Tell It Like It Is — The Art of Capital Raising

If there is one thing that entrepreneurs hate more than anything, it’s raising money. From the most prominent VC fund managers on down to some of the most successful start-up entrepreneurs around, the task of raising funds is the one that is often found to be the most strenuous of all.

For me, capital raising isn’t the chore it seems to be for most entrepreneurs — in fact, it is kind of what being an entrepreneur is meant to be about. In fact, I raise capital now just for fun a lot of the time, even in projects where there is no deadline or requirement too, simply because it’s an enjoyable way to meet new people and also because it just seems like plain common sense to have more cash and more partners than you need when going into the unknown.

Part of that instinct is because of my professional background. For me, life began in the capital markets, doing nothing but raising money all day for private equity clients. Most of them were on short deadlines by the time my team and I got around to closing out their placement.

One particularly memorable moment came after I gave what I considered to be one of the most dynamic, breathless pitches I had ever delivered, when the investor asked: “So what you are saying to me, then Daniel, is if I don’t put in money this company is going bust?”

Questions like this usually wear down entrepreneurs, as they stall the hockey-stick growth chart that has been prepared so painstakingly the night before.

But these sorts of questions are actually a wonderful chance to focus on the investor individually a bit more and start thinking about how to sell your business in a different way.

In this instance, the investor in question had already committed to a seed round. So I answered him,, “that’s absolutely right. If you don’t put in money your previous investment in this company is down the toilet.” The investor signed that afternoon. After that, I’d front-run the objection by telling a second-timer in a particularly hairy P/E deal, “if you don’t do this now we can probably just call the receiver at the end of the week.” And it worked — in fact, it was one of my best approaches.

Be Sincere, Not Sensational

I still employ these sorts of brutally-honest, investor-specific reality-checks in all the pitches I give today, too. Earlier in the year, we were faced with a situation in which we became uncomfortable working with a partner on a property development and decided not to pursue business with the partner. The issue was that we had already brought in a number of early-stage investors in the pre-sale of the development who had put deposits down. The question became: do we hand back the deposits or try to find another viable investment for them?

Always having had a certain appetite for difficult situations, I chose the latter course. So I told them directly, “instead of committing the remainder of the investment you had planned to put into the property development we sold you so enthusiastically months ago, we’d now like you to instead put it into a loan note we are issuing on a subsidiary public company with comparable returns.” As my COO put it to me, rather kindly I thought: “you’re asking everyone to make a very different sort of investment now all of a sudden.” To which my response, to her and all the investors was, “listen to me — if you buy a property title and I don’t develop it it’s worth zero. If you buy a loan note and I don’t pay you back it’s worth the same. This is really what this investment comes down to, and came down to in the first place, when you think about it!” (Helpfully, my COO, ever the tactical diplomat, went translating this a little more with a bit more of a genteel feel for more sensitive ears.)

The Investor Is A Human Being, Too

There are a couple of take-aways here. First: know who it is you’re presenting to. Depending on the circumstance, you may be over-hyping your company and coming across non-genuine.

Second, and most important — and refreshing — of all, is just tell it like it is.

Very, very few entrepreneurs do this, and it both annoys and amazes me in equal measure when I see a pitch. And I honestly don’t think entrepreneurs like giving the same blue-sky spiel day-in-day-out. It’s like having to pretend the person you are in love with makes you happy all the time for fear of their abandoning you. It’s bound to fail.

The reason I think a lot of entrepreneurs don’t like fundraising is because they feel like they are being untruthful or overly-optimistic when they give their pitch. They feel insincere. If you are an entrepreneur and you are raising money and you feel tired or sleazy selling your company 24/7 to keep it alive, here is a piece of well-worn advice: cut the bullshit and tell it like it is.

One kid asked me recently what he should put in his slide-deck. Insensitively perhaps, I forgot to reply, because flying around between three different Asian cities every seven days tends to canabalize your sensitivity to such genuinely valid questions when they arrive in your inbox. Well, here is my answer, anyway:

When you put a slide-deck together, think of all the reasons you would never in a million years make the investment you are about to pitch someone. Try and understand that these are perfectly valid and reasonable objections to not giving you any money, and don’t fight it. Now you are getting on the same wavelength as your investor — and you’re twice as likely to get his investment as a result.

Addressing the toughest questions is what you really ought to be doing anyway if you are a competent entrepreneur, or the reality will end up blindsiding you and you will lose your investor his money. Think about this when you begin to give your next presentation or put together your forthcoming slide deck. Don’t show how huge a market for something is without also showing how many firms have failed to capture market share in that space. Don’t show how many giant firms you can disrupt without acknowledging how much capital they have on their bloated public company balance sheets to crush you before you can even say “disruptio-”

Tell it like it is. Don’t take the upside so seriously. Know it’s mainly you they are buying anwyay, not what you are hawking them. And learn to laugh openly — to yourself and even to your investor — at how crazy you are to be trying to pull off the ridiculous feat that you are.

Because after all, crazy is the key personality requirement if you want to end up with a product or service that is crazy-big.