recently? Do you have followers? Do you have an engaging blog that tells your story and has a point of view? Have you checked out your traffic graph on Compete.com and made sure its pointing in the right direction? Face it: AngelList exists because of the Net. You may be able to get away with a sloppy web presence and strategy at a traditional angel group presentation, but that won't fly with the AngelList crowd.

13. Advisors are huge.

Social proof is hugely important in Angel List. I invested through AngelList in Saygent. Why? Not only did I like the schtick, I really liked that they had sought out and won Sid Viswanathan (co-founder of CardMunch and a master at using Mechanical Turk) as an advisor. Currently Im doing due diligence on a company which landed Jason Calacanis as an advisor. Having an advisor like Jason, who is an indefatigable promoter of his portfolio companies (via his interests in the Launch Conference, Open Angel Forum, and This Week in Startups, he sees a TON of companies), shows instant credibility and is a harbinger of future success.

14. Clearly list your price

If you haven't figured out what you want to raise at what valuation, do so now. If you're going to raise convertible debt (although I'm personally not a fan,) say what your cap is going to be. There's no upside in wasting both your time and that of the investor if you're asking a price where the investor is unwilling to go. If you're unsure and you haven't already figured this out with the anchor investor, the AL team can help point to some comparables. Speaking of comparables, if this is your first startup and you're a rookie, try not to over-reach with respect to terms. Just because everyone you talked to so far thinks you are brilliant and your idea is spectacular, don't push for a really high cap on your convertible note. Going from a $4 million cap to a $8 million cap might seem like a 100% increase in valuation, but the math doesn't work that way. Such a move might decrease the number of investors interested in your deal.

15. Use a standard termsheet

Resist the temptation to introduce clever, non-standard terms into the termsheet — even if you think you can get away with them. Two reasons for this: 1) You'll come off as naive or greedy. 2) Even if you somehow manage to sneak these in now, you'll have issues when you need to do your next round. Save your creativity for your product and keep your termsheet clean. If you need an example, you could do worse than the standard financing docs that Y Combinator provides. But, there are others. Ask around.

16. Be ready to pitch on short notice via videoconferencing

This could be via Skype, Gmail video chat, Go2meeting, etc. But you should have perfected all of the logistics and have accounts and slide share materials ready on quick notice. With investors no longer being local, you need to find ways to let them see you and your pitch. Insider secret: Some investors have found a strong pattern that suggests entrepreneurs that respond to late night emails quickly have an edge over those that don't. Lets save the “but work-life balance is important” debate for another article. Meanwhile, you better be working your butt off.

16. Think one round ahead.

Listing on AL now will give you a giant head-start on your next round, as investors who aren't ready for this round may step up for next round. As Mark Suster says, VCs invest in lines, not in dots. Establish the connection for the next round now, and rethink if there are others you may wish to add to your initial target list.

17. Use the AngelList team

Who is more wired in than Nivi and Naval? Who's seen more pitches and knows what works? Once they accept you, get their advice and give it great weight.

18. Know how investors will use AngelList

Here's a similar list of techniques investors use that work especially well via AngelList.

19. Get your backers to register on AL

You want them to comment on you and endorse you. Any angel should volunteer to do this for the good of the company, and they get to build their brand too.

20. Don't game the system

You're smart and love to hustle. We get that. You should do all manner of hustling to make sure your startup gets the visibility it needs. But, don't abuse the community or take advantage of it. It's a shared resource. Just like you, there are many other entrepreneurs looking to connect with great investors on AngelList. Many of them are just as deserving. It's fine to stand-out, but make sure you are adding value to the group, not taking away from it.

21. The best thing you can do is get traction

You should invest time in your fundraising process — it's important. The basics don't take that long. But, don't get too obsessed. Your primary goal is to build a business not build this phenomenal profile and network on Angel List. The most helpful thing you can do to get the right angels on board is to make measurable, meaningful progress with your business.

I'm sure a few of you that are already in the Angel List process are likely reading this.  What other tips would you like to share with the community?  What questions do you have that haven't quite been answered yet?  

Continue Reading

The Benefits Of The Perfect Independent Board Member

By Dharmesh Shah on August 9, 2011

The following is a guest post from Brian Halligan, CEO of HubSpot.

