Raising Startup Capital: How to Reach Out to Investors

In addition to the hands-on 3 Day Startup programs we run at universities, we offer a variety of ways to learn more about relevant topics surrounding entrepreneurship when our programs are not in session.

Last month, we partnered with Evan Loomis, Director of Corinthian Health Services, to produce a livestream about raising startup capital. You can view a recording of the session on our website.

Evan was also kind enough to put together a recap of best practices to reach out to investors.

Finding the Best Introduction

First, make sure you have a LinkedIn account. That’s the best way to identify people in your network that know investors.

Being a Good Introducee

For an introducer, an introduction is a dangerous thing. If the introducee misses the meeting, doesn’t do his or her homework, acts rudely, or makes vague or unreasonable requests, it can damage the introducer’s relationships and reputation. Access to someone else’s rolodex is a precious thing. Here are some ways to make sure you don’t take the introduction for granted:

  • Keep all emails as short as possible. Usually, six sentences is the max.
  • Suggest specific times to meet, but be flexible. Put all times in the time zone of the person you’ll be meeting.
  • Be specific about what you are asking for. Never use phrases like, “Can I pick your brain?”
  • Once you meet the investor, remind them who your mutual friend is. Do it quickly and in a way that is complementary. “Our friend Dave speaks very highly of you. He was kind to connect us. It sounds like you guys went to college together.”

Leapfrogging

Everyone knows someone.

Pick five people you know that might be able to help you with your goal and ask if you can bring them coffee for a short conversation. At the end of your meeting, ask, “What two people come to mind that might be helpful here?” Asking for three people is greedy. One is lame. Just ask for two. Give them a minute to think about it and wait for them to name two people. Mention that you’d love an introduction and that you will follow up.

Within a few hours, you should email them a general thank you email and then separate emails for each introduction you need. So, if they offer to introduce you to two people, you’ll send them a total of three emails.

Email 1: General Thank You

Dear [Evan],

Thank you so much for your time and wisdom today. I know you are slammed with [insert something here showing that you are aware and applaud them for their success in what they are doing,] so I’m especially grateful. I’ve been thinking about [insert the one big idea / feedback they gave] since we met; it is a really great way to frame how we are thinking about our business.

Thank you also for the offers to connect me with Jason and Angela. I’ll follow up with separate emails that you can reference to make introductions really easy for you.

Sincerely,
Chris

***Why This is Important: Following up and saying thank you are critical to building a long-term friendship with people you connect with. Make it easy on yourself by preparing your emails ahead of time, so you won’t forget once you’ve shifted your focus to the next contact.

Email 2 and 3:

Dear [Evan],

Thank you so much for meeting with me to discuss our new venture: [insert your company name and tagline here].

Thanks for offering to introduce me to [investors name]. As you mentioned, it sounds like he’d have a lot of insight about [insert the reason they recommended the introduction]. I’d love to connect with him.

Sincerely,

Chris

PS: As background for [investors name], I’ve included a blurb below on [company name] and my background.

About [Company Name]: [150 word description of your company]
About me: [50 words about you]
Optional: [Short pitch deck or executive summary]

***Why This is Important: On your roadshow, you want to make it as easy as possible for people to help you. By creating a separate email to forward along, you get to tell the introducee how to talk about you and all the introducee has to do is hit forward.

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I’ve Got 99 Problems But a Pitch Ain’t One: What Entrepreneurs Can Learn From Rap Music

Allow Me to Reintroduce Myself
Two years ago I presented at an investor conference and when I used the phrase “making it rain” the audience of VCs and angel investors returned only blank stares. Ever since, I’ve been interested in exploring and discussing the relationship between rap music and entrepreneurship. A month ago I delivered a keynote at Startup Week hosted at The University of Texas at Austin. This piece is an adaptation of that talk.

Rap music is one of the few genres that embraces business principles. When was the last time you heard an opera singer, jazz guitarist, or dubstep producer talk about the business of what they do in their art? Rappers, however, talk about this topic all the time.

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There are a staggering number of commonalities between rap and startups. For example, the culture of “performance enhancing substances” is heavily referenced in both industries.

