The kiss of death for any startup raising capital is hearing “maybe.” As much as it may seem painful, presume “maybe” is “no” and move on. You are better off aggregating more interested parties than spending time trying to move the fence-sitters off the fence.
But, let’s step back and deconstruct the process. The critical first step when raising capital is to build a pipeline. We’ll leave the mechanics of that effort to another post because it’s a whole lesson in and of itself. But the essential principle is that raising capital does not work if you don’t have a pipeline, and a system for sustaining and expanding on the pipeline. We’ll assume you have this in place for the purposes of discussing next steps.
An important adjacent point is that the pipeline candidates have to be qualified and legitimately interested. Just because someone has capital to invest, does not mean they have any intention of investing in your space, let alone your venture. Again, filtering is off topic for this post but the pipeline is only a pipeline if they are actual candidates.
We are going to work off the assumption that the pipeline candidates you are presenting to are truly qualified and potentially interested. If either is not true, everything hereafter is a waste of time. Realize, there are lots of people who will attend an “investor presentation” for entertainment purposes, or even to have a social glass of wine etc.. While it’s impossible to discern the motives and capability of those you are presenting to, you need to have some ability to filter.
Jump forward to the point where you begin to present your story to the folks in the pipeline.
There are generally 3 things a qualified and interested investor wants to learn in order to participate:
- Do they like the concept, idea etc.?
- Do they think the team behind it is capable of guiding it to a successful conclusion?
- Do they like the economics of the opportunity?
In advance of the presentation, the entrepreneur may want to lay these three key categories out for the prospective investors. Let them know you will try and address each, and if they feel positive about each, then you will ask them to consider participating. Ask the investor(s) if there are any additional questions they would like to ensure get addressed? Depending on what they share, the additional questions posed may or may not fall easily inside one of these three buckets…but they very often do.
As you set up the presentation, make note of where and how you address each of these fundamentals. Don’t get lost on the details of the business when you know the investor decision will rest on adequately addressing these alone. Investors respond to crisp and simple story-lines. Often this is linear…”we will do this, which leads to this, and results in this.” It’s easy to follow. If you find yourself spending more than 30 seconds on your patent portfolio, or go-to market strategy, you are probably losing your audience. Let them ask questions if they want to dive deeper into a given specific area.
You effectively set the framework for the presentation and expectations at the outset. You walk through the story and address each of the 3 fundamental areas. Now it’s time to “make the ask.” There is no mystery here because you established from the get-go that you would be making “the ask” at this point.
Pro Tip: Don’t ask your investor candidates to get back to you if interested. No one operates like that. Despite your brilliant presentation, the audience members are thinking about lots of other things besides your venture. Instead, let them know you would like to give them a day or two to think about the opportunity and raise any questions that may come to mind. Then, in the next few days you will give them a call to ask for an answer. Let them know that this is opportunity is not for everyone, and if they decide not to move forward you will wish them well and that’s the end of it. You will want to ask for feedback and depart as friends. On the other hand, if they are interested, then you will walk them through the next steps.
The process laid out above has been well proven in just about every sales related environment imaginable. It’s not magic. It just ensures that if you get the right people to listen, and answer the key fundamentals, they’ll generally come along for the adventure. If they don’t, they were either not effectively qualified or you likely didn’t adequately address one or more of the 3 fundamentals. This may very well mean there are flaws in areas of the business or plan, so you need to welcome feedback so you can adjust whatever is needed. This can range from adjusting the business to adjusting the presentation of the business….but you need to know which is needing the adjustment.
Ask any entrepreneur to list the top 3 most difficult tasks in building a business, and raising outside capital is almost always at the top of the list. It’s difficult for a host of reasons, but among them is the fact that the skills involved are usually not the skills the entrepreneur has developed, and not the ones they use on a regular basis. It’s also difficult because people are very emotional about money. People raising money usually feel some level of discomfort asking for it, and those investing often feel like it’s an “expense.” This is quite different when dealing with professional investors, because it’s their job and it’s almost always not their personal money being invested. Regardless, if you are going to build a venture requiring outside capital, it’s one of the skills you have to at least get reasonably got at executing.