How to approach startup investment opportunities

I recently read a great post by Fred Wilson of Union Square Ventures. It’s called “Competing to Win Deals” and it highlights Fred’s thoughts on how investors should approach the pre-investment process of a startup. The piece was written for heavily contested deals in particular, but I think that Fred’s approach is valid for all investment opportunities.

Among Fred’s 10 recommendations, I discovered that I practice 8 but don’t practice 2 of them. The ones I don’t practice yet are:

3) Encourage the entrepreneur to get feedback on you and your firm. Instead of references, I like to give a list of every entrepreneur I’ve ever worked with and an email address. I tell them “throw a dart at that list and talk to four or five of them randomly. you’ll hear the same thing from everyone.”

5) Make your offer in person and don’t do it via a term sheet. Tell the entrepreneur you want to be their business partner. Tell them how much you will invest and how much ownership you want. Leave it at that. Tell them that if they are interested, you will send them a term sheet. Leading with a term sheet focuses the discussion on the wrong things. The process should be all about personal fit and very high level deal terms. Once the decision is made to try to work together, you can get into the specifics of the deal.

I’m going to apply both of Fred’s recommendations moving forward.