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Introductions to Companies

Saturday, November 5, 2016 4:57
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(Before It's News)

There are several schools of thought on introducing companies to other potential investors. I don’t know where I stand on it.

I do know that almost everyone likes the double opt in introduction. Definitely follow those guidelines.  But, then it gets murky.

For me, if I am not going to invest in the company I don’t mind passing it along to another investor under a few conditions:

1. I like the person operating the company
2. The company is out of my focus. Meaning, if it’s not within the scope of my investment thesis is means I passed on the deal because of it.
3. The company is trying to raise a seed or Series A round. These are hard rounds to get and navigating the network is trying for entrepreneurs. If I can save them a little time, it’s good for them and brings velocity to a network. Networks grow when there is velocity in them. When stuff sits, they stagnate.

However, I was at Detroit Startup Week and I was listening to Foundry Group’s Jason Mendelson talk about introductions. He offered this advice to entrepreneurs, “Never ask for an introduction from someone who passes on your deal.”

The follow-up question was, “What if it’s out of your focus and you passed because of that?”

Jason’s answer was still don’t ask for an intro. But, he gave a good reason why.  If the entrepreneur attempted to pitch him without doing their research on him that might be an indicator that they are doing a spray and pray financing round.

That would mean if someone approached me with a deal outside of B2B Finance, why should I help them?

In the broad scheme of things, I think Jason makes a good point.  However, I might disagree with him in places where you are trying to get an entrepreneurial network going.  In startup ecosystems where the network isn’t deep, pointing entrepreneurs in the right direction or opening a few doors for them helps both sides of the network.

I can counter my own point though. If someone enters a small network and doesn’t do their research on it, you might not want to help them!  It’s a tricky balance.  As I said above, networks need velocity.  When they stay still, they die.

On the flip side, it’s important for VCs to know other VCs sweet spots.  That way if you get a deal that you want to pass along, you can serve up something to them that doesn’t waste their time.

What do you think?

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