How to Get Former Employers and Co-Workers to Invest in Your Startup
Ryan Shank's former boss invested nearly $1 million in his startup this year. Alison Johnston Rue counts two past employers among contributors to the $1.1 million in seed funding she raised in 2012. And former Goldman Sachs trader Melissa Thompson scored a mid-six-figure seed round in 2013 from the head of her former trading desk, a broker she'd worked with, a past client and a onetime co-worker, among others.
It makes perfect sense to solicit funds from a former boss or colleague who thinks highly of you, has the financial means and isn't a competitor, according to Shank, COO of Mhelpdesk, a Sterling, Va., startup that sells management software for field-service businesses. "They already know the type of partner you'll be, from strategic thinking to work ethic," he explains.
Of course there's a right way and a wrong way to ask people who once managed or worked with you to open their wallets.
Ask for advice first. Shank didn't ask his former employer to drop nearly seven figures on Mhelpdesk out of the blue; first he asked for counsel--about building a customer base, hiring the right people, even navigating two acquisition offers received early on. After a year of mentorship, Shank's ex-boss, an exec at an extended-warranty company who also runs a venture capital firm, grew so excited about Mhelpdesk that he offered to invest.
The moral of the story? "Get someone engaged," Shank says. "Get them wanting to truly help you succeed."
A "mentorship first" strategy forces you to think beyond the dollars when you're cozying up to potential investors.
"They get to see what you're like as a founder, and you get to see what they're like as a mentor, as opposed to a boss," says Johnston Rue, co-founder and CEO of InstaEDU, an online tutoring platform based in San Francisco that has raised $5.1 million in venture capital.
Don't overstep. If you do attract interest, avoid the temptation to text your old boss every waking hour. Let the relationship bloom slowly. "You have to be cognizant of their time," Shank says. After all, helping you is not their main gig.
The hard sell has no place here, either, advises Thompson, CEO of New York-based TalkSession, an online network of mental-health professionals and telemedicine software platform. Contacts who don't seem interested in investing or sharing their pearls of wisdom should be given an easy out. "You don't ever want someone in the position where they feel obligated," Thompson says. "A relationship is worth more than a dollar."
Know your stuff. Talking capital with a former boss over coffee is sure to feel less stressful than facing a panel of VCs. But don't kid yourself--you should be equally prepared in either scenario. That means that even for a preliminary "let me float this idea by you" session, you've nailed your market research, financial projections and business strategy, Thompson says. You'll want those materials handy so you can cite the relevant data and have the ability to follow up by e-mailing supporting documentation.
In the end, investing your own money in your venture and leaving your day job to do it full time will also help convince your professional network that you mean business. "It shows them how hard you're working," Thompson says. "Walking the walk is an important sign to any investor that you're taking your startup very seriously."
Michelle Goodman is a Seattle-based freelance journalist and author of The Anti 9-to-5 Guide.