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,” says Dave Gowel, founder of RockTech, a Cambridge, Massachusetts-based enterprise-training platform for cloud technologies that he helmed from 2010 to 2016. Of the 29 angel investors Gowel brought onboard during that time, all had one thing in common: “Every investor relationship … was influenced by LinkedIn,” says Gowel.
Gowel and others recommend using LinkedIn as a recon tool to improve real-world interactions with potential investors. The following sections discuss 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’s also 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 their 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. As Knapp explains, “Reaching out to an investor without doing any homework tells him everything he needs to know about you -- none of it good.”
Vet and be vetted
Resist the urge to ping investors who sound like a good 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.
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.
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, COO and cofounder 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, there are still rules for soliciting investors. 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 who has $200,000 or more in annual income or $300,000 in annual household income or who exceeds $1 million in net worth, excluding primary residence. Keep in mind 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.
Look at your LinkedIn profile first
When Louis Beryl became a partner at venture capital firm Andreessen Horowitz in 2012, he hoped to find a financial technology startup involved in building what he calls “the modern bank for the next generation of consumers.” He didn’t. So, in 2013, he founded Earnest, an online lender of low-cost personal loans to financially sound applicants, as well as student loan refinancing. His co-founder was Benjamin Hutchinson, a finance exec who had worked at the U.K.’s HM Treasury during the banking meltdown.
San Francisco-based Earnest has launched in 43 states as of December 2016 and closed $99.1 million in financing from Andreessen Horowitz, Atlas Venture, Collaborative Fund, First Round Capital and Maveron, as well as more than 15 angel investors. Earnest has loaned money to young people who need cash for moving costs, weddings, home repairs, vacations, furniture and the like.
The lender assesses each applicant as an individual, not a number, Beryl explains. “It’s not just ‘Do you have this credit score?’ or ‘Do you make this amount of money?’ For us, it’s really about ‘Are you financially responsible?’”
The company’s underwriting software pulls data from the applicants’ LinkedIn profile (though this is optional) and financial accounts, evaluating education, work history, salary, savings, cash flow and earning potential, and Earnest staffers review each prospective client carefully, with support readily available by phone. Loans are typically fulfilled within 48 hours of application.
Since raising the $99.1 million, Earnest has grown from a team of five to more than 170. Earnest offers loans in 43 states plus D.C. and is shooting for all 50 in the coming years. Keeping customer costs affordable throughout will remain a priority. “We’re building a 100-year company,” Beryl says. “We want our clients’ happiness to be so good that their grandkids will be our customers.”