A Crowded Space

All Introductions are Not Created Equal

Everyone knows that the best way to approach VCs is through an introduction. Mark Suster points out 4 obvious channels for introductions: lawyers, recruiters, portfolio companies, and other entrepreneurs. There is also other VCs and angel investors. But, from a VCs perspective, all intros are not created equal.  There is a huge difference in my level of excitement for a startup based on the person that makes the intro.  

The point of going through an introduction is widely understood: VCs get tons of pitches and going through an intro is a good first-pass filter.  I take meetings with almost all introductions that are made to me (fire away). But, like I said, I place my own filter on the quality of the referrer.  

Here’s a little inside peek into the way I think about it: 

The questions are:

How good is the deal flow of the referrer? Do they hang out in elite circles? Or are they fishing from the bottom of the well.  The quality of the referrer’s network is usually proportional to the quality / success of the referrer.  If the referrer has had great success, chances are their network is damn good.  In addition, seeing a lot of deal flow tends to increase the referrer’s judgment.  As a species, we’re really good at determining relative strength and poor at determining absolute strength.  So, seeing lots of deals means that you’ve seen enough data points to understand which ones are the best, and hopefully you’re helping those companies out with introductions. This criteria is far more important than how well I know the referrer. I have some great friends that make intros, but I don’t necessarily respect their judgment about startups. 

What is the incentive of the referrer?  Introductions are the social capital of the valley.  What’s in it for the referrer?  I want purely intrinsic motivation.  If the intro is coming from an existing investor, it may be great, but they are also protecting their investment.  If it’s coming from a lawyer, they are probably on the startup’s payroll.  If it’s coming from another entrepreneur who is just a friend, the motivation is to improve social capital by making quality introductions on both sides.  I like it when intros don’t have any financial incentive attached to them. 

So, the 2 key things that matter when I assess the intro: 

1. Quality of Referrer’s Network (their deal flow)
2. Incentive

Disclaimer: I sincerely hope that nobody is offended by the following statements.  These are simply my candid observations from the past couple years.  These statements are all broad generalizations, of course there are exceptions.  I hope to continue receiving deal flow from all of these groups, so please don’t step sending intros. :)

I took a stab at charting out introduction quality on this 2x2 matrix.  The most interesting finding for me was the VC introductions.  It’s possible that the conventional wisdom about VC introductions is wrong.  (conventional wisdom is that VC intros always beg the question ‘why didn’t you invest’ and therefore are a deal-killer)  If a VC that hasn’t invested in a company refers a deal to me, I have to believe that 1) they see a lot of deals, 2) there is some reason they passed, and  3) the motivation is to strengthen future co-investor relationships.  In order to strengthen relationships, you obviously need to send quality introductions.  Therefore, I have to assume they passed because it wasn’t a fit for industry, stage, or competitive reasons, but not because they thought it was a bad business.  

Let’s look at a few categories in more detail: 

Lawyers - I value these fairly low. Lawyers are paid contractors for a startup.  If I’m paying someone and I ask for an introduction to people they know, they’re somewhat obligated to do it to preserve the paid relationship.  Also, since they don’t have the benefit of seeing a lot of the same type of company, they are not great at judging the relative quality of each one.

Bankers - these are the worst. If you hire a banker to try to help raise an early round, it’s the kiss of death.  It reeks of desperation since you can’t get intros without paid help. 

Recruiters - I rarely get these, probably because I don’t know that many recruiters.  I think they fall into the same camp as lawyers though. 

BD folks - these are interesting.  Take for example, a BD director at Salesforce working on the Force.com platform.  They see a ton of startups building apps on top of their platform.  They have inside information about how well these apps are performing in the marketplace.  They have a good instinctive sense of what their customers will adopt and what they will not. 

VCs - As I mentioned above, I think the conventional wisdom might be wrong on this one.  Of course, if everyone believes it then it doesn’t really matter.  VC intros that are looking for co-investors or follow-on investors can be really good intros.  I believe there probably should be more VC to VC intros when someone is passing on a deal and it shouldn’t carry as much of a stigma as it currently does today. 

Angel investors - depends all on how much I respect the angel investor.  Have they done good deals? Are they making the intro because it’s a deal they’ve done and it’s going south? Or because it’s a deal they’ve done that’s doing well and is a unique intro to me because of my expertise.  Is it an angel investor that’s in a ton of companies or is it an angel investor that does a few, focused investments (the latter is better). 

Entrepreneurs that we’ve passed on - We passed.  There was a reason.  These are still usually good and my second favorite source of intros, but it’s a mixed bag.  If the entrepreneur knows me well, there’s a good chance that I was quite interested in the startup and have a lot of respect for the referrer.  If I’ve only had one meeting with the entrepreneur, chances are lower that it’s a strong intro.  You could ask why we passed and that will give you a good hint of whether or not you should ask for an intro from them. Overall, these are my second favorite source of introductions, just be aware. 

Entrepreneurs that we’ve invested in - Well, this is kind of obviously the best. I saved it for last.  We clearly love the entrepreneurs because we invested.  The motivations are very “pure” - they don’t want to send poor quality introductions and will usually apply the strictest filter.  Whenever possible, try to go this route. 

So, my final thoughts: From the entrepreneurs perspective, just know how which introductions are the most powerful and act accordingly.  From my perspective, I welcome all introductions and almost always take the meetings, but the referrer does have an influence on the “starting point” for the startup.  Great introduction - I’m already excited.  Poor introduction - I still need to be convinced.