As a venture investor, referrals from people in my network is one of my top channels of deal flow. There are hundreds of startups that reach out for fundraising discussions every month. Having someone you know vouch for a founder automatically gives initial comfort around taking a meeting.
Over the years, I have observed that these referrals fall into 3 categories:
1/ Weak intro: beyond being a friend, the referring person doesn’t know much about the founder’s idea or the reasons behind pursuing it. These referrers are usually the founder’s weak acquaintances and are only helping out with connecting to a bunch of investors.
While even a weak intro ensures that I pay attention to the startup, conversion to a live interaction is usually low.
2/ Warm intro: the referrer has deeply known or worked with the founder in the past, and has a fair idea about their personal mission, goals, and personality. Typically, these referrers are ex-direct managers, peers, college friends who have stayed in touch, and other direct collaborators. They might or might not have an understanding or appreciation of that particular startup idea but believe in the founder.
These intros are solid, especially as the founding team is the top-most investing criterion at the early stages. In most cases, I will typically schedule a 30 min. video call with the founder at the very least.
3/ Conviction intro: the referrer has spent significant time either organically or consciously, to develop a deep conviction in both the founder and the startup idea. These referrers are usually founder execs, senior operators, angels, and VCs.
In the best cases, the referrer is also showing skin-in-the-game via either investing significant money and/ or time in the startup.
Conviction intros are gold and a great signal of the quality of an investor’s deal sourcing. For almost all such intros, I end up scheduling a 1-2 hour deep brainstorming session to get into the weeds. Interestingly, by the end of these sessions, the judgment on whether to invest or not gets immediate clarity.
Adding more nuance…
I would like to go one level deeper on Conviction Intros, and talk about what I call ‘One Person’s Conviction Intro’.
Those who regularly read my blog would remember the post ‘An Investing Framework to Find Startup Diamonds‘. In it, I talk about the ‘High-Signal-Non-Consensus’ quadrant where the best startups are to be found at the early stages.
| Deal Screen | Consensus | Non-Consensus |
| High-Signal | 🪙🪙🪙 | |
| Low-Signal |
(4) High-Signal-Non-Consensus – these are the opportunities we as venture investors live for. They are highly non-consensus, with the investor-crowd struggling to access, understand, evaluate risk and build a positive view on them. Yet, these startups have high-quality leading signals, which could be external and/ or internal.
- External – eg. a respected investor, sometimes a domain expert, has taken the time to evaluate & build high conviction around the company. Or a visionary customer is taking a bet, partnering with them in building the early product.
- Internal – extraordinary founder-market fit eg. the founder has spent a decade just going deep in the field. Or a backstory that provides an authentic “why” behind pursuing this idea. Or an execution track record in the startup’s arc that is outstanding on important elements like capital-efficiency, iteration velocity or organic customer acquisition.
This quadrant is the hardest to source for and requires having a really differentiated network of relationships (for referrals) and a personal brand that attracts interest from these types of founders.
An Investing Framework To Find Startup Diamonds
As mentioned in this excerpt, the High-Signal part comes from someone credible putting in the effort to build conviction, demonstrating skin in the game via committing any type of valuable currency, and then risking their personal reputation to socialize the opportunity with their trusted networks.
This opportunity might still be Non-Consensus, with the investor-crowd struggling to appreciate it. Yet, this referrer (or perhaps ‘sponsor’ is a better word in this context) is willing to be contrarian and follow their own conviction built from first principles.
When this sponsor refers a deal to me, this One Person’s Conviction Intro sits at the peak within the universe of Conviction Intros, simply because it has a high likelihood of being a key to the High-Signal-Non-Consensus quadrant.
However, even an investor with the highest quality deal flow can only expect a handful of such intros every year. The reason is most founder execs and operators don’t have the time and/ or incentives to build independent conviction. And most angels and VCs tend to demonstrate herd behavior, preferring to lazily piggyback on the conviction of others versus taking the time to do independent thinking.
So, even though my investing style is predicated on searching for these intros, the world is supply-constrained with respect to them. However, what I can do is swing really hard when I do get a few of these fat pitches every year, and maintain discipline at all other times. Venture investing is a very forgiving game where one isn’t reprimanded much for the losers, as long as you get a few right in a big way!
For founders, getting warm intros to investors has now become common knowledge, and frankly, table stakes. However, what could give you an edge over hundreds of other fundraising founders is inculcating that one sponsor – someone who can build independent conviction on your yet-unvalidated startup, show skin in the game, and socialize their commitment to other investors.
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