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Lil Wayne with codeine cough syrup and 3 Day Startup Alum Sri Sonti (cofounder of Remark, a 500 Startups accelerator company) with energy drink

Another common thread is that the parental approval rate for kids wanting to pursue a career in rap music or entrepreneurship is still relatively low. This is the case because both endeavors still maintain a high failure rate: 90% of new businesses fail and the number of rappers that fail is probably even higher.

Given these commonalities, there are several insights that these industries can provide to one another. Here is what entrepreneurs can learn from rap music.

Get a Cofounder

Rapper Snoop Dogg and Producer Dr. Dre/Business cofounder Steve Jobs and technical cofounder Steve Wozniak

Left: Rapper Snoop Dogg and Producer Dr. Dre / Right: Business cofounder Steve Jobs and technical cofounder Steve Wozniak

Rap music and startups resemble each other at the earliest stages. Rap music starts with a rapper and a producer. The rapper provides the words, the voice, and handles the more public-facing activities. The producer (also called a beat maker) creates the tracks that the rapper raps over. Some of the biggest names in rap music today found their initial success due to their own in-house producers (see: Drake and 40, Kendrick Lamar and Ali). Often this person not only supplies beats, but helps architect the sound of a rapper’s signature style.

This duality is eerily familiar to the beginning stages of a startup. Two people — a business and a technical cofounder—represent the best foundation on which to build a new company. The tech cofounder usually builds the software that powers the product, and the business cofounder runs operations, fundraising, or other activities that are needed for the startup.

Aside from the obvious benefit of having a cofounder with a set of skills that complement your own, having another person with dedication and passion that equals yours increases the chances of capturing opportunities by way of identifying early employees, discovering initial investors, and more.

And attaining success in a startup is difficult. There are ups and down in the process.  Having someone to balance you out is of enormous value. Single founders often endure a lonely journey.

The best way to choose a cofounder is to collaborate on projects, in hackathons, or at programs like 3 Day Startup. This is the fastest way to see a potential cofounder in action and test them out so you can understand their work ethic, capabilities, communication style, and sensibilities. How do they lead a team? How strong is their execution ability? How are they in front of a crowd? Can they build what they claim they can build?

Fail Fast
The RZA is the leader of the Wu-tang Clan, the biggest and most successful collective in the history of rap music. He is known for a gruff rapping style, grimy beats, and an obsession with kung-fu films and asian mysticism. But he had to try a few times before he found the winning formula — or what the startup world might refer to as product/market fit. Signed to Tommy Boy records in 1991, he released his first single “Oh We Love You Rakeem” under the moniker “Prince Rakeem”. Prince Rakeem’s persona was that of a smooth talking loverman character. This record flopped and rap music fans paid it little mind. Undeterred, the RZA re-emerged a few months later with an altogether new project: he and his neighborhood crew reformed as the grimier, gloomier Wu-tang clan and released one of the greatest rap records ever.

Prince Rakeem vs. The RZA

Prince Rakeem vs. The RZA

Grammy award-winning rapper Common followed a similar path: his first release, under the name “Common Sense”, represented a thuggish portrayal of life at the bottom. This release failed to gain the reception he was looking for so he retooled and eventually ended up releasing more emotional, progressively-minded lyrics referred to in the rap industry as “conscious.”

Common vs. Common Sense

Common Sense vs. Common

Initial failures provide learning and feedback to eventually reach success. Just like the The RZA and Common, several of the most famous startups in the world experienced a bump in the road before they hit it big.

Paypal began as a mobile payments company and pivoted several times before realizing that the greatest customer need their product met involved handling transactions inside the Ebay platform. This was the first step upon which Paypal created their dominance of online payment processing. Twitter, originally known as “Odeo”, represents another notable example of the founders going back to the drawing board. Odeo provided directory and subscription services for podcasts before scratching that concept in favor of short-burst messaging. Finally, Instagram began as a complicated, feature-heavy geolocation app with a Swiss army-like array of features. User behavior indicated that photo-sharing resonated most with their users so they scrapped the excess features and honed in on what really excited their users.

