Big Red Car here. The Boss is back in town through the rest of the year — well, except for a visit to NYC and a couple of weeks of skiing in early December. The Boss likes that skiing. It’s already snowed in the Rockies.
This morning he was up early and had a conversation with one of his CEOs that he’s had about a thousand times — raising money. It’s what CEOs do whether they like it or not.
Most CEOs do not like raising money.
Fundraising is an almost mechanical process which requires a CEO to develop a target list, a process, certain tools and then to executive vigorously. It really is just that easy.
Fundraising does not have to be difficult.
The CEO has to know his business and as a foundation requirement should be able to articulate the product or service from the perspective of Vision, Mission, Strategy, Tactics, Objectives, Values and Culture. Pretty basic stuff, no?
It is very, very helpful if this stuff is written down and communicated to the entire team.
Where is the money?
The money is from the following sources:
1. Bootstrapping or self-funding;
2. Friends and family;
3. Angels — high net worth individual investors;
4. Syndicated angels — high net worth individual investors who have come together to pool their resources and improve the quality of their decisionmaking, due diligence, negotiations and administration — this is an emerging source of capital;
5. Crowdfunding — intermediaries who raise money on behalf of companies in a traditional broker-dealer methodology or through the provisions of the JOBS Act — this is a newly emerging source of capital and takes advantage of the recently lifted ban against general solicitation thereby harnessing the power of the internet;
6. Seed funding — really a distinction only in that it comes primarily from venture capitalists who focus on seed funding;
7. Venture capital series A, B, D, D; and,
8. Monetization — strategic partnerships, strategic sales, IPOs and other “end game” type funding. This may also be viewed as an “exit”.
The only new wrinkles in this continuum are the emergence of syndicated angels and crowdfunding — Micro Ventures and CircleUp are good examples of this newly developing arena of fundraising — which are related in the sense that they are “organized” approaches to connect money with investment opportunities in a more administratively structured manner while tapping into the same sources of funding — high net worth individuals or families.
One other place an entrepreneur can look for is “family offices” which are an emerging source of funding similar to syndicated angels in that high net worth individuals have created professional investment endeavors to manage substantial family funds and to administer financial affairs for family members. This is an embryonic but clearly identifiable investment trend and pooling of capital which is generally comfortable with venture capital type investments depending upon their investment philosophy and the magnitude of funds available.
Every investment pitch is ultimate a bit of storytelling. Nothing more.
The entrepreneur has to develop the following tools to be able to tell her story effectively:
1. Elevator pitch — 3 minutes;
2. Taxi cab pitch — 5 minutes;
3. Boardroom pitch — 15 minutes;
4. Short slide presentation — less than 10 slides;
5. Business model canvas; and,
6. Product, service demonstration.
You can scare up a lot of variations on the theme but these are the basics. Remember they are not the “story” they are just story telling tools. The entrepreneur is still the most important tool — the investors are investing primarily in the entrepreneur.
Before beginning to wander the streets in search of someone to whom to give her elevator pitch, the CEO should identify the appropriate targets for her pitch. This is an area that many CEOs fail to spend enough time relying instead upon the “usual suspects” rather than conducting an exhaustive research of likely investors.
If you are looking for syndicated angel investor organizations, you will want to develop a list of those organizations from likely sources such as the entrepreneurial oriented press, local business journals and word of mouth. You can easily come up with a list of 25 such organizations in less than a single day. Same thing is true of venture capitalists.
Ask other CEO peers for a bit of guidance and recommendations.
The CEO should create this long before they start wandering the streets. You can also get a damn good MBA intern to develop this list.
Once all of the above is in pretty good order — not perfect — then you have to start making appointments and setting meetings.
Be prepared for initial contact via snail mail, email, phone calls and introductions. Introductions are the best way of making contact but remember one thing — investors inventory money and professional investors get fired if they fail to invest OPM. Big secret, no?
Then the appointed hour arrives and you go make your pitch.
Use your tools to tell your story and expect if you are given an appointment to really only have 15 minutes to make your pitch and, if you are lucky, 15 minutes to answer questions. Anything beyond that is just gravy.
Your objective is to have the investor say — “That’s interesting, we should learn more about this.”
Practice makes perfect
You will find that some days you have the Blarney Stone in your pocket and the chemistry is just perfect. Other times, you will have more success pitching to your Labrador. Labradors are easy.
Do not beat yourself up but take every opportunity to get better.
You will find there is one point or slide which carries the day. You have to learn what that is and get to it as quickly as possible in your pitch.
At the end of every pitch make damn sure you know the next step, if any. If you get a “no” ask why and learn from that. Sometimes it is just timing and nothing more.
Ask every investor what you can do to make your pitch more effective. People will help you even if they have no interest. Listen carefully. When did you captivate them and when did they begin to nod off to sleep. Understand why.
As you pitch more and more, learn and revise your pitch throwing overboard the ineffective and doubling down on the effective. This would make Sun Tzu proud.
You will get better and better and better as you pitch your deal more. Learn.
You will not get every investor to fall in love with your pitch. I suggest that success rates are less than 10% and ultimately your investors will be half of those folks. That is a very low success rate. Welcome to the varsity.
Do not become discouraged. We already know that MOST of the pitches you make will NOT work. Be armed with that info and be realistic. Do not beat yourself up. This is the business you have chosen. Do not take it personal if your own Mother does not invest in your deal and certainly do not take it personal if a stranger cannot see the brilliance of your product or service.
Become very “good” at pitching but do not become a fanatic trying to become “perfect”. Do not make perfect the enemy of good. Most of the money gets raised by folks who are about 80% correct and done on time.
Present yourself consistent with your audience. If you are pitching to the “Baptist Church Angels” maybe you will want to wear a long sleeve shirt to cover those tattoos? Sorry but has to be said. Dress exactly like your audience. Dale Carnegie had this right.
OK, so there you have it. Nothing to it.