Dave Gowel has raised $3 million in the three years since he started RockTech, a Cambridge, Mass.-based enterprise-training platform for cloud technologies. Of the 29 angel investors he’s brought onboard, all have one thing in common: “Every investor relationship I have was influenced by LinkedIn,” says Gowel, RockTech’s CEO.
“A compelling example of this came when one of my investors listed his affiliation with RockTech on LinkedIn, and then another angel who saw that update contacted me,” Gowel continues. “The latter angel had a very strong respect for my investor who had updated his profile, and [he] became an investor within six months—he even brought in another angel to invest with him.”
Thanks to the U.S. Securities and Exchange Commission lifting the ban on general solicitation for investors, LinkedIn has become a potential mother lode for identifying and pitching investors. But it’s a nuanced and regulated game.
“I don’t think a general solicitation as a first contact is the way to go,” Gowel says. Instead, he and others recommend using LinkedIn as a recon tool to improve real-world interactions with potential investors. Here’s how.
• Embrace the advanced search. If you’re not clicking the “Advanced” link next to the site’s search bar and hunting by industry, company, location, alma mater, groups you belong to or specific keywords of your choosing, you’re wasting your time, says Gowel, who, in addition to running RockTech, is the author of The Power in a Link: Open Doors, Close Deals, and Change the Way You Do Business Using LinkedIn.
“There are 300-million-plus people on LinkedIn,” he says. “Advanced searches help you cut through the clutter and zero in on the right people to meet.”
Next, follow a potential investor’s company page. Join any relevant LinkedIn groups to which your target belongs. Scour his or her profile and posts to familiarize yourself with the person’s portfolio, investment approach, likes and dislikes, says Milwaukee entrepreneur Seth Knapp, who’s sussing out investors for his social marketing app, Chitter. “Reaching out to an investor without doing any homework tells him everything he needs to know about you—none of it good,” he explains.
• Vet and be vetted. Resist the urge to ping investors who sound like a fit right away. Instead, ask mutual contacts for insights about them, Gowel advises. You don’t want to partner with an investor who’s known for being difficult or one who doesn’t meet the SEC’s definition of an accredited investor (see sidebar).
If you do decide to move forward, don’t contact an investor cold; an introduction through a mutual contact can catapult you to the top of the correspondence slush pile.
“The one thing you can’t fabricate is a strong relationship,” Gowel says. Plus, he adds, a mutual acquaintance may know how and when that investor prefers to be contacted.
• Be patient. Partnerships aren’t built overnight. “Your deck and any other information you send over will fall on far less deaf ears if you patiently develop a relationship with the investor,” Knapp says.
Of course, most angels won’t end up investing, no matter how much they love your pitch, warns Brandon Bruce of Cirrus Insight, which sells a software add-on to Salesforce. But a carefully cultivated relationship can lead to market intel, strategic advice and, most important, referrals to other potential investors.
The fine print
Despite the SEC’s loosened regulations for soliciting investors, there are still rules. Before you start hitting up your LinkedIn network to publicize your capital raise, consult an attorney to make sure your pitch is legal and your paperwork has been filed with the SEC.
You’ll also need to familiarize yourself with the SEC definition of “accredited investor”: someone with $200,000 or more in annual income or $300,000 in annual household income or exceeds $1 million in net worth, excluding primary residence. Keep in mind that it is your responsibility to make sure the investors are accredited. If they’re not associated with an angel funding group or known to be accredited, you may have to ask them to provide copies of their tax returns to prove it.