One of my favorite aspects of early investing is that anyone can help companies in a meaningful way.
It’s known as “adding value” in the industry.
And it’s a critical skill to master.
Because private deals are (by nature) limited in size.
When there’s more demand for investment than the company wants, that’s known as an “oversubscribed” round.
At this point, startups choose whoever can bring the most value. Not everyone’s going to get in.
This is why many venture capital firms offer “full service” benefits, such as help with recruiting, marketing and technology.
But let’s bring in a real-life example to demonstrate this.
Back in the summer of 2014, a startup called Soothe was raising money on AngelList. Soothe offers on-demand massage therapy. For $99, customers can book an appointment through the app and have a masseuse come to them within an hour.
At the time, Soothe had launched in a handful of cities and had excellent early traction. The deal was led by well-respected angel investor Gil Penchina, whose portfolio includes Paypal, Zappos and many more wildly successful companies.
This was an oversubscribed deal on AngelList. Hundreds of people wanted in on the deal, but only 99 were allowed to participate in accredited deals like this one.
So to increase my chances of getting an allocation, I messaged the founder, Merlin Kauffman.
I told him that I have relevant marketing experience. I explained how I gained this experience, in part, by helping my father market his medical practice. And I offered to help.
Merlin quickly emailed back, saying they would be happy to have me as an investor. And I got into the deal.
And as promised, I added value to the startup. I came up with a successful marketing idea that they implemented and improved upon.
Before that seed round closed on AngelList in 2014, Soothe was growing like mad… and that growth has continued.
It’s now live in 35-plus cities and has raised $45 million from a private equity firm. In March, Bloomberg reported that the startup was doing $1.2 million in monthly sales. That same month, Forbes reported the startup was growing at a 20% to 30% rate month over month. It’s become quite the growth story.
I only got into this deal because I added value. If Soothe had simply chosen the biggest check sizes, I would have been out of luck.
This is why adding value is a critical skill for early investors to master.
How You Can Add Value
Adding value is by no means required. You can get into plenty of deals as a passive investor.
But passive investors are more likely to miss out on accessing top-tier deals (or never find out about them).
So here are a few easy ways to add value.
- If the company has a shopping cart, go through the checkout process and provide feedback to the company on how it could make it better.
- If you have connections that would be useful to the company, offer to make introductions.
- Proofread its website and let it know about typos.
- Tell it what you don’t like about its product. Good startups thrive on critical feedback.
- Use the product and tell the company what you love about it.
- Tell friends and family about the company.
- Give it a good (real) review online.
We think that equity crowdfunding is the perfect engine to capture value-add… hundreds or thousands of investors pitching in to help their investments.
And with thousands of members in our research service First Stage Investor, I believe we can help our startup portfolio move forward in a very meaningful way.
Founder, Early Investing