Sourcing, in the age of “pyramid schemes”, I was excited to learn more about this topic. Winning Angels The 7 Fundamentals of Early Stage Investing by David Amis and Howard Stevenson defines sourcing as “identifying entrepreneurial projects of merit.” Referring back to my statement regarding Pyramid Schemes. It has found me a little leery of investment opportunities. For a while every few months a “friend” that I had not seen in ages would reach out and want to do coffee or invite me to come to their mixer, only to find it was all a ploy to get me to invest in their “new venture.” Some of my contacts would come right out and tell me that they were living their “best lives” now that they were “owners” of a particular company and promised me recreational travel, flexibility, and financial freedom if I invested in their company. After reading what the authors had to say about sourcing, I realized that my “friends” efforts may have been more successful if they focused more on their quality of sourcing activities.
The reading divides the sourcing activities into 4 major groups.
In preparation for a deal, the reading encourages writing a one-pager. This basically is writing down everything that you are looking for when looking to make a deal. This part seemed a little further down the road for me as a novice entrepreneur but when I delved into the actual components of a one-pager such as what is a typical deal you would like to target and what kind of management team you would like to see, I realized these are all important areas to think about at any stage of business.
It is also important to build a network and set personal meetings with “bankers, lawyers, and venture capitalist.” I have seen firsthand that this can tap into an even larger network as each one of these professions have their own professional network. I interviewed an attorney early in my Master’s program and I asked him how he grew his business. He advised that he received referrals from other lawyers. Of course, many practiced a different type of law, so they didn’t mind giving him the business but there were also lawyers in his field that referred clients because he communicated exactly what he was looking for which sometimes differed from the type of client they wanted. He made sure to return the favor, stay in touch, and reward them when a referral went particularly well.
Visibility, this activity I had a little bit of trouble supporting and after reading further into the chapter it seems that I am not the only one. It makes perfect sense that if you give interviews and find yourself in the press it can generate contacts. Some “angels” find this additional exposure overwhelming as I would.
A final but very complex sourcing activity is FOCUS. The author encourages an investor to focus on one or two industries, build a network, and turn away all deals but those in your focus. I immediately thought of a book I read in another course titled It’s a Jungle in there by Steven Schussler. He invested in so many different projects and sometimes they didn’t pan out and sometimes those that invested in him would become irate because some of the shortcomings of the projects. I believe that with more focus on both sides it would have led to greater success in the long run because of the ability to access a particular market faster and have high quality deals.
3 Replies to “SOURCING”
Great blog. The pyramid schemes and behaviors of those promoting them can be quite unsettling. As the stigma goes for used car salesmen, I try to avoid becoming that person that drives the pitch more than the actual value. I feel this type of behavior can have a very negative impact on a network that has been built or one that is being developed.
Focus is quite important. The company I work for has had multiple CEOs in the past few years. Our latest CEO has driven a lot of focus towards specific types of products and industries. This is helping our company avoid distractions and truly invest resources more appropriately.
Thanks for the read.
First off, I love that you started off with the pyramid scheme statement. I too was intrigued by this chapter because of that. I could go on a long rant about how much I despise pyramid schemes and how I feel they ruin relationships with people far too much, but I will refrain even though I just did a little. You did a great job breaking down the chapter and hitting on several of the major points. I agreed with you on several points and you did well explaining your perspective on each one!
I found your post this week to be really helpful in my framing of the sourcing problem-set/framework. Your ideas on becoming close with bankers, investors and the likes it really helps you look at the sourcing of a startup with a proactive location. Putting these people in your personal/professional networking is a must!