Become a Connector-for FREE

Jeff Carter

 

Over the past few weeks I have been writing about knitting a midwestern quilt. One of the things we have touched on is culture. Midwesterners have a different investing culture than the coasts. Is that bad? Not necessarily.

But, we aren’t perfect by any means. There are things in our culture we need to change, and I want to address one of those in this post.

In the midwest, we have a lot of what would be termed a “quid pro quo” mentality of investing. This means that instead of freely making introductions and seeing what happens, the person making the intro wants something in return. This can come in different forms.

For example, say you are a company wanting to raise a seed round. You might ask a person to show you around to different investors. Instead of doing it for free, that person might want a commission for the money you raise. What message is that sending to the entrepreneur? To the people that invest?

Suppose I don’t know you are getting something from the entrepreneur for the introduction to me. Now I am part of the game. A mark. It makes the introduction tainted. When the introducer starts to “sell” me, I don’t know it’s just a sales pitch and not what they are really feeling. It ruins credibility. The next time I meet someone via that person it will cause me to wonder. How much are they making off me?

Other deals that happen. Instead of taking a cash payment, the chaperone might get a free equity stake in the firm, maybe a board seat. That model is wrong too. Companies need to hang on to their precious equity for future rounds. Taking it makes it tougher on them. Their boards need to be made up of people that can actually do things to further the company. Fred Wilson has blogged extensively about start up boards and I suggest you read them.

I have run into an extraordinary amount of people that expect something in return from companies when they simply introduce them. Some have made a business out of it. If you are going to act like an investment banker, at least call yourself one. Then we know what to expect, and where your bread is getting buttered. I don’t mean to insult investment bankers because I value them. They provide a vital role in the ecosystem sometimes.

When we started HPA, one of our main tenants was that angels wouldn’t take a percentage of the raise as payment, or an equity rider from the company. We wanted our economic interests to be totally aligned with the entrepreneur. If they were successful, we made money. We didn’t want to make money on the backs of an entrepreneur simply by providing a service for them.

Entrepreneurs have enough trouble raising money without leeches trying to get something off of them. The prior culture in the midwest was to always take a piece. We wanted to be different.

Others that are very experienced blog on this sort of thing. Karma is how they describe it. Freely give to others and that karma should come back to you. For my whole career, I have tried to connect people. I don’t expect anything in return. Maybe it’s stupid. A lot of people are telling me I should make money off of making intros and raising capital. Except something about it seems unseemly. It’s not me.

One of the great cultural things from the Valley that needs to be integrated here is to freely make introductions-and to accept them. The Valley isn’t perfect. But on the introduction circuit, it’s pretty darn good and should be replicated everywhere.

This isn’t confined to start ups and investors. It’s extends through the entire food chain of commerce. If you are a corporation or government agency, take a meeting with a start up. Try to buy from them if you can. If you can’t, make an introduction to someone that might be able to. If someone asks you to make an intro to someone else in your network, do it. Things might happen that could eventually be great for you.

In your corporate role, become a connector. Don’t hesitate to make introductions or take meetings. At the very least, you will learn something and make another connection. At the best, something awesome will come out of it. You could wind up becoming a vital cog in your company.

This is the part of creating the entrepreneurial ecosystem that takes some work. Not a lot, but if you are cheerleading and paying lip service, and desiring to create an start up ecosystem connecting people freely is one of the building blocks necessary to get it done.

If you are an angel group, start talking and trying to co-invest with other angel groups. Spread the success around, and the risk. The more people in the deal, the more networks that can be brought to bear to help the company be successful. Collaborate.

Of course, there is a fine line. If you provide an actual service for a person or company, you ought to get paid for it. Strategy consulting, doing some books, valuation for a merger or investment, some coding, or selling their product. But to simply make an introduction or raise capital so a company can get going? That’s wrong.

 

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