The Art of the Introduction

This post is by Chris Fralic, a managing partner at First Round Capital. 

I’ve been a VC for about 4 years now, and I do a lot different things in my job. But I’d have to say that making introductions, asking for them, and being introduced is something I do every single day. In fact, I looked through the 12,403 emails I sent in 2009, and 2,603 or over 20% contained the word “intro” or “introduce” or “introduction.” Along the way I’ve noticed there are some best practices, so I’ve put together a Top Ten list here from what I’ve learned.
Some qualifiers: First, this is for email introductions only, and focused on busy people who live and work in email. Second, it helps to have a personal reputation – it’s not just the words or format in your email, but it’s about who you are and the previous experience others have had with you. In the post below you’ll see I’ve called the person asking for the introduction the Subject, the person you’re trying to reach or making the introduction to is the Target, and the person making the introduction is the Connector. So let’s get started with a practical guide to The Art of the Introduction to help you increase your effectiveness, reduce your inbox load, and have people look forward to responding to your introductions.
1. SUBJECT LINE MATTERS This one is a big one – DO NOT use just “Introduction” or “Intro” alone as email subject line. That’s the equivalent of sending a resume titled “resume.doc” – it says nothing. You should have the names and company names of both people being introduced in the email subject line.
2. WHAT’S IN IT FOR THE TARGET? Ever hear the line about everyone’s favorite radio station? WIFM – What’s In it For Me. WHY should the Target care about this introduction? Put it in the first sentence or paragraph. Another way to look at it – is there any evidence in your email introduction that you know anything about the Target whatsoever?
3. CONTENT MATTERS Are you being specific enough about what you’re asking the Target to do, and are you actually saying what your company does? If you’re looking for a job or career help, did you attach your resume? If you’re introducing your company, did you attach a deck or executive summary or at least a paragraph explaining what you do? Links are not enough – they’re generally useless if the person reading it is on a Blackberry or on an airplane.
4. MAKE IT EASY TO REACH YOU Consider having your email signature (and your reply signature) contain all of your relevant contact information. You want to be one click away from a call or email. Every deck or executive summary should contain your contact information on the first and last slide.
5. MAKE IT EASY TO HELP YOU DON’T just verbally ask someone to make introduction – the follow through rates on those are usually low, and it puts too much work on the Connector. A best practice is to craft an email from the Subject to the Connector that contains EVERYTHING and can be easily forwarded to the Target (from the road a Blackberry, etc.)
6) CREATE FIREWALLS This one needs some explanation and some caveats – if the Connector is really close to both parties or has achieved a certain level of relationship with the Target, it can be fine to introduce both parties directly. But it often makes sense to consider the benefits of using a “Firewall” – the best/easiest example is via LinkedIn where it’s easy and completely up to each party to forward or accept the Introduction. Another alternative to a direct introduction is for the Connector to forward information to the Target to see if they’re interested first.
7. “LEAN FORWARD” ON YOUR RESPONSE When someone engages on a response you can really tell – it makes a difference and gets the ball rolling (e.g. offering some quick insight into the problem or opportunity at hand, offering multiple times/places to meet, etc)
8. CLOSE THE LOOP But don’t create an endless loop – don’t copy everyone on each of the 12 emails it takes to find an open time to talk. Instead…
9. EMBRACE THE BCC Blind Carbon Copy is the most powerful and least used feature in email. One simple BCC lets the Connector know that the introduction has been received and is under way.
10. EVERY INTRODUCTION CAN BE A WIN/WIN Help people out when you can and be honest and helpful even if you can’t.
I hope you find something useful here, and I’d love to hear about the best tips you’ve learned as you practice The Art of the Introduction.

The Top 30 Venture Funds And The Also-Rans

The Top 30 Venture Funds And The Also-Rans: "Amid talk of a potential rebound in venture returns, a leading fund-of-funds manager poured cold water on the asset class at today's Dow Jones Limited Partners Summit in New York.

Venture Capital – An Entrepreneur’s View by Tom Evslin

For those of us who start a new company rather than look for a new job, it’s important to understand venture capital and venture capitalists.  One of the best ways to understand the mind of a good venture capitalists (there are, of course, good VCs and bad VCs) is to read Fred Wilson’s blog (avc.blogs.com).   Fred gives the VC view in an ongoing blogosphere debate but he scrupulously points to opposing views.  His latest post specifically on this is Fixing Venture Capital and has a worthwhile comment thread below it.

