How to get the bullshit factor out of investor meetings
Oscar Wilde said: “Everything in the world is about sex except sex. Sex is about power.” Well, if you follow this quote , you conclude that everything is about power. I am not sure about the accuracy, but when it comes to business meetings, I agree, it’s unfortunately all about power. That is a problem, since we could be much more productive and get more useful things done if we got the power factor out of meetings.
I spend a good part of my professional life conducting investor meetings. I am typically the one with capital thinking about investing in or shorting the equity of companies. My role is pretty simple. I need to understand what exactly is going on in your business and then apply a set of rules to decide if it’s worth investing or potentially worth shorting.
The key issue here is not the set of rules. That’s something you can learn in business school, read Warren Buffett books or listen to successful investors in Silicon Valley. The rules of investing have been developed a long time ago and we as a society are pretty good at it. You buy businesses where innovation through discovery leads to value creation. You then test wether the market is pricing all that or if the market leaves something on the table. That’s pretty much it.
However, the difficulty lies in figuring out what’s going on. Investor meetings are like many other meetings full of bullshit. Instead of being a transparent conversation it is more like a boxing match and it’s usually all about power. Sometimes the company has power, sometimes the investor. Depends on the situation. For example, almost all companies oversell themselves. They paint a picture of perfection and leave the real issues out of the conversation. But it should be exactly the opposite. If you are a company looking for investors, you should point out issues and try to work out if the investor is ready to tackle them with you. They tend to fill you with bullshit and you know it. Then you return the bullshit to protect yourself. It becomes an arms race of bullshit and the meeting goes nowhere.
For example, I recently met a company that makes yogurts (let’s leave names aside). The issue with the company is that they are not able to charge enough to make a profit. Instead of admitting that and trying to work out if we can help them get better, they gave us the bullshit factor. They spoke about one specific store where they sold out immediately. Or they would tell us how much customers love their product (well, of course, you are giving away something expensive for less). When we pointed out that they might have a fundamental problem with pricing they dismissed us. The bullshit factor lead to a power struggle.
This happens all the time and it happens with startups as much as with billion dollar companies. Size doesn’t matter when the human factor turns into the bullshit factor.
How can we overcome that?
As investors we have tools to overcome that. The best tool is data. When going into an investor meeting with a company always try to have a “the spreadsheet” ready. The spreadsheet stands as metaphor for data. Try to find the most important data points that tell you the picture about the company and have an honest conversation about it. Best is, ask the CFO beforehand to hand you the spreadsheet since she probably knows best what drives his business.
Take the yogurt company from above. If you had a spreadsheet showing their cost of goods sold and their average price, you would quickly understand that they are not making money. Then you should have data on what happens to demand if they increase price. You should have data about competitors which lesser products who sell for less and try to understand why customers aren’t ready to pay for the difference in quality. I am certain that an honest conversation about these factors will lead to two outcomes.
a) You find a way to make the company profitable and successful.
b) You determine that the company has no longterm viability.
Both outcomes are incredibly useful and liberating for management. Even though the b) solution can be at first hard to swallow, it is much better to know what you can’t achieve and plan for a better future than just blindly run into oblivion.
Data helps cut through the bullshit factor in investor meetings. At Orange Capital Partners we have always had success with this approach. Best is, you ask the company to come up with “the spreadsheet”, which is a metaphor for data that really matters to them. “The spreadsheet” doesn’t lie. It tells the true story about the business. This is exactly what you want as an investor.