Andy Liu is one of Seattle’s most sophisticated angel investors. He’s also one of the region’s most experienced entrepreneurs.
That gives the poker-loving Wharton MBA — who continues to lead Seattle-based BuddyTV — a unique perspective from both sides of the startup fence.
Speaking Monday at the Seattle Interactive Conference, Liu offered a few lessons he’s learned from bankrolling 44 startup companies. But he also spent a good portion of his talk offering war stories he’s picked up raising cash in his previous ventures.
Here are some of the tips Liu shared on raising money:
Minimize risk by getting investors to call you
When you start gaining traction in your business, use that traction to get investors to call you. The more you can show investors, the more success you’ll have raising money.
“Raising money by going out and pitching and pitching and pitching is a very, very tough way to do it. The odds are against you, so why not take as much risk off the table as you can before you start raising money.”
Set up the raise before you need it
In Liu’s view, some of the hard work for fundraising takes place well before you even conduct your first investor meeting. Liu says he nurtured a relationship with Madrona Venture Group, one of his venture backers at BuddyTV, for about a decade before he took their cash. Liu says he has created a spreadsheet of more than 500 people in the business community, and sends them updates each month with stats on how things are going. The idea is to drive investor interest, position yourself as a thought leader and drive inbound calls from investors. For angels, Liu said most of the time it is an “emotional sell” to get them involved. The email blast helps make that connection.
“If you are not taking investment dollars, it does not mean that you shouldn’t be in contact with your investor base.”
Research the market
Liu advises startups to talk to law firms and other professionals in the venture capital ecosystem to get a better sense of what the “market rate” is for similar deals.
“If you are going out there without researching what deals are going for, you are just not going to close a deal.”
Be a connector
Liu said he tries to meet with at least one entrepreneur each week, giving back to the Seattle startup ecosystem.
“I’d take this long-term view that being a connector is tremendous for, not only for raising money, but putting money to work and doing biz dev. That’s one thing I consistently do.”
Build a financing strategy
Liu said that having a coherent strategy radically reduces the amount of time you spend raising money, and increases the likelihood that you’ll raise money. He suggests creating a spreadsheet with a list of top investor prospects, and then devises a strategy to connect with each. That means connecting with friends and other executives who’ve worked with that angel, noting that it is much better than “coming in cold.” Liu said he’s persistent getting in touch with angels to the point of “being annoying,” noting that his goal is to get to the top of the inbox. He’ll even go so far as to send a gift to the angel, perhaps a book or a board game. The goal is to get to an answer as quickly as possible.
“Always do things that other entrepreneurs don’t do. Be unique.”
Be thoughtful of who your angels are
Liu says you need to do as much research on your angels, as they do on you as an entrepreneur. He notes that one angel investor once cost him as much in legal fees as money that he put into the business. That’s obviously not an ideal situation.
“It is almost like a marriage. Angels can absolutely be heaven, or they can be hell. Not all money is good money.”
Develop a rhythm of communication
Liu said entrepreneurs should overcommunicate with their angel investors — in both good and bad times. In one of Liu’s angel deals, he noted that the entrepreneur never sent him any updates until the day that the company couldn’t meet payroll. “That’s an awful way to communicate with your investors,” he says. Liu also notes that some of the best entrepreneurs he’s worked with have had “near death experiences.”
“You can never overcommunicate. I take this whole notion of no surprises very seriously.”
Leave something on the table
Liu said to make sure to leave something on the table in order to get the deal done, perhaps dropping valuation or offering something else to the investors. Find out what the investor wants in order to conduct a friendly transaction.
“In almost every one of my deals, where I raised money from investors, there was always something that was kind of a ‘give’ in order to make it a smooth transaction and a friendly transaction.”