Investor referrals

This post is going to be short and sweet.

Entrepreneurs who we decide not to back often request that I introduce them to other investors who may be interested in their business. Sometimes this request comes after a single email exchange, and sometimes after a series of face-to-face meetings after which we decide to not invest in the company.

Independent of the extent to which we engaged with the entrepreneur in the past, I don’t think it’s right for me to refer a company that we’ve decided not to invest in to another investor. The first question I have for such inbound opportunities that I receive from other investors is whether the referring investor is investing in the company, and if they aren’t that creates a big question mark in my mind. If you’re not investing, then why should I? So I don’t take an action which I would question if I were on the receiving end of the same action.

It’s important to point out that this analysis is valid for referral requests from investors. An investor’s job is to invest in companies so an investor should be investing in the company themselves for their referral to be taken seriously. If the referral is being made by someone who’s not an investor, the referral can be taken seriously even in the absence of the referrer’s commitment to invest. In this case what matters is the referrer’s credibility based on other signals rather than whether they’re personally investing in the company.

I think that my approach is also beneficial for entrepreneurs. Although it creates a short-term challenge in that you need to find someone else to make the referral, the referral is that much stronger when you do find an investor who is also investing in the same round, or a credible non-investor, to make it.


Also published on Medium.

  • M L Castellanos

    Mr. Dorgan,

    Obviously your opinion is your opinion and should be respected but, not referring someone when you know you can, can harm you too. I’m the CEO of a start-up seeking investment and like any good founder, I aggressively pursue any lead that comes my way and am grateful to those that have supplied them – even if they don’t prove successful. Sometimes but unfortunately very little, investors who I have contacted refer me to someone else for many reasons including, what I have is not their focus, they already have a competing investment in that sector, my request is too small or too much, etc. But although unsuccessful, I remember that they tried to help. I have a long memory. Someday, they may come to me and I’ll remember.

    It’s also not a good policy because it implies you may be closed minded. As an entrepreneur seeking investment, I want to reach investors who are open to new ideas because that is exactly what I have and exactly what does well in the marketplace. That idea may be improving what’s already available or creating a whole new concept. If an investor is not open to learning about them, what are the chances of investing in them?

    So, next time someone comes to you, non referred and non referenced, take a minute to think about it. It could be the moment you changed each other’s life and the best investment you’ll ever have.