Practice Rapid Prototyping and Customer Feedback
The rap industry follows an extremely effective product development cycle unlike any other genre. Rappers use mixtapes as de facto beta products. A rap “mixtape” is not a cassette — it is an unofficial album not fully refined and developed, usually given away for free online. The goal of releasing a mixtape is to generate awareness and receive feedback from the market before the release of a full-length record.

Aspiring rappers release mixtapes through various channels, allowing them to build a following and catch the ear of more established rappers who run their own labels. This process is know as “co-signing” — in the startup world this could be compared to partnerships.

In the early 2000s, Lil Wayne proclaimed that he was the greatest rapper alive and the rap world let out a collective laugh. Up to this point, Wayne was considered an afterthought in the cannon of rappers on the Cash Money record label and mostly known for being the weak link in the Louisiana supergroup the Hot Boyz, which featured more marketable rappers such as Juvenile and B.G.

But he kept cranking out music at a rapid pace, eventually releasing 14 mixtapes in the early 2000s.

Lil Wayne mixtapes

Lil Wayne mixtapes

With each release, Lil Wayne was refining his sound based on feedback from listeners before releasing an official album. This proved to be successful for him. When he released Tha Carter III in 2007, the album achieved double platinum status.

Share Ideas and Tools: A Tale of Two Apaches
Ecosystems and communities matter for a slew of reasons. Good ecosystems encourage sharing ideas and tools. Rap music is built upon samples, which borrows beats or small snippets from other songs. A “break” — short for break beat — is the part of the song where the instrumentals and vocals drop out and all you can hear is the drums. Kool Herc, the father of hip hop, had the idea to get two copies of the same record and play the break beats one after another, creating an uninterrupted beat over which rappers could rap. Others starting copying this technique, searching for and sharing popular breaks from records. Some of the most famous rap songs ever are built on some famous breaks.

The image below maps out popular songs that sample the Apache break:

Songs that sample the Apache break

Songs that use the Apache break

The way the rap community uses breaks is exactly how the startup community uses open source software. Open source software is software developed and shared by hobbyists, amateurs, and professionals.

Coincidentally, one of the most important pieces of open source software is the Apache web server. This software runs major infrastructural components of some of the biggest software companies in the world.

Companies using the Apache break

Companies using the Apache web server

Represent Your Local Community
Unlike other genres, rappers constantly remind you where they are from. The regionality of rap is one of its greatest strengths: region-specific genres such as the Bay Area’s hyphy, Texas’ chopped and screwed music, and traditionalist East Coast rap all have unique signatures that provide identity, character, energy, and relevance to each community.

Startup ecosystems have similar regional differences, and coincidentally, these three rap music hubs* represent three of the largest startup ecosystems. In the startup world, the Bay Area is known for innovative consumer-facing startups. Texas, specifically Austin, is known for profitable B2B software startups. New York City is known for media and content-focused companies.

Note: Atlanta is the current center of the rap music universe but the Atlanta startup scene, while impressive, does not map as cleanly into this analogy

Note: Atlanta is the current center of the rap music universe but the Atlanta startup scene, while impressive, does not map as cleanly into this analogy

Rap regionality is a big deal because it is empowering on a local level. Successful regional artists provide success stories to others from that community. Global names matter and they always will: Global rap superstar 50 Cent and Facebook founder Mark Zuckerberg are similar in this respect. Both of them represent huge successes. But both of them emerged from fairly predictable sources, i.e. locales where lots of successful rappers and startup founders are from, respectively (50 is from Queens and Zuckerberg went to Harvard).

Tech N9ne (Kansas City), Nipsey Hussle  (Compton), or E-40 (Bay area) may not be household names in popular music. But each of these artists is stylistically inseparable from their hometowns; they embody the idea that someone from their community can make it in the rap game.

Anyone who attended Harvard can look to Zuckerberg’s success as a motivator. But it can be more motivating to see a local entrepreneur having regional success. This is why Dan Graham’s Build-A-Sign is important to Austin and Brett Martin’s Castle Branch is important to Wilmington, NC — these companies may not be well-known outside of their regions but they are symbolic of the potential of their respective ecosystems.

