What I Need to Know to Make Investor Referrals

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I love to be helpful whenever I can be. This is particularly true when it comes to supporting startup CEOs and founding teams. Making introductions is one way I can do that.

The intro could be to someone with expertise in an industry or a specific role (etc.). Sometimes, it's to investors. If I haven't worked with a company, it can be a little challenging to make investor introductions, though.

To address that difficulty, I've summarized the essential information I need to know to introduce a company to investors in situations where I haven't worked with that company for an extended time.

It’s also useful as a shorthand for quickly vetting any new business idea.

There are six questions.

The first question is: What is the problem to be solved? In particular, I want to know whether an unmet or under-met need is arising in people’s lives. I'm looking for something visceral. I sometimes ask people to imagine the first part of a typical Shark Tank pitch, where the entrepreneur describes some hardship they've experienced or observed. People aren’t going to change their ways if they don’t feel a push arising from an uncomfortable situation.

The second question is connected: What are the existing alternatives to solving this problem? Maybe it's a current something that falls short in accomplishing a task. Maybe there isn't a good existing alternative at all, and people are silently struggling--unhappy and unable to progress toward the better future they imagine.

The third question is: When does this situation arise? What's the specific context when this unmet or under-met need shows up? Again, the idea here is to be very specific. Who are the people this happens to? When do they face the situation? What are they doing at that time? Why are they doing it?

You'll notice very little about the product so far, which is by design. Most important is whether you have identified and can describe a compelling problem worth solving. That's what we're trying to understand with these first three questions. Once you've gotten this far, you should tell an in-depth, true story about a struggling situation in which people find themselves.

Now you can answer question 4: What does your product do? The description should detail how the product bridges the current gap between what people are trying to do and what they can achieve now.

Part five follows: How big is this opportunity? Is this a $1 million revenue opp or something much bigger? Ash Murray suggests entrepreneurs start with a back-of-the-envelope calculation and then move onto a more detailed estimation, in each case looking at your annual recurring revenue in month 12 of year 3 after your launch. I like his approach.

I created my own step-by-step guide (originally for a University of Hawaii startup program) that you can find here.

Ideally, you’ll also show the total addressable market size, and how it was determined (hint: it should be based in part on the information you’ve described in questions one to three).

I wrote another blog post about how to do this, which you can find here.

The last question, and it’s often a hard one to answer: Why now? Why could your product only exist now versus a year ago or 10 years ago? There are many intelligent and creative people in the world, and many are struggling to progress in different aspects of their lives. A compelling “why now” answer suggests you’re working on a problem that could only be solved recently. This increases the attractiveness of the idea significantly because it could be a genuine new-to-the-world innovation.

It raises questions if your product could have existed anytime in recent history and hasn't or did but doesn’t now.

• Maybe there isn't a problem to solve after all. People have tried and failed, and you’re just the latest making an attempt.

• Maybe there's an issue with feasibility. People have tried and failed because the product can’t be built or the business model math doesn’t work.

• Maybe the product isn’t differentiated from a bunch of current alternatives. It’s just one more product in a long list of similar products that have been around for a while.

If there’s not a good “why now” answer, it doesn't mean you can't continue to build your business and maybe even thrive, but it suggests it may not be an explosive new opportunity with tons of growth potential.

Could you have discovered an enormous opportunity that others have missed or failed to execute? I suppose so, but in that case, could you explain why that may be.

If I could only ask an entrepreneur one question about their company and product it would probably be this.

Answering these six questions will help ensure your new business is on the right track and help me or anyone else share your message with others.

1. What's the unmet or undermet problem?

2. What are the current alternatives that are falling short?

3. What is the context?

4. What is the product?

5. What is the scale of the opportunity?

6. Why is this idea coming into existence now?

For my covering intro email to investors, I’d also love to highlight the traction you've gotten so far (e.g., notable customer numbers, wrapping up a round, a brand-name investor) and what you’re looking for from the meeting (e.g., a networking meeting to talk about the space you’re operating in or a call to see if they’re interested in participating in a fundraising round). Sot let me know that too. With this information, I can make an informed and meaningful investor introduction that will serve both parties well.