Principle: Nothing says “I can’t hustle” like a paid introduction.
A lot of young founders looking to raise seed funding for their startup go through the following thought process:
- I need to get in touch with investors, but I don’t know any of them.
- Well-known Startup Lawyers must know investors, and I need one anyway;
- Therefore, I should ask the Startup Lawyer that I hire to make some investor intros for me.
The logic here isn’t bad. In fact, some startup lawyers emphasize their strong relationships with investors as a marketing pitch to companies. Unfortunately, those relationships are sometimes too strong.
Yes, good startup lawyers do know many investors, and yes, they certainly can make investor intros. The truth is, though, you shouldn’t want them to. Before I explain why, a bit of background facts:
- Startup investors, particularly VCs, receive hundreds, maybe thousands of pitches every year.
- There are very few areas of investing that carry as much uncertainty/risk as startup investing.
- Therefore, investors rely on as many signals (shortcuts) as possible for filtering out founders that can’t build a successful business.
- The ability to hustle (related to and including networking) is extremely important for a startup team, or at least the founder who will play the CEO/business role of the startup (investors will excuse a technical co-founder who sits in a closet all day coding); and
- Finally, VCs often intentionally make themselves difficult to get ahold of as a way to test (find a signal for) the networking skills of founders.
As a sidenote: cold calling/e-mailing VCs almost never works, for the above reasons.
So here’s the big issue: if you type a well-known investor’s name into LinkedIn, there’s a 99% chance that you’ll find 100s of different “paths” to get an introduction to that investor. Twitter also often helps. Now, of all those paths to an intro, what do you think it signals to the investor if the only person you could find to introduce you is someone you’re paying? The first thing that will run through that VCs mind will be something like “huh, well, putting aside the actual business idea, the founder clearly sucks at networking.” That’s not a first impression you want to make.
A second thought might be, “maybe they’re not bad at networking, but just couldn’t find someone to sincerely recommend them.” You get the idea. Having your lawyer introduce you to investors isn’t too far off from having your mom write you a reference for a job.
What good is my Startup Lawyer then for helping get investment?
Does this mean whom you hire as your Startup Lawyer is irrelevant as far as finding investors is concerned? No, it still matters, just in different ways. A knowledgeable startup lawyer can help with (i) how to approach particular investors, (ii) making recommendations as to which investors would be better targets, and (iii) signaling to investors that there’s been some “adult supervision” in the Company’s development to avoid legal land mines.
Because reputable startup lawyers are (often) selective as to whom they represent, a good startup lawyer can also signal that, by representing you, he/she at least thinks your startup has good prospects. Granted, a lawyer’s business judgment isn’t exactly on par with Warren Buffet’s or Paul Graham’s (obviously, he wouldn’t be lawyering if it was), but it’s something.
Nutshell: Ask your Startup Lawyer for suggestions on whom you should seek intros to, and on how to do it, but don’t ask him for the intro itself. It’ll just make an investor think that, because you resorted to a paid intro, the company lacks a competent hustler. Nobody wants to invest in a hustle-deficient startup.