It’s not a pitch, it’s a conversation: The Art of Raising Capital
Movac Partner – Mark Vivian
30th September 2019
Seeking out capital can be a lonely and frustrating business as I’ve learned over the past decade raising funds for Movac Funds 2, 3 and 4 but it gives us a chance to put the shoe on the other foot. The process we go through is no different