One Wrong Referral Costs More Than Ten Missed Ones

The question investors ask us most often is this: how many do you send me in a year?

Our answer: it varies, but every one is worth opening. Let us state the view first. The right to refer is a key, not a flyer. Why? Because a key is cut to a lock only once.

We Have Done This Arithmetic Carefully

Miss a deal and you lose an opportunity. Refer the wrong deal and you burn credit built over many years. Opportunities come often; credit is hard to build. Every referral that does not fit the profile says the same thing to the other side: you were not studied seriously. Once he reaches that conclusion, even an accurate referral later gets discounted. A discount is the good case. But a discount that runs long stops being a discount. At the end of the discount, the emails go unanswered.

In other words, a referral has a denominator. In a year an investor will open a few dozen referrals seriously, about one a week of his attention. Every referral we make takes one slot out of that denominator. The slot taken cannot be paid back.

A Profile Means Working Out What He Fears

An investor profile is not a label. It is understanding, a file we keep on each investor. Stage preference, depth in a sector, cheque size, decision process, real tolerance for risk — we ask about each line, write it down, and revise it deal by deal. Preferences written on paper change. The preferences hidden inside decisions are the real ones.

But what is worth asking about is usually not what he likes. It is what he fears, and who he has to answer to. We think investing looks at safety first and odds second. However full the win rate sounds, the odds may not match it, and whoever moves first carries the risk of a wrong price alone. So the columns in the profile that actually work are these: the pressure on him to deploy this year, the generation of opportunities he missed entirely, the performance he has to hand in. So far, sorting by situation hits far more often than sorting by sector. On this one we are fairly confident.

So how do you test whether a profile is accurate? Look at conversion. Once the right investors are screened in, more than half should reach a term sheet, the page on which an investor writes down preliminary terms. That is five out of ten moving forward. If it falls short, what gets fixed is the profile, not the deal.

Referring Less Saves the Other Side Time

We refer less because we screen hard, and we screen hard because we treat the other side's time as a cost. We also gate things on the investor's behalf: whether the orders really close the loop, the founder's integrity, whether shareholders will keep supporting. Fail those three and we stay quiet, however hot the deal is. The noise belongs to others, but the credit is ours. This is not a pose. It is discipline.

The Archive says it more bluntly than this piece: we recognise only one thing — whether the firm is willing to look at the next deal.

Once the profile step is solid, the next step means something: screening the deal itself on the investor's behalf. That is the next piece.