Every 4-5 years, professional fund managers like us get the opportunity to raise a new fund, assuming there’s been performance to give us the right to raise another fund.
This is the chance to get on the other side of the table from where we normally sit, and pitch ourselves to potential investors, to be critiqued, commented on, and again face the reality that the majority of people we’ll talk to about investing in us will say “No”. Just like any fundraise, it’s not a straight forward process, and is filled with great news, crap news, and “Didn’t see that coming” news. We experienced all of that and more when we raised our latest fund. It’s been a healthy reality check on our performance, team, and the investment mandate we’re planning to execute, with the end result being very public. We’ve just closed our fourth fund, having raised $110m from a range of institutional and private investors, cornerstoned by NZ Super Fund and Ngai Tahu.
In the way that we arrange tasks within Movac, Phil and I are responsible for fundraising the new funds, and much of that is activity-based – similar to any other sales-orientated projects.
During the process, I used a series of bulletpoints that I used to during our Fund 3 fundraise, so as to not fall back into making the same mistakes over again four years later. I put some comments alongside these ‘self checks’, as I thought they could be of use to others who have a capital raise looming on the horizon.
Think about how much you need to raise, and then chunk it down into component amounts. The best way to do that is put together a short list of lead investors and warm contacts and put a potential investment amount next to their names. Don’t keep thinking about the total you need, it’s easier to think about how that number is going to be chunked together. As the saying goes, “How do you eat an elephant?”….
- Meeting prep
People invest in people, so take the time to try to understand the background of who you’re meeting with, what they’ve invested in, how those investments have performed etc. Even the most basic of connections can make for a semi-warm relationship to start from. LinkedIn and the Companies Office website are useful starting places for understanding what they’ve spent their career doing, as going in ‘blind’ (unless it can’t be avoided) is often a wasted opportunity, and makes you look lazy and ill-prepared. Also, when meeting a new potential investor, it helps to know what they look like to avoid walking around cafes, asking random folks “Excuse me. Are you Joanne?”. When your diary is jammed with back-to-back investor meetings, it’s easy to miss doing background research on who you’re meeting if it’s the first time, and I certainly stuffed this up more than once – not a good look.
- Shut up and listen
One of our Fund 3 venture partners once said that God gave us two ears and one mouth on the basis that they should be used in those proportions. Nothing turns a potential investor off more than getting talked at for an hour, so despite the fact that you’re trying to pitch yourself, shut up and listen whenever you get the chance. Open, simple questions are easy starters. And remember that most people can read, so don’t go through any presentation in infinite detail. Also, if you’re pitching as a team, this is even more important, as two people running through the same presentation can be somewhat overwhelming. Be clear beforehand as to who’s leading/primary and who’s secondary in the meeting. The latter should only chime in where necessary, or on the odd occasion where the primary isn’t hitting their stride in the meeting.
- Tag team
Some people are more comfortable than others pitching. Similarly, there’s times when you’re simply not the right personality to fit with a potential investor. Appreciate that, and do something about it. Subbing in the right person for the right situation can make all the difference. As mentioned below, critique each other (and yourself) after every pitch – ‘review and refine’ will make sure you’re not consistently making the same mistakes, and means you should be getting better as you go. I cringe now when I think about some of my first meetings to raise Fund 3 and Fund 4.
- Review and refine
After every meeting, think about how the meeting played out, what went well and what didn’t. Typos in the deck, what was important, what should be highlighted, what was filler and can be cut out.
If there’s one thing that’s needed in fundraising, it’s momentum. I think it’s a function of planning, activity, and persistence. It’s something that’s intangible but also feels very tangible. If you’ve got momentum, you’ve got confidence, and that’s counts for a lot when you’re seeking people to have confidence in you and what you’re doing. Confidence also provides you with the fortitude to take failure and rejection on the chin and move on. Momentum is really hard to generate early in the fundraise process, so take time to acknowledge any small wins you get, as they all add up mentally and financially. This can be as simple as having a #fundraising Slack channel where you post each commitment and a running total and small team events at various milestones.
This sounds really simple, but so few people actually do it. My pick is that 20% of people I meet with actually follow up on what they say they will after a meeting. So if you actually do follow-up, you’re already in a self-minority! So simple and sets the relationship up properly. Otherwise, it leaves the potential with unfulfilled expectation.
Don’t hear a “no”. Take it as a “not yet”. Put the onus on yourself to come up with a more compelling story as the capital raise gains momentum, to give yourself the reason to go back and ask again. But also don’t piss people off by harassing them. Obviously, there’s a fine line between persistence and harassment, but a good EQ antennae should sense where that line is.
- Door open for future relationships
Even if the answer is ‘no’, leave the door open to work with the party in another way e.g. co-investor, advisor, director, mentor, or a future investor. That’s why follow-up is also critically important.
- Time reality
It will be harder, take longer and will be filled with surprises along the way, so accept that reality and be positive about the challenge. Going into a capital raise with a tentative mindset or seeing it as a real chore will make it even harder for yourself mentally, and those you’re pitching to will sense that. View it as a chance to tell your story to people who want to hear it.
- ‘One on ones’ versus group presentations
My track record in raising money from group presentations is horrible, so I now avoid them wherever possible, and try to get one-on-one meetings wherever I can. E ven though it’s far more time intensive and the lure of combining 30 individuals meetings into one presentation is really appealing, if it means better end results then it’s a no-brainer. When reflecting why it hasn’t worked for me, I think it’s the reality is for many people, investing is a very personal thing. Experienced investors like to feel special and unique, and have specific perspectives, so therefore their insights and questions may well be very different from others in the group. There’s also a real risk that the first couple of questions can really kill potential investor enthusiasm, effectively derailing any momentum that had been built up. I’ve seen this happen many times at angel pitch events, and it’s really hard to bounce back from when you’re on stage. So whilst it makes sense in terms of efficient use of time and many others are highly successful pitching to groups, it’s never worked for me so I avoid it wherever I can. Having said that, others can really work a crowd, so do what works for you.
I can’t remember if I’ve ever had someone tell me that their fund raise was going much faster than they thought. So overestimate the amount of time take and you won’t be demoralised along the way as it drags on. We thought Fund 3 would take six months to raise – it took 18 months. We thought Fund 4 would take six months to raise – it took 24 months.
Often the biggest fundraising wins come through luck, and I’m a firm believer that you earn luck most regularly through persistence, focus, and activity. Sometimes it can be simply timing. Acknowledge any luck that comes your way, and celebrate it. And then work hard to be in the right place for another dose of it.
- Starting point, not an end point
The harsh reality is that at the completion of even the hardest fundraise (and they typically all are), that only gives you the right to stand on the start line, and demonstrate to new investors that you deserved the right to invest their money into your business or fund. It’s a responsibility and an obligation, so keep them updated on your progress through the great times, bad times and everything in between as they should be connected to their money.
- When it’s finished, get ready for the next one
It’s worth making notes of what worked and what didn’t in the fund raise process so that you’ve got a mental starting point for next time, which will likely come sooner rather than later!
Hopefully, this is of some use to those of you about to embark on the fundraising journey. That said, these are just things I’ve noticed from my experience and everyone has different war stories to share. Any questions, comments and feedback are, as always, appreciated and very welcome.
Here are some useful articles on fundraising that are worth a look:
Best of luck!