When we were first starting HubSpot, we identified the perfect candidate for an outside board member: Gail Goodman, CEO of Constant Contact. We got a meeting with her through a colleague of mine, and that meeting only reinforced our opinion. At the end of the meeting, I asked her if shed join our board and she politely declined. Crap!boardroom2

About a year later, we raised our Series A round of venture capital from General Catalyst. It turns out that Gail knew and trusted one of the partners at General Catalyst who set up another meeting with her at GC's offices. During that meeting, we talked about the progress we made, answered a bunch of her questions, and at the end of the meeting, I closed so hard that even Alec Baldwin (GlenGarry Glen Ross) would have been proud. To our surprise, she agreed!

It turns out a perfect outside board member is even more valuable than we thought.  Here are the big categories of help she gave us in addition to a ton of little things along the way:

1. Pushed back on our VCs when she thought they were getting too far deep into the weeds.

2. Taught us the economics of SaaS.

3. Approximately quarterly 1-on-1s with me where she'd give me management advice and gentle nudges when she thought I was wrong-headed about something.

4. Monster credibility when it came to fundraising. I never heard anyone say it explicitly, but I know that her being on the HubSpot board sent a positive signal to the folks at Sequoia, Salesforce.com (Marc Benioff specifically asked about her during our pitch to him), Matrix Partners, etc.

The only bad news in this story is that over time, HubSpot's agenda and Constant Contact's agenda have overlapped a bit. HubSpot started as a TOFU (top of the funnel) company and we have recently expanded into the MOFU (middle of the funnel) business where Constant Contact has its core business in email marketing. At the same time, Constant Contact is adding social media features. It is a minor overlap, but rather than have it be awkward at all, we decided to part ways very amicably.

We are going to replace Gail with Michael Simon, the CEO of LogMeIn. I have been following LogMeIn for several years now and admired Michaels work from afar. He was kind enough to agree to a meeting where I told him the HubSpot story and asked for his help. After a couple of months of dancing back and forth, he agreed to join. I'm not good at much, but I think I'm going to end up two for two on the outside perfect board member thing.

Having a perfect outside board member is worth spending real cycles on. My advice would be to make yourself a list of the perfect candidates, network to them, tell the story, and ask for the order. If you get the Heisman, then circle back down the road.

Recruiting a perfect board member is one of those cases where you have to sell. The perfect person is ridiculously busy and has a million reasons to say "no". Think a bit about why the perfect person might want to join your mission, try to find out which reason will resonate, and pound on it during your meeting. Some non-obvious reasons the perfect person might want to join your board:

1. They are working for a bigger company and they think joining a startup board will energize them and give them new ideas (i.e. learn about continuous deployment, learn about the learn startup movement, learn about inbound marketing, learn about mobile apps, etc.)

2. They are interested in working with another of your existing board members (i.e. one of the VCs) for professional reasons that might pay off for them much later.

3. They are interested in working with another board member for personal reasons, like they used to work together and it will be fun.

4. They just like you or your co-founder and think youll be fun to work with.

5. Your stock options [I suspect this is the lowest on the list as oftentimes the perfect outside board member is all set in this department]

6. They are on the other coast, but have a relative in your city that they'd like an excuse to visit more often. 

Try to anticipate some of the perfect board members objections that will come up in your meeting and proactively handle them:

Objection 1: I'm on the other coast and I don't want to fly to your coast for board meetings.

Answer 1: If you join, we could have two board meetings a year on your coast, you can come to two on our coast, and you can do two via telephone. Thats 2 trips per year!

Objection 2: Im way too busy.

Answer 2: You can skip one board meeting a year without worry or care. I promise I wont bother you with more than 1 email between board meetings.

One of the many nice things about being venture-funded is that it sends a positive signal to the prospective candidate that the company has something going for it. In addition, the VCs are good sources of introductions. My advice would be to ask your investor to introduce you to people on your list and, if possible, try to penetrate the entire partnership's rolodex on this effort versus just your partner's network. Another tip Id give you is if you are at any stage of discussions with VCs about a prospective investment, ask them to introduce you to a perfect outside board member -- this is an easy way for them to prove their worth to you and is very valuable.

How about you? Have you got a perfect board member that you want to crow about a bit?  Any tips on recruiting that perfect board member?

Continue Reading

Community

Let's Connect

And, you can find me on Google+, Twitter, and Linkedin.

Recent Posts

Chat with GrowthBot

It's a bot to help you with your marketing and grow. You can research your competitors, improve your SEO and a lot more. http:/GrowthBot.org