building relationships

How to build relationships as a new early-stage investor

Venture capital investment can feel like a secret society, and it can seem tricky to get your foot in the door. There's a very good reason for that. Long ago, in a land far away, Congress enacted the Securities Act of 1933. This legislation says that if a company wants to raise capital from investors, they have two options:

  1. They can “register” their offering to sell securities and provide investors with piles of disclosures, financial statements, and more
  2. Or, they can skip all that if they follow a few minor rules

Since then, these supposedly minor rules have shaped a multi-trillion dollar industry of smoke-filled rooms, secret deal flow, and most importantly, relationship-based investing.

Disclaimer: Our awesome lawyers want us to note that the Securities Act of 1933 said a lot of other stuff and this is a layperson summary. But for this article, we’ll go with the two points above.

Public fundraises vs cozy networking

To be fair, relationships aren’t the only way to access investment opportunities. Thanks to the JOBS Act of 2012, investors can invest in startups and other venture capital funds through unique securities regulations that make some investment opportunities available to the public.  

In fact, we’ve talked about the growth in popularity of these open fundraises before. There’s a catch, though. There always is!

Raising in public is still considered a bit icky by some. It also comes with a ton of paperwork as VCs and companies have to ensure the accreditation of allllll the investors that came flooding in on LinkedIn and Twitter. That’s why existing relationships are still the best way for investors and VCs/companies to work together.

The rules that make VC a relationship business

Remember when I said earlier that if a company or VC is raising capital, they can skip the registration process by just following a few minor rules? The rules are pretty basic, but they’ve had a HUGE impact on the way venture capital operates.

In short, in order to avoid registration of their securities offering, the company or VC needs to have a pre-existing, substantive relationship with the prospective investor.

What does that mean?

Pre-existing = The company or VC knew the investor before offering them the sale of their securities

Substantive = The investor is defined as an accredited investor (aka, $$$).

Putting this all together: if a startup founder is raising money for her company or a VC is raising money for her fund, she’ll need to know who her prospective investors are and what makes them accredited.

Enter: A business built on relationships.

Growing your network

So how do you build relationships and meet more founders, fellow investors, and operators? Here are a few options.

Angel investor communities

Angel communities can be an effective way to learn the art of early-stage investing, get access to deal flow, and meet a bunch of cool people. There are several angel communities that you can join, all of them with unique characteristics. Call me biased, but at Hustle Fund, we believe that angel investor education is a key aspect of running a successful angel community. This belief, along with our 2,000+ awesome angels and stellar Hustle Fund GPs who lead interactive workshops, makes our very own, Angel Squad, my fav angel investor community.

Industry conferences and events

Next up: IRL events. There is nothing like shaking hands and exchanging smiles in person with someone new. Sound old school? But in my experience, creating connections with new friends in person can leave a lasting impression. Luckily for investors, VCs LOVE hosting events, including…you guessed it…Hustle Fund. Every year in May, Hustle Fund hosts an investor retreat, called Camp Hustle, outside of San Francisco. It is THE place for VCs, emerging managers, LPs, and family offices to connect and build relationships at the least stuffy networking event possible. It’s fun, takes place outside, and you get to hear from super successful founders and investors.

Email lists for local meetups

In many big and small cities around the world, there are local tech or startup groups. These are great communities to get involved with and grow your local startup ecosystem or become connected to the regional or global startup community.

Search around online for these groups and you’ll often find weekly email lists of the going-ons that are happening near you.

Demo days

Everybody loves a good demo day, right? Demo days are great pitch opportunities for investors to hear from prospective companies that are fundraising. They’re also ideal events to meet other investors who are actively deploying capital on behalf of themselves or a fund.

Online forums

If you’re not physically located in a city or town that hosts nearby startup or investor events, there’s always online communities. Whether it’s a subreddit, Slack channel, or Circle community, finding your online niche as an investor is more accessible than ever.

Angel syndicates

What better way to start meeting other investors than to invest alongside them in groups dedicated to early-stage investing? Syndicates have ballooned in popularity in recent years and for good reason. This is one of the most common ways that new investors begin building their network.  

Cold emails

You might be thinking, “Cold emailing is so last year.” But in the venture ecosystem, cold emails get sent around every day. As a new investor, sending emails to active VCs with information on interesting startup opportunities (aka, deal flow) is a great way to land on a VC’s radar. If their investing interests are aligned with yours, you may end up working together someday.

These are just a handful of the ways that you can stay connected to the startup ecosystem as an investor.

Know the password to the party

Early-stage investing may have historically been a secretive industry, but the good news is that it’s easier than ever to get in on the secret. By discovering the opportunities around you, you’ll be able to build relationships with investors and founders, and improve your investing game in no time.

This article was written by Tucker McKay. Tucker is the founder of Ikaria Labs, a content marketing agency for funds, fintechs, and financial services companies.