Trying to navigate your first fundraising round can be tricky and stressful, especially if you are a first-time founder. The first round of investing is typically termed the Pre-Seed round and is when founders are still trying to find product-market fit and have little to no revenue. An investment at this stage by an angel or VC firm is more a bet on the founder and team than anything.
If you have no background or understanding of the VC & startup ecosystem, where should you even start? I recommend this article, but the first person you should reach out to without a doubt is Tom Williams.
Tom is a renowned angel investor and former entrepreneur, but above all Tom is known as an incredible friend. He strives to be the best friend to every founder that he backs, the one that they want to call on the darkest of their days. He invests via his syndicate on AngelList and the Heron Rock Fund.
Below is my interview in Tom Williams where we cover, his greatest investment yet, the mistakes he made early, and what advice he has for startup founders:
Jonathan: Tom, for those that are unfamiliar with your background how did you get into technology, entrepreneurship and eventually early stage investing?
Tom: My father was a professor at the local university and brought home a Mac LC with 2 megs of ram and a 40-meg hard drive (it sits in my office to this day). It had HyperCard on it and I taught myself basic programming. I had always had an entrepreneurial instinct (which I think came from the fact that I hated school and saw making my own money as a means by which to break free of the shackles of other people’s control over me) and began to sell the games to my friends. I learned about forming my own company, writing a business plan and raising capital by the time I was 13. That set in motion a professional career in technology and startups that now spans more than 30 years of my life.
Jonathan: What has been your greatest investment to date?
Tom: The most legendary journey I’ve been on with any of my investments is by far and away Jumbotail. I have long believed that America is dying a long, painful death both in GDP growth and as a union because of a lack of a robust public education system and as a result, wanted to make a single bet on the Country I felt was most likely to surpass America’s economic superpower status. There are only two logical conclusions: India and China. I chose India. I looked to understand the economic makeup of the country and where money was spent and came to realize that food & grocery represented a US $400 billion market, in which most food & grocery is sold from Kirana stores (unorganized “mom & pop shops). I found Jumbotail. Karthik’s (the CEO/cofounder) background stood out as head and shoulders above everyone else’s. I cold emailed him. On my first phone call, he was the first founder in my entire career to paint a vision I could see so clearly 20 years in the future. I then met his cofounder, Ashish, who was equally impressive. I led their Series B and it was a test of faith amongst my LP’s at the time. One said “I would follow you blindly to anywhere on the earth except anything in India.” I ended up having to borrow money to complete the investment as other investors backed out at the tail end of 2018 when some thought the global macro was about to turn sharply. The only thing that could have killed Jumbotail was its inability to access the capital it needed. It just needed believers like me. It now has a lot of believers growing by the day. I sit on the Board and it is the single largest investment in my portfolio. Regardless of what happens in the future, my journey with Karthik & Ashish is one in which brings me an incredible amount of pride and joy.
Jonathan: What an incredible story that exhibits your incredible conviction in yourself.
What mistake did you make early and often as an entrepreneur and what did you learn from it?
Tom: Not listening to people around me. Not really trusting anyone other than my own instincts. Unquestionably, that held me back from achieving my potential for many, many years.
Jonathan: Similarly, what is the biggest challenge to entrepreneurs today, specifically those trying to raise their first round of capital at the pre-seed stage?
Tom: That they don’t know me.
Jonathan: If you were to start your own business today, what would it be and/or what target market/customer would you go after?
Tom: Your customer should be someone you genuinely enjoy talking with and serving and that when their lives are made better, they love you for it.
Jonathan: You pride yourself on your connection with founders and really being their best friend throughout their journey as an entrepreneur, how crucial is it for an entrepreneur to have someone like you who has been in their shoes and can really relate and empathize with what they are going through when they inevitably face tough times?
Tom: I’ve backed more than 100 entrepreneurs. Exactly 3 of them didn’t really need much more from me other than capital. I’m not that close to them and 2 of the three of them are exceptional in every way. Some founders, those with the experience and networks from prior successes really just need friendly passive money to be successful. But almost everyone else, including most of the other very successful companies in my portfolio had multiple moments where it looked like the Company would die. In those cases, when I look back on it, I could have helped those founders avoid those mortality events but we hadn’t built the trust that we enjoy today so in 2020, I started focusing on first check investing, where I am to be the first money in or the earliest money possible. By working in a far closer and in the trenches way, it allows me to help founders build the best possible foundation for their companies and establishes the trusted relationship much sooner.
Jonathan: We live in an incredibly crazy world currently, and so much has happened and changed over the course of the last year, what is the most important macro trend/thesis that you are looking at that not enough people are talking about?
Tom: I think we’re setting up for two types of tech companies: Good and Evil. And there will be a battle between those two forces. My bet is entirely on the side of good.
Jonathan: One incredibly important thing to consider for both entrepreneurs and young investors is building your social capital and network. How did you initially go about this and how would you go about it today if you were starting from scratch?
Tom: My entire career has been built on the power of cold emails and cold calling. I literally write a set of instructions on how to cold pitch me and very few people follow the instructions. First impressions are crucial.
Jonathan: You clearly have an incredible knack for picking people and founders, can you shed some light on what you attribute this to and the process that you go through when evaluating founders?
Tom: I get to know them for who they are rather than fitting them into some pattern-matching algorithm like so many robot investors do.
Jonathan: HAHAHA, I love that answer! One final piece of advice for any entrepreneur looking to raise their pre-seed round and what you are looking for? Best way for founders to contact you as well?
Tom: For as long as I’m making direct investments, I read every one of my cold emails via LinkedIn. Just follow the rules.
Jonathan: Awesome, thank you so much for your time Tom!
So, in summary I think there are three important takeaways from this interview with Tom.
First, as a founder you need to have someone you can rely on and talk with when the going gets tough. What makes Tom so great is that he is that person for almost every founder that he backs. What’s more, he has been in their shoes as a founder, which allows him to relate and show compassion to these founders while also problem solving for them. Finally, as an angel investor he is often the first check in and has a clear interest in seeing you and your company succeed. These three things are what makes Tom such a powerful ally.
Secondly, for entrepreneurs out there thinking about starting a business it is incredibly important that they know the market and problem intimately, know their customers, and love when they make the lives of their customers better. If you can’t see yourself working on this for more than 5 years and don’t delight in the simple things such as a solid customer review, then this is probably not the right occupation for you.
Finally, for any investors out there it is obvious from reading this how you can separate yourself. Don’t be a “robot.” It sounds so simple, yet Tom illustrates how rare it is for investors to actually be human! Get to know the founders that you want to invest in for who they really are, not who you want them to be or who you think they might become. Take a vested interest in not just their startup’s success, but the founder and their journey. Empathize with them, help them in the darkest of days, and not just success, but happiness too will ensue.
If readers are looking to learn more about Tom and how he thinks, I highly recommend the interview he gave awhile back on the Meb Faber Podcast.