What can a cute puppy in a pet shop window, couples therapy, and dating teach entrepreneurs trying to raise money from investors for the first time?
Plenty, according to Techstars founder and CEO David Cohen.
Cohen—who also is an investor with more than 400 deals to his credit—gave a talk Monday night about finding funding and working with potential investors.
Less a typical presentation than a guided Q-and-A, complete with role playing, the talk was a version of one Cohen gives at Techstars. Only instead of addressing the founders of the 10 or so companies that made the cut at the Boulder, CO-based accelerator, Cohen was spreading his message to a few dozen local entrepreneurs who packed the Techstars headquarters.
The event was part of the “Seven Weeks of Awesome” series Techstars is hosting in advance of the May 4 deadline for applications to its Boulder program, which will begin July 15.
Cohen’s wide ranging talk touched on everything from convertible debt to the dangers of a poorly executed AngelList campaign. Here are some takeaways from his remarks.
About that puppy…
It’s up to entrepreneurs to attract the attention of potential investors, and ideally not just one, but many, Cohen said. Having multiple options sets up a favorable dynamic for entrepreneurs, creating a situation where investors are afraid of missing out.
Cohen likened it to being “an unbelievably cute puppy” that draws a crowd outside a pet shop window. Not only is the dog attracting attention, but potential owners begin to worry about someone else making the purchase before they can.
Investors are often susceptible to the same worries, plus having such evident interest in a company creates the impression it has built up momentum, which is crucial to getting investors to commit.
“You have to, when you’re raising a round, manage the momentum,” Cohen said.
Failing to do so may be one reason a startup might join AngelList with high expectations but see few results, Cohen said. A company might promote itself well enough to attract followers, but make the mistake of doing so before it has raised enough to convince angels it’s a good investment.
Each week it lingers on the site without making progress, the worse its prospects and reputation become.
“If you make noise when you have nothing, you’re just advertising that you suck,” Cohen said.
His advice was to set a reasonable target for how much you want your startup to raise and raise a third of it before launching an AngelList campaign.
A magic threshold?
Something good seems to happen for startups once they succeed in getting enough commitments to account for one-third of their round.
Cohen said that 80 percent of Techstars companies that have raised one-third of their seed round before demo day go on to hit or exceed their targets. On the flip side, only 20 percent of the companies that haven’t reached the one-third mark by demo day are able to pull it off.
Cohen’s tip: “When you raise money, ask for a manageable number
