Prospecting for Capital: That Unexpected Gold Vein

Go Where Others Are Not


There are a lot of deals out there. Those transactions that get funded quickly usually do so because they meet the affinity standards of their backers. Tech money tends to respond to internet-related firms. Real-estate wealth supports property deals. And those who like bling seem to back bling.

There actually may be a behavioral principle here: cognitive fluency. Or the ease with which our brains process information. Those making investment decisions — whether institutions or individuals — may revert to the simple and familiar, at least from their point-of-view.

One obvious reason investors may be more easily persuaded by affinity deals is that they make the due diligence process a lot easier. Founders, entrepreneurs, and asset managers can fail at representing their transactions properly during the due diligence process. For seemingly good deals, backers do not have to tread through a morass of new industry metrics.

The problem of course is that trend-worthy deals tend to boil over, targeting the same investor names. There may be a flood of tech-apparel transactions over the next year, given the early wins that Apple is likely to see with its watch. One way to overcome that challenge is to follow a “blue ocean” capital-raising strategy. Go where others are not.

New pools of capital are erupting almost volcano-like in some geographies. Sponsors behind US-based real-estate deals can now search for capital in Taipei or Tbilisi. Tech-related entrepreneurs in Brazil can think of Silicon Valley as a concept, not a location, exploring backer relationships in Singapore or Stockholm.

Perhaps the reason why those looking for capital often fall into a rut is that they do not take the time to explore the full global universe of affinity backers. It is excruciating both to develop a business and uncover the financial resources to propel that evolution. Never mind trying to do so on a worldwide playing field. The first step to discovering that unexpected gold vein may be understanding the vast potential “over there.”