Chapter 17

Venture Capital and Angel Funding

In This Chapter

Finding investors

Getting the right advice

Building your management team

Using LinkedIn to get an investor

Searching for investments

Evaluating your potential investments

When you put lots of Internet-savvy, knowledgeable professionals who like to network on a big social networking site like LinkedIn, you're bound to have a community of people who are involved and interested in venture capital (VC), where specific firms provide millions (or tens of millions) of dollars in funding as well as support and board members for emerging companies that want to grow. Or you might run across professionals involved in angel funding, where wealthy investors invest up to a few million dollars of their own money in exchange for ownership percentages in emerging companies. You could say that LinkedIn has VC at its roots. LinkedIn founder Reid Hoffman is an angel investor who has invested in more than 60 companies besides LinkedIn, including Facebook, Digg, Flickr, Technorati, Tagged, and Ning.

LinkedIn has become an important tool for everyone involved in the VC or angel funding industry, from the casual observer to the hyper-extended dealmaker, for many reasons:

• LinkedIn can help entrepreneurs figure out how to connect with a VC firm.
• Entrepreneurs can use LinkedIn to build their management team before a proposal is made.
• Business owners can test their business ideas on fellow first-degree connections.
• VC firms can monitor LinkedIn Groups to get a perspective on up-and-coming trends.
• Experienced business veterans can become LinkedIn Influencers to give advice, encouragement, and a new perspective to first-timers.

In this chapter, I talk about how you can benefit from using LinkedIn when it comes to VC or angel funding, regardless of your role or position in the process. I cover different cases and stories on how entrepreneurs have benefited from LinkedIn, as well as how VC firms and angel networks have used LinkedIn to find, evaluate, or advance their deals.

Finding Potential Investors

So, you have a great idea for a company, you want to be the next big thing in your industry, and all you need is a blank check to make your dreams come true, right? Although LinkedIn can't guarantee that you'll find the right funding partner, get the money you need, and build your business with a great return on investment, it can help you improve your chances of success when dealing with the funding and growth of your business.

No matter what stage your business is in, whether you just thought of a new business idea or invention, you're building a prototype, you earned your first dollar of revenue, or you just hit $1 million in sales, LinkedIn can be an invaluable resource for reaching the next step and beyond. The following sections look at some of the ways LinkedIn can assist you in the quest for an investor.

Getting advice from LinkedIn Influencers

Although you may be an expert in your field, you could probably use some good advice from existing venture capitalists, angel investors, or successful entrepreneurs when it comes to obtaining financing. LinkedIn classifies important people in each industry as “Influencers,” and LinkedIn allows you to follow a vast array of these knowledgeable folks who are experts in their fields and who gladly give general and specific information. And although Pulse, LinkedIn's news and insights aggregator, has a special channel for Entrepreneurship & Small Business, I focus on the channel of VC and angel funding here. If you're not ready for that big investment, definitely check out the Entrepreneurship & Small Business channel for information (see Figure 17-1).

When you're ready to follow LinkedIn Pulse's VC & Private Equity channel to get quality information from key Influencers and news sources on this topic, just follow these steps:

1. Hover your mouse over the Interests link from the top navigation bar, then click the Pulse link from the drop-down list that appears.

   You are taken to LinkedIn Pulse.

2. Click the All Channels link under the Pulse header to bring up all the different channels you can follow. Scroll down the page to see the Entrepreneurship & Small Business channel, as shown in Figure 17-1.

   

3. Scroll down to the bottom of the page and locate the VC & Private Equity box. Click the + sign in the top right corner of that graphic.

   When you go to click the + sign, you see the Follow link appear on that box, as shown in Figure 17-2. After you click the + sign, you are marked as Following that channel. You can click the channel to see the collection of news stories and Influencer posts, as shown in Figure 17-3.

   

   

Pulse channels like this one function similarly to Facebook in that members can Like, Comment, and Share the stories that are featured on the channel. You can see who in your LinkedIn network has Liked a particular story, learn more from your network and the larger community by reading the Comments, and expand your influence by Sharing relevant stories with the people in your immediate network who would benefit from reading them. You can sort between the Top and the Most Recent stories, and as you scroll down the page, LinkedIn continues to pull relevant stories that are tagged for this channel. As of this writing, news sources such as the Financial Times, The New York Times, Bloomberg, Forbes, USA Today, and CNBC provide rich content to this channel.

Building your dream team

When you're looking for funding of any amount, one of the top things any investor wants to see is your management team. No matter how great your idea is, it's the execution of that idea that determines your success. Investors see one way to mitigate the risk of their investment by rewarding strong management teams that have the skill to weather unexpected turns. If your management team is lacking in at least one key area, consider LinkedIn a source to find that missing person.

