Early-Stage Investing Starts with Trusted Introductions: Thiel’s US$500,000 Facebook Check

Robin: ‘For early-stage investment, it is best to get an introduction from someone you know.’ Silicon Valley’s famous PayPal Mafia introduces promising opportunities to one another. Consider Facebook: in 2004, LinkedIn founder Reid Hoffman brought Mark Zuckerberg, just twenty and not yet a graduate, looking like a shy, introverted engineering geek, to PayPal founder Peter Thiel. Seek an introduction through someone you know—preferably an industry heavyweight! The PayPal Mafia regularly shares promising opportunities. In 2004, Hoffman brought twenty-year-old Zuckerberg to Thiel, who had sold PayPal and established Clarium Capital Management. After meeting, Thiel wrote a US$500,000 check for 7% of Facebook, reminding Zuckerberg not to waste it. Hoffman invested US$40,000 too. It was not a large sum, but supported a young entrepreneur. Both earned enormous returns. Thiel’s success made him legendary. But without Hoffman actively introducing Zuckerberg to a highly trusted Thiel—and saying he would invest US$40,000 himself—the story might have been completely different. An earlier piece, reused below. #WhyShouldIInvestInYou The most important technique in seeking angels is #TrustedIntroductionsImproveYourChances. A founder’s integrity is a prerequisite. Even lengthy conversations may not quickly build enough mutual trust. #LeiJunKnewYYsLiXuelingForOverTenYearsBeforeInvesting #LeiJunInvestsOnlyInAcquaintances #LeiJunInvestedInCheetah #FormerlyKingsoftNetwork #AKingsoftSubsidiary Because angel investing is personal, investors cannot do sufficient due diligence—or there may be no information to examine—and generally do not participate in management afterward. Integrity therefore matters even more. #NeverTreatAngelsAsFools. Do not submit business plans indiscriminately. Start with friends and relatives. If they will not support you, persuading other angels will be difficult. If friends lack the necessary money, ask them to introduce their friends. When someone asks why I will not invest, I want to ask: why should I? An introduction vouches for integrity. Blindly sending plans makes securing investment much harder. Many young people bring business dreams to event after event. But with unfamiliar people and businesses, how can anyone quickly know who can deliver? Google’s early fundraising was easier, but Yahoo’s Jerry Yang rose early and knocked on fifty or sixty doors before someone invested. Not every great company is recognized immediately. The obstacle is lack of understanding. Without understanding and trust, investment does not happen. Do not treat investors as fools: fools would not have succeeded themselves. Nor should angels be treated as philanthropists. Angels bear the greatest risk in the funding chain. Founders must understand different investors’ return expectations. Before approaching Series A investors, know your plans for the next five to seven years. If you can work through every financial detail and have spent tens of thousands of hours in the field, getting investors to believe your story means success. By this time, Thiel had sold PayPal and founded Clarium Capital Management. After their meeting, he wrote Zuckerberg a US$500,000 check for 7% of Facebook, reminding him not to waste the money. Hoffman invested US$40,000 too. It was not a large sum, but supported a young entrepreneur. Both earned enormous returns. Thiel’s success made him legendary. But without Hoffman actively introducing Zuckerberg to a highly trusted Thiel—and saying he would invest US$40,000 himself—the story might have been completely different. An earlier piece, reused below. #WhyShouldIInvestInYou The most important technique in seeking angels is #TrustedIntroductionsImproveYourChances. A founder’s integrity is a prerequisite. Even lengthy conversations may not quickly build enough mutual trust. #LeiJunKnewYYsLiXuelingForOverTenYearsBeforeInvesting #LeiJunInvestsOnlyInAcquaintances #LeiJunInvestedInCheetah #FormerlyKingsoftNetwork #AKingsoftSubsidiary Because angel investing is personal, investors cannot do sufficient due diligence—or there may be no information to examine—and generally do not participate in management afterward. Integrity therefore matters even more. #NeverTreatAngelsAsFools. Do not submit business plans indiscriminately. Start with friends and relatives. If they will not support you, persuading other angels will be difficult. If friends lack the necessary money, ask them to introduce their friends. When someone asks why I will not invest, I want to ask: why should I? An introduction vouches for integrity. Blindly sending plans makes securing investment much harder. Many young people bring business dreams to event after event. But with unfamiliar people and businesses, how can anyone quickly know who can deliver? Google’s early fundraising was easier, but Yahoo’s Jerry Yang rose early and knocked on fifty or sixty doors before someone invested. Not every great company is recognized immediately. The obstacle is lack of understanding. Without understanding and trust, investment does not happen. Do not treat investors as fools: fools would not have succeeded themselves. Nor should angels be treated as philanthropists. Angels bear the greatest risk in the funding chain. Founders must understand different investors’ return expectations. Before approaching Series A investors, know your plans for the next five to seven years. If you can work through every financial detail and have spent tens of thousands of hours in the field, getting investors to believe your story means success.