BuddyTV co-founder Andy Liu

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.”

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  • http://twitter.com/chrisamccoy Chris McCoy

    Andy Liu is one of the finest!

  • http://www.facebook.com/kelsye.nelson Kelsye Nelson

    I attended Andy’s session at Seattle Interactive. It was easily one of the meatiest, most helpful sessions at the conference – a welcome change from a number of the commercials masquerading as panels.

  • http://twitter.com/greggottesman Greg Gottesman

    Great tips from Andy!

  • http://twitter.com/Seattle_Startup Seattle Startup

    From Andy’s lips……this is pure gold.

  • http://www.facebook.com/Aceliu Andy Liu

    John – thanks for the write-up! Didn’t realize it was on the record;) Fun session with some great questions. While the environment seems to be getting harder for raising money as whole – anecdotally, it appears that great companies are getting funded even faster and at good valuations and struggling to mediocre companies are having an even tougher time raising capital (or fail completely at raising capital). My belief now (even more so in the past 12 months) is to spend more time building a great company and less time on raising money – it works when you’re a ‘hot’ company and when things are going sideways.

  • http://twitter.com/ShaunaCausey Shauna Causey

    Great tips, Andy! Really enjoyed seeing you at SIC.

  • Tony Carpenter

    Andy is also good at raising money for the craps table. His community strategy proved more effective and just as much fun and entertaining than several people going for it on their own. There are many common themes but what made it positive was working together and good communication. Success attracted others. Our strategy was primarily effective. We had an exit strategy that wasn’t greedy. Everyone wins.

  • somedude

    This stuff is gold.

    Raising money is often a massive value-destroying time sink, and there are a ton of investors that won’t be respectful of your time and are more than happy to set up conversation after conversation without any serious intention of doing a deal. Any strategy to shorten the time it takes is really important. Any way to separate serious investors from the nervous tire kickers is huge.

    Two third rails should be: any investor that starts their feedback by focusing on pitch mechanics (i.e. slides, order of slides, color, positioning, etc.), and whining about valuations and/or going into long discussions about convertible notes, how frothy the market is, etc.

    The first guy just wants to invest in slide decks, not companies. The second should be investing in public markets.

  • http://www.facebook.com/profile.php?id=733572898 Matthew Matsudaira

    Andy- great article and advice! We’ve used some of Andy’s techniques that he mentioned above and it has helped us move along the fundraising road. I’m still struggling with getting investors to call me, but we are surely getting more interest from investors and VCs

  • Reddy Rakesh

    This is a great post. How to I connect with Andy?

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