Here are some things to keep in mind when doing a search on LinkedIn for your next team member:

• Experience is key. Although desire, motivation, and interest are important, the way to improve your chances of getting funding is to have experienced personnel. When searching for potential candidates, you should study each person's profile to gauge her documented experience at past positions first; then see whether her interests match your company's interests.
• Pick complements, not carbon copies. It's tempting for an entrepreneur to seek out like-minded individuals with similar backgrounds to build a business. However, companies with the strongest growth have diverse management teams that can handle different situations because the teams’ skills complement each other. Put your business needs ahead of your personal preference. Look for LinkedIn members whose profiles indicate strengths that aren't yet represented in your start-up.
• Gauge the strength of the candidate's network. Any time you look to add someone to your organization, you should ask what value that person can bring through his existing network. (After all, who you know can make the difference.) When you connect with someone, see who is a part of his network, if possible. See what groups and affiliations, Web sites, and Q & A are on the candidate's profile, because that indicates his overall reach into the greater network.

Putting it all together

Suppose you have your business plan, management team, market analysis, prototype or working model, and you've built up a customer set. You've done some research and are ready to start shopping around and looking for an investment. You've perfected your 30-second elevator pitch so you can quickly and accurately describe your business to anyone who's interested, and you can quote the facts and figures you need for any presentation. It's time to seek out a funding partner.

Although this is not the exhaustive list of what you can do, here are some tips that can help you find that partner using LinkedIn:

• Do research on your leads. Look up potential investors on LinkedIn and read their profiles. See what interests they have, what group affiliations they maintain, and what information they share or gather using LinkedIn Groups or Companies. Follow through on any Web sites, blogs, or profiles they link to from their profiles. See what you have in common or which benefit of your company might interest them the most.
• Work your network and get them working. Do advanced searches to see how your network can connect you with the right person. Maybe someone in your network knows a venture capitalist or an angel investor. Someone in one of your groups may have the right connection in one of her other groups. Let your network know what you're looking for and ask, respectfully, for help, advice, or a push in the right direction.
• Get introduced or reach out yourself. If a potential investor is a second- or third-degree network member, use LinkedIn introductions to ask your contacts to introduce you. If you have no direct connections, consider using InMail to make your own introduction. (Chapter 5 has more on introductions and InMail.)
• Do your homework before any meeting. Use LinkedIn to prepare for your meeting with a potential investor. Study her profile and check the LinkedIn Company pages for information about her company. If she's in your extended network, ask your connections (people who know her) for advice and information. See what companies she has invested in and research those companies as well.

Finding Potential Investments

Maybe someone in your VC firm needs to connect with someone in a particular industry, or perhaps your organization wants to invest in an emerging market or new technology. LinkedIn is a great place for you as a potential investor to look for your next investment.

Looking in your network

One of the benefits of a good investor is the network he brings with him to the investment. Although some venture capitalists recommend their own executive and/or board structure to their investments, other investors simply offer advice about any new hires or support personnel a new company may need in its growth phase. Sometimes, the right investor knows a new company's customer base well and can help the new company land a key account. This is all possible through a strong network, which makes LinkedIn one of the best ways an investor can grow and strengthen his network. Here are some ways that LinkedIn can help:

• Monitor your network activity. Your network is always working, and this point is clearly demonstrated in your network activity. Spend some time every day or week to look through your network activity to see which of your contacts has changed companies, started new projects, or participated in groups you may find relevant. (See Chapter 9 for more information on network activity.)
• Monitor LinkedIn Groups and Influencers. See what topics show up most often in your particular industry, and what comments other people are posting. Pay attention to channels like Entrepreneurship & Small Business, VC & Private Equity, and Technology.
• Identify thought leaders. As you watch your network, LinkedIn Influencers, and any relevant LinkedIn Groups, pay attention if certain names keep popping up. These people could be thought leaders in your intended industry — people respected as authorities in their given subject matter — and they are worth connecting to in order to stay ahead and scope out the best opportunities. Reach out to these parties through introductions or InMail (see Chapter 5) to see whether you can create a meaningful connection.
• Strengthen your network. Build good contacts in your field through regular networking and avenues like LinkedIn Groups. Identify people in your network who are a part of your desired industry and expand into their networks by getting to know their connections.

Doing your due diligence

As new proposals for investments come your way, or you meet an entrepreneur in one of your industries who could come to you later with an investment proposal, you have to evaluate these proposals and decide how to proceed. Here are some ways that LinkedIn can help you filter all this incoming information:

• Evaluate your entrepreneurs. When you're evaluating a proposal, do some research by seeing whether the requester has a LinkedIn profile. Compare notes between his business plan and his actual profile. Evaluate his entire management team.
• Ask for endorsements. If you're evaluating a proposal or contemplating adding someone to your network, see who in your network knows this person (or company). If you find a connection, ask your connection whether she would endorse or recommend this person.
• Get a sense for your intended market. See if any relevant LinkedIn Groups exist for your intended market on LinkedIn, and, if so, what discussions or activities are happening in those Groups. Search the LinkedIn Companies directory to see whether the requesting company has been profiled. If so, take a close look at the information.