Conclusion
It is an exciting time for both rap and startups. Both of these cultural forces have boomed in popularity over the last two decades: demand for rap music and entrepreneurship are at all-time highs. The change in tide for both indicates a change in attitude of the new millennia. The current generation of young people that are driving our culture and shaping our economic future resonate with the values inherent in both rap and startups: innovation, a healthy sense of risk, and the power of community.

3 Day Startup Partners with Stanford’s Epicenter and NCIIA to Launch New Program

During the week of April 13-19, 3 Day Startup partnered with Stanford’s Epicenter and the NCIIA to launch 3DS Springboard across nine universities. 3DS Springboard is an interactive workshop focused on the beginning steps of launching a company or a project through on-campus innovation. Over four 90-minute sessions, students joined the 3DS team and Epicenter University Innovation Fellows on their campuses to start a company, a project, or a movement.

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The Different Shades of Jerk (Customer Barriers)

Joel Hestness is the Cofounder of 3 Day Startup and an Computer Science Ph.D. student at the University of Wisconsin-Madison.

When I first read Steve Blank’s article, Sometimes It Pays to be a Jerk, about a test he ran to filter students from his startup course, I said to myself, “Huh, that’s an elegant result.” But after some thinking, I realized that 3DS has been implementing participant filters in our programs all along, and we’ve experienced these findings as well.  For a standard 3DS program, we layer in numerous mini-tests that filter out weak or unmotivated participants: interviewing applicants, asking them direct questions about their interests and availability, running pre-program bootcamps, and expecting participants to do some work before their program. These barriers help us cut out the participants that may not be invested enough in the process, which allows us to focus on those who are dedicated to being there.

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3 Day Startup Hosts a Pitch Workshop for University of Tokyo Students

3 Day Startup works with students from all over the globe to help them kickstart their startup ideas into viable companies. During SXSW, 3DS hosted a pitch workshop for students from the University of Tokyo. The purpose of the workshop was to help students further refine their elevator pitches for a global audience. Most of the participating teams already had working products or early traction from investors or customers.

Participating students were part of Todai to Texas, a program aimed at bringing the brightest student startups from the University of Tokyo to exhibit at SXSW.

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Should You Drop Out of School to Start a Company?

During SXSW Interactive 2014, 3 Day Startup hosted a panel to discuss a much debated topic among student entrepreneurs: “Should you drop out of school to start a company?” Some of the points discussed included, entrepreneurial timing, the university as a startup platform, and the culture of risk taking.

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The diverse panel of individuals included, Mike Gibson, VP for Grants at the Thiel Foundation, Connie Bourassa-Shaw, Director of the University of Washington’s Arthur W. Buerk Center for Entrepreneurship, and Andy O’Hara, Founder and CEO of Chiron Health. Cam Houser, CEO of 3 Day Startup, moderated the discussion.

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Case Study: 3 Day Startup Brings Innovative Approach to San Antonio’s Performing Arts Organizations

3 Day Startup (3DS) partnered with the 80/20 Foundation and Geekdom to host the first-ever 3 Day Startup for the Performing Arts. The program introduced San Antonio’s performing arts organizations to lean start up techniques and intraprenuerial thinking. The results were powerful insights into ways to better engage audiences and the community in their work, while simultaneously generating new sources of earned revenue and improving sustainability.

The Current State of the Performing Arts Industry

According to the NEA, nearly half of the nation’s adults attended at least one type of visual or performing arts activity in 2012. And nationwide, the performing arts industry is made up of approximately 8,840 organizations, generating nearly $13.6 billion in annual revenues. In San Antonio alone, arts and culture organizations and their audiences generated more than $134 million in direct economic activity in 2010, according to Americans for the Arts. However, while arts organizations thrive on creativity, producing innovative, exciting, and inspiring performances on stage, they often struggle to harness that same innovative spirit and apply it to their business models. As we have seen with a string of recent high-profile cases (New York City Opera, The Philadelphia Orchestra, among others), many face deficits, go bankrupt, or are forced to downsize. Such failures prevent organizations from serving their communities, while developing a reputation for the performing arts among skeptics as an inefficient, ineffective money-pit.

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