Lesson #1: there are times when raising venture capital is a bad idea.
One question under debate is:  “is venture capital a good or bad thing?”.  This is a pretty silly question since the answer depends purely on the circumstance.  If you don’t need capital, then raising it through a VC or in any other way is a bad idea.  You sell (“give away” from an entrepreneur’s point of view)  part of your company when you raise venture capital.  You cede a significant amount of control over the future of the company, particularly over future financing.  Most of us entrepreneurs are control freaks – that’s why we start companies in the first place – so losing some autonomy is no little thing.  One of the best things a VC ever did for me was show me that the company I was running at the time didn’t need any capital.  It was his way of showing me to the door, but he was right and raising venture capital at that time would have been a mistake.  A good VC will tell you if you don’t need funding.

Lesson # 2: there are times when it makes sense to raise venture capital.
But there are times when venture funding from a “good” VC or VCs is absolutely the right thing for a company.  ITXC, the Internet telephony wholesale carrier that my wife Mary and I started, was venture funded and benefited greatly from both the funding and the association with the VCs, one of whom was Fred Wilson. 

We were in a business that runs on capital: even a “virtual phone network” requires equipment to operate.  The business allowed us to leverage the intellectual property we developed for making acceptable-quality voice calls on the untamed Internet (this was 1997) but developing and deploying  technology as well as signing up initial customers is a capital-intensive activity.  In a network business, you will always lose money until you get to a critical mass of customers (a consequence of Metcalfe’s law is that small networks are economically inefficient) so again there was a need for capital to get to critical mass.

We were initially too small to go public or to borrow big, even in the halcyon days of the late 90s.  We had stretched our own out-of-pocket financing and vendor financing as far as we could.  We were too big for angel financing.  So venture funding made sense.


Lesson #3:  raise your venture funding as late as possible.
It certainly helped that, for the only time in my long career, there was more money around than ideas. Mary did a great job of PR when we launched the company and I had some notoriety from AT&T WorldNet and Microsoft so people knew we existed.  VCs were calling us!

We held them off for a while (in normal times you won’t have this problem unless you are a serial startup success).  We told them, truthfully, that we didn’t have a business plan ready.  We also had enough money initially so we felt it was better for us to prove some of our business plan before negotiating for a VC round of funding.  We closed our first venture capital round after going live with our first customers.  We got a better deal – kept more of the company – because some of the risk had already taken, some of the concepts had already been proved, some customers were already paying real money.

Our deal came close to collapsing when AT&T pulled out as a venture source at the extreme last minute but survived, I think, because the business was so far along.

Lesson #4: pick your VCs well.
We also used the time our initial capital bought us to talk to lots of VCs.  It turned out that West Coast VCs including some of the great ones didn’t really understand or like service businesses.  We wrote software but we sold wholesale phone calls.  In the end our major VCs were Chase frontended by Flatiron Partners (that’s where Fred Wilson was then and where I met him) and Spectrum Equity from Boston.  Flatiron was a quickly emerging major firm in Silicon Alley in New York with a good understanding of Internet businesses and Spectrum was well-versed and well-invested in existing communication businesses.  We also had investment in this round and our next one from Intel Ventures, the Israeli firm Pitango, and VocalTec, the firm that practically invented Internet telephony and which supplied us with much of our equipment.

VocalTec’s Chairman and CEO Elon Ganor  had encouraged me to start ITXC and helped think the business through because he reasoned – correctly – that successful VoIP companies were necessary for the success of a VoIP equipment supplier like VocalTec. For this same reason, VocalTec provided both angel and venture round funding.

Your VCs will monitor what you do with your money closely.  Some of them will end up on your board.  Fred Wilson, Elon Ganor, and Bill Collatos from Spectrum joined CFO Ed Jordan and me on our board.  If they had not understood related businesses well and not been willing to learn with us as a new industry emerged, it would have been impossible to run the company.  Sure, there were times when I wished that just Mary and I and the increasingly good executive team we were putting together could debate every question; in fact there were times that I would just as soon have made very decision myself without debating with anyone. 

But companies can’t really grow well that way.  My board was sometimes in the way; much more often it was helpful.  I know many other companies where a mismatch between the capabilities of the VCs and of the executive team have led to paralysis. Incompetent VCs, of course, are a disaster.  A good VC, like a good startup CEO, must be able to learn and adapt!  Sure, you all agreed on a business plan before they gave you the money and you ceded absolute control over your company.  And, just as surely, at least half the assumptions that business plan was based on will turn out to be wrong as well as many of its conclusions.  If your VCs won’t let you – won’t help you – adapt, you’re toast.

