April 6th, 2022
Recently, Venture Lane Founder Christian Magel sat down with John Harthorne, Founder and Managing Director of Two Lanterns Venture Partners and former CEO of MassChallenge to discuss “How to Build Investor Networks Outside of Your City” as part of Venture Lane’s FastLane webinar series.
Questions John Answers:
- What are the biggest challenges for startups when it comes to fundraising?
- What has changed over the course of pandemic that makes it more important now than ever before to consider fundraising outside of your city?
- How should I approach building a geographically segmented investor network? Where should I look?
Over the course of his career, John Harthorne’s passion for entrepreneurship has been evident. John acted as a Senior Consultant at Bain & Company before founding MassChallenge and serving as its CEO for almost 10 years. During his tenure as Founder and CEO, MassChallenge expanded into 9 programs across 7 cities, in 4 countries and graduated about 3,000 startups. Currently, John serves as the Founder and Managing Director of Two Lanterns Venture Partners, a $25.5 million seed fund investing in pre-seed, seed and Series A rounds for software startups in the US and Israel. John and his two partners at Two Lanterns have a portfolio of 19 investments to-date since the launch of their fund in late February of 2020. As a result of these experiences John brings a unique, bifurcated perspective to the discussion of building an investor network – understanding the issue as both a founder and an investor. Check out John’s take on forging investor networks outside of your city:
What are the biggest challenges for startups when it comes to fundraising?
Knowing when to fundraise. Most startups begin fundraising before they’re actually ready. While fundraising might solve some problems, it certainly won’t solve all of them. A startup needs to have an accurate understand of where it is at, what challenges it is currently facing, and what potential challenges lie ahead. Only then can founders really discern what fundraising strategy they should deploy.
Knowing how much to raise. Believe it or not, some startups raise too much money. While a high-ticket round may seem like the way to go, it’s more important to have a clear idea of where that money is going and how to spend it. Investor dollars come with an ROI expectation and raising capital beyond what you need can muddy the waters surrounding near-term and long-term goal execution.
Knowing which investors are the “right” fit. While raising capital is half the battle, the other half is finding the right investors for your specific startup. Investors look for internal alignment in your company as well as product-market fit. YOU should be looking for the same “fit” in your investors. Accepting institutional dollars should indicate alignment between a founder and an investor, creating a synergistic relationship predicated on a common goal.
What has changed over the course of the pandemic that makes it more important now than ever before to consider fundraising outside of your city?
The virtual world is smaller than the physical one. The pandemic fast-tracked the mass adoption of tech as a means to connect and maintain professional relationships. While this approach was initially met with trepidation, it’s proved an efficient, effective methodology. Access to investors is as simple as joining a Zoom call or connecting on LinkedIn; thus, democratizing access to investors in an unprecedented way.
Expertise can be geographically segmented – and you don’t have to miss out. There are a myriad of tech ecosystems all known for their unique strengths. Thanks to the widespread adoption of virtual connectedness, it’s much easier to tap into geographical pockets that align with your startup’s industry focus. Geographic differences are now more of an opportunity than they are an obstacle.
Connection often causes a ripple effect. Although each connection may not yield the intended result, it rarely leads to a dead end. Investors outside of your geographical region can connect you to other resources and talent in their area that you might not otherwise be able to reach. Leveraging your network in intentional ways often leads to better founder-investor fit and broadens access to a wider resource pool. “Warm” connections almost always yield the best results, so hone in on a commonality that you share with a potential investor (industry, experience, another connection, shared experience etc.), and lead with that.
How should I approach building a geographically segmented investor network? Where should I look?
Make a stakeholder map. Ask yourself important questions like, “What does each stakeholder want that we can provide?” “What do we want that our stakeholders can provide?” Once you have answers to question like these, identify a “Top 5” that make up your target list and leverage your network to facilitate these connections.
Understand which ecosystem best suits your startup. Your geographical niche is dependent on a lot of factors. Fortunately, startup ecosystems nationally and globally are large enough that they offer varied options. Some of the top ecosystem in the U.S. include
- Silicon Valley – Considered to be the largest, most successful ecosystem. Investors in the Valley are perceived to be less price sensitive, more focused on massively scalable companies and are generally founder-friendly. Things to look out for: the “over hyping” of certain companies / industry trends and the presence of exaggerated valuations.
- New York – Often a huge hub for finances, media, food, fashion, prop tech. Investors in New York are perceived to be less price sensitive overall. Things to look out for: largely a corporate climate, regimented business structure may threaten agility needed in early-stage startups, potential to overpay without offering commensurate support.
- Boston – Vibrant, fast-growing ecosystem with a balanced mix of old and new money. Investors in Boston are perceived to be more price conscious / conservative, positing scientific and philosophical reasoning as the basis of their investments, and tend to favor “proven” ideas or abstract ones. Slight skew toward B2B over B2C companies.
- Ones to Watch: Texas [Austin, Houston, Dallas] (up and coming, fresh talent, lots of money in the market, good corporate presence), Denver (Techstars, etc.), LA / San Diego (Media, Life Sciences), Miami (Crypto, Tech, etc.)
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