As part of our application process, we ask entrepreneurs for a referral. Sadly, 90% of them have no referral at all. I say sadly, because the truth is, the majority of those applicants end up being declined – and I do not particularly enjoy sending those rejection emails. As one of the ‘gatekeepers’ of AngelHub Ventures, I review more than 20 funding requests a week and I wonder why most applicants do not bother getting a referral. So here are a few reasons why you should bother going to the trouble of getting a referral.
Question 5 on our application form is: how did you hear about us? What we are actually looking for is: we heard about you via [insert trusted source]. Ideally, [insert trusted source] has popped us an email already and this is the second time we have seen your name. So why would you take the time to get a referral?
1) Most deals we invest in come through a trusted source
• Since we receive >20 funding requests a week, this is >80 a month or >960 a year. We invested in five deals last year. That is 0.5% of all deals we see. Of the 5 deals we invested in last year, 4 came through a trusted source. The 5th got an endorsement from a trusted source shortly after they contacted us. This highlights the importance of getting a referral.
• Of all the funding requests we get – we only meet with 15-20% of the applicants. Simply because we do not have the time to meet with everybody. We are a small team. Just imagine if we spent 20 hours a week having coffee – when would we actually have the time to close a deal and help our portfolio companies grow? Don’t get me wrong, we already spend lots of time having coffee meetings and listening to pitches – we love seeing new exciting businesses – but we don’t have time to see everyone who comes to us. A proper referral dramatically increases your chances of actually getting that meeting.
• In case you are wondering: we prioritize the ones that have been referred by someone we trust because they have -simply put – been pre-vetted. People we trust value their reputations and they generally only refer businesses they believe in. As a result, we will take the time to dig deeper.
2) It is an occasion for you to do a bit of due diligence on your potential investors
• First of all, don’t waste your time pursuing investors who can’t offer what you are looking for. For example, we provide equity funding – not debt funding, so don’t bother asking us for a loan. Read up on Venture Capital investors and have a look at their website to see if they fit the bill.
• Secondly, getting the right investors on board your business is extremely important. A VC investor will typically take up a board seat and have a say in your long-term strategy. Having the wrong investor on board can damage your business, its reputation, potential for follow on funding and even the daily running of your business. A wrong investor can take up too much time – time you could have spent on growing your business. What we are saying is: take the time to network and find out your potential investor’s reputation. In the process you might just get a warm referral.
So, referrals are powerful because they increase your odds of getting a foot in the door (e.g. a face-to-face meeting) and it is also a way for you to make sure you are getting the right people on board.
And if we end up not being a match? We might just refer you to someone who might be.