So You Want To Be A Millionaire In Three Years…

So You Want To Be A Millionaire In Three Years…: "Don't worry, this isn't some get-rich scheme inspired by a Kevin Trudeau late-night infomercial. But it's a question on the mind of many entrepreneurs who are looking for practical advice on how to get rich quick. One founder has a few good tips.

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Angel Investors - from TeenAnalyst

For those of you who think you have the next big thing, remember that you will need large sums of money to start it up. Depending on the idea and the industry its involved in, preliminary costs could run from a few thousand to a few million dollars. Of course, the first place to look should be close family and friends. However, if costs start to run up and going to your rich great-uncle is out of the question, then the next best thing to do is to look toward venture funding or an angel investor. These two options are some of the most common sources of money for a start-up company. While both are available resources, they are both different from each other in many ways.
Angel investors are private individuals who provide seed capital for a start-up company. They typically provide around a few thousand dollars in seed money to help get an idea started. While angel investors probably are looking for a positive return on their money, meaning they hope to earn at least their initial investment back over time, they typically are laxer on this issue than corporate backers. Some angel investors are simply wealthy individuals who enjoy helping bring a good idea to fruition. An angel investor usually works in close contact with the start-up company and can provide some personal attention to the job of building a business team, which is always good.

Venture capitalists (VCs) are an entirely different breed from angel investors. While angel investors are private individuals, venture capitalists are full-fledged partnerships and companies devoted to start-up and small company funding. They can range in size from tens to hundreds of people and command multi-millions in annual funding. When dealing with venture capitalists, one needs to understand that like their namesake they are "capitalists." VC firms survive and profit from making investments in companies that pay back in multiple returns over the long run. VC firms take their investments seriously so be prepared to be closely scrutinized. Of course, the pay-off is sweeter with initial funding from a few hundred thousand dollars up and further investments in the millions. To help you on your journey toward finding start-up money, here are some tips on dealing with VC firms. No matter whether you are a Silicon Valley start-up looking on Sand Hill Road or a clothing venture in Boston, some basic rules apply.

It's important to keep in mind that venture capitalists are looking for two things: a big idea and the market to make it work. In VC definitions, for something to be a big idea it must satisfy at least one of three criteria. It can bring up a new problem and show how to solve it. The idea uses old technology to provide new capabilities that couldn't be realized before, or the idea improves on the old by a large magnitude. It's not enough just to have a big idea, the VCs are also looking for the right big idea that fits within a big market. Typically VCs fund start-ups that enter into a market with a clear potential minimum of one to two billion dollars. The reasoning behind this is simply that most VCs look conservatively for at least ten times return on their investment in five years. With a larger market it's easier for a fledgling company to capture enough of a percentage to provide the VC with a healthy return. Usually the problem is not that your idea doesn't fit into these categories, but not being able to convey this information. Be sure to look over your business ideas and highlight how it fits into the VC model before confronting them. Coming prepared with a clear idea of what they are looking for helps.

Some final tips to remember when speaking to venture capitalists
When you present an idea before VCs, the first thing you need is credibility. Be sure you have a thoroughly developedbusiness plan and back up the market potential of your idea if possible with research. Get a professionally looking presentation or even spend some money on consulting help. However, something that money can never buy is confidence. You must show knowledge of the industry and above all the personal spirit and potential to make a successful venture. Remember to be persistent but respectful whenever trying to sell your idea before a VC. Chances are that success won't come the first, second or even tenth time you go before a VC firm. Nevertheless, with every failure comes a chance to learn from your mistakes. In the typical hectic lifestyle of our business world, your first confrontation with a VC may last only five minutes followed by a swift rejection. However, if you ask what about the presentation they didn't like, chances are that very same person would spend fifteen minutes with you going over strengthens and weaknesses.

The key to getting your idea from just an idea to an actual finished product is persistence. With persistence in finding funding, the right business model, and a little luck you will have yourself on the right track.

Place Your Bets Now: Batteries, Biofuels Or Natural Gas

Place Your Bets Now: Batteries, Biofuels Or Natural Gas: "At a energy conference, executives debated whether future vehicles will end up running on biofuels, natural gas or batteries.

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The Daily Start-Up: Casting Light On Health-Care Costs

The Daily Start-Up: Casting Light On Health-Care Costs: "In this morning's Web roundup, venture-backed Castlight Health looks to shed light on the opaque world of medical costs. Also, reaching scale fast is more important to biofuels start-ups than the strength of their intellectual property, conference speakers say. And Second Life gets its second wind.

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The Daily Start-Up: Showing A Founder The Door

The Daily Start-Up: Showing A Founder The Door: "In this morning's Web roundup, Fred Wilson incites a fiery debate on his blog after he writes about how and when to part with a founder. Outspoken angel investor Chris Dixon fights back. Also, Kleiner Perkins luresHulu's CTO, while Polaris Venture Partners slogs through fund-raising.

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Dealing With Venture Capital Brokers

Some people do not have enough spirit or experience to do high-risk investment, so they turn to venture-captical brokers or agencies. Herewith are something you should know about venture-capital brokers. Read below to know more about dealing with venture-capital brokers.


You want to buy a new company, expand operations, acquire a business, or raise capital. You’ve decided to go for venture capital funding versus a bank loan for a multitude of reasons from the risks involved to the amount you need to carry out your plan.

Do you know as much as you’d like about gaining capital? Most people don’t. Their expertise is in their business, not in capital funding. Here are ways to protect yourself from vultures, deals you can’t afford, and the nightmares of both.

Some quick explanations:

A venture capitalist (VC) is a person, group of people, company, or group of companies with money to invest in your business.

A VC broker represents you (or possibly a VC) and arranges the parties to create a deal. This article is about working with the broker.

Since many brokers are ethical, why such a negative slant? Over two months, two of our consulting clients nearly lost their shirts dealing with brokers. One broker tried to quadruple dip on a VC deal by taking a commission, bringing in another broker (who needed a commission), taking excessive points on growth targets, and adding interest fees into a contract making the deal impossible. Had our Boston-based client signed with his current and (estimated) future numbers, his decade-old business would have perished.

Another broker wanted a client in Connecticut to sign a broker-exclusivity contract, forcing our client to pay commissions on any type of financing, regardless of whether the deal originated through the broker or not. If an SBA loan or unrelated VC came through, our client would pay $400,000 in unearned commissions.

(With each client, the broker used four or more of the nine strategies below that would be harmful to your fulfilling your capital needs.)

Every deal has its own merits and challenges. Regardless, nine general tips to consider are:

1. Don't sign exclusivity contracts barring you from finding your own funding. A) On one hand, a broker has every right to protect his intellectual property by preventing you from bypassing him and striking a deal with one of the contacts he’s introduced you to. B) On the other hand, beware of anything preventing you from gaining funding from any other source without going through the broker.

2. Avoid long-term cancellation clauses that hold you hostage for a year or more. Sixty to ninety days is reasonable. You’ve got to be able to move on. A broker’s objective in creating a long cancellation clause is to prevent you from securing funding with the VC they’ve introduced you to while at the same time making it difficult for you to find any funding. Keep your options open and agree to 90 days giving you time to find new opportunities.

3. Prevent double dipping. A savvy broker has multiple compensation channels: initial commission, commission on additional funding you get during a 1 or 2-year term, compensation if the business is sold during specified time frame, percentage of interest on monies lent, etc. Read fine print, several deals that have passed over our desks in the past 6 months have had hidden compensation clauses that would have made any deal difficult to swallow had they had signed with the broker. (Have legal representation from an expert in VC funding.)

4. Know the type of funding you want before you start searching, and bind your broker to the specifics with a contract. Looking for a VC with an equity position who wants shares and is interested in growing the firm, or do you just want financing? Initially, the two can appear similar. In one VC deal, the company looking for funding thought they were getting an equity partner, but the VC only wanted to achieve 3.5 times their ROI in 5 years in monthly fees and interest. The final terms of the agreement: the “receiver” would get $2.9 million, but would pay back $6 million in 5 years. It was not the deal he expected.

5. Remember that VC funding is all negotiation--between you, the VC, and the broker. First, never let the broker think that you don’t have other options. If they think you’re between a rock and a hard place, you’re in trouble. Second, VCs know the financing game in and out, and often they will tell you the deal is dead and not call back for weeks just to get you hungry. Sometimes the broker is in on this strategy. You must be patient. Third, even with contracts, the broker may only secure a few deals a year to make a great living. If they’ve invested four months on the project, they want the deal as badly a you do. Then ask for concessions. Realize they might jump up and down and scream as part of their negotiations. It’s a common strategy; look past it. In every deal, conditions change, and you must remember that commissions, fees, and terms can also change.

6. Know your broker’s loyalty, and make sure it’s to you, not to the VC, or solely to the broker’s own best interests. Think of real estate. The seller’s agent’s loyalty rests with the seller: the buyer’s agent’s with the buyer. Work only with people you trust.

7. Be careful of brokers in disguise. Some mask themselves as venture capitalists and yet have no money. What’s the problem? You think you’re working with an investor whose income is contingent upon the growth and success of the deal/business; in fact, you’re working with a commissioned salesperson who hasn’t invested a cent in the venture and only stands to gain as long as he links two parties. The only way you may ever know is when the deal is being written up and you catch the fine-print line for commission to XYZ firm.

8. Use a VC’s leverage if the broker is unreasonable. One of our clients worked with a broker whose stubbornness kept on getting in the way of the deal. Everyone was giving in a little to make the package work. Our client told the VC he couldn’t afford the deal, because the broker was not participating in the concessions. The VC (with greater financial leverage) wanted the deal enough that he negotiated a compromise with the broker, and everyone was happy.

9. Lastly, brokers, like you, are looking out for their own pockets. To combat this, try to put more emphasis on bonuses based on the long-term viability of the funding and the growth of the business rather than solely on the introduction. Incentives encourage brokers to build the most potentially successful deals.

Most brokers are ethical. They don’t want to take you to the cleaners. Their future successes rest on their reputations for making good deals. But just in case you get a vulture, you now have ways to find out early and prevent yourself from getting in a jam. And as you probably know, always consult with your attorney when entering into a relationship with a broker or investor.

Acquiring capital to fund future projects is exciting and daunting. Although common sense will guide you to avoid pitfalls and seize opportunities, you won’t know everything about this area. Therefore, gaining outside help from experts in this area is wise no matter how many times you’ve done it. After all, you’re strongest doing what you do best: leading and managing your organization.

© David and Lorrie Goldsmith

Raising Venture Capital

Written by Clayton Reeves for Gaebler Ventures

When starting a business, it is sometimes easy to get caught up in the moment after you've grown into a respectable company and are ready to raise venture capital to get to the next level.

You have guided your small company from infancy to maturity, and now there are venture capitalists chomping at the bit to take a bite.

At this critical stage, it is easy for an entrepreneur to be a little too excited about the prospect of his or her company really taking off.

However, it is important to understand the terms used by venture capitalfirms and the ways in which each respective venture capitalist operates. After all, at the end of the day, many of them are only interested in a dollar or percentage return.

A business, in contrast, is the entrepreneur's labor of love, so it will be your job to protect it with due diligence on the VC terms and the VC firm itself.

Things to Watch Out for When Dealing With VC Firms

Some people in business often stretch the truth to the breaking point. It may be nice to believe that everyone has morals, but it is simply not the case. When dealing with expert investors, there are several things that you should look for.

The VC phrases outlined below should be regarded carefully. They may not be "lies," but they are certainly not whole truths. For the sake of avoiding hurting any venture capitalists' feelings, I will call them "untruths" instead of "lies." After all, it isn't nice to call someone a liar.

Untruth #1: "We're sending the terms right now. Once you sign it we will be ready to kick it into high gear!"

In actuality, they have probably just begun looking at every facet of the business to make sure that you are worthy of an offer. Venture capitalistslook through so many businesses that when they finally find a suitable candidate, they often have to string them along in order to give them enough time to perform their due diligence. During this time, the entrepreneur or small business owner really can't do much other than sit and wait. You don't really have a VC firm term sheet until you have it in your hands.

Untruth #2: "We can help you negotiate with investment banks. Our firm is very close to some of the best investment bankers."

Maybe the venture capitalist met an investment banker at a banquet or played a round of golf with one ten years ago. Generally, most venture capitalists will exaggerate the level of relationship between them and the "best" investment banks. They might not even know the name of the front office secretary, but they will tell anyone who will listen that they baptized the CEO's first born. Just be sure that whatever they say to you makes sense; a small firm from North Carolina probably isn't that tight with Goldman Sachs' investment banking division. Probe further to find out who they really have good relationships with.

Untruth #3: "We offer different service for our dollar. You will have a personalized experience!"

Again, you need to investigate this claim to make sure it's true. Most venture capitalists are already on ten boards and constantly search for the next big winner. If this is the case with your VC firm, your company may not have a personalized experience for any extended period of time. Once they are inside, if they feel the investment is doing OK, they may spend more of their time searching for the next big thing.

If they have a lot of capital to invest, they need to find a home for it and this can often be a priority relative to managing existing portfolio companies. In that case, when it comes time to woo Company B, you may end up saying goodbye to any personalized services or value add you may have been enjoying.

Angel Investors

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