Adapted from an article originally published by the author in Inc. Magazine.
Filling out a round through angel syndication is something deal leads and 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 other investors enough to start writing checks, and doing this as quickly as possible so that the CEO can get back to her real job, running the business.
Leveraging Angel Groups, Online Platforms and Events
When time is of the essence, professional angels in groups can provide the scale you need by engaging 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 may have other syndication partners they can bring into the round. This is great because of the valuable connections your CEO will meet, in addition to the time she will save in comparison to trying to hunt down these individuals on her own. Working with groups can be demanding, but not when you consider the alternative: how many gallons of coffee would your CEO 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 connection you can make. As lead, however, you should take the time to understand their meeting schedule and timeline to be sure they are going to be able to move within the the timeframe you have established for your deal.
When planning outreach to other investors it is best to sit down with your CEO 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 have your CEO chasing 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, make sure your CEO takes ownership of the process of getting that money in. This is an important hand-off because investors want to work with CEOs; it is not the job of the lead investor to do the fund-raising for the company. From a role perspective, think of the lead investor as a source of advice and introductions, not as a staff member to go and get the money for the company.
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 for deal leads to steer clear of these events unless you’ve heard firsthand feedback from a CEO who has used the conference and can vouch for its value and legitimacy. Many investors view these events as the last resort of desperate companies and you could give your deal a bad stigma, or attract very low quality investors, if you get involved in these kinds of events. In the United States, the Angel Capital Association can be a fantastic resource in finding good 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.
Be Self-Aware About How Investors Think
Having a strategy in place and doing your research to focus your efforts is important is because it leverages the CEO's time, and as noted, time is of the essence when a company is 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 which results from this perception is extremely hard to overcome. As you know from your own experience, 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 the attention of other investors, and to catalyze action, is to enhance the perception of scarcity. Nothing gets another 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 deal lead or 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 other investors also helps to build credibility. That’s why it is important to create and use a tracking system to help the CEO 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 your CEO from start to finish as fast as possible. Remember, the longer you are out raising money, the greater the chance that the underlying business will 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, the CEO needs 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 your CEO should be ready to engage up before the investor is on to something else. Next up is our final installment in this syndication series – syndication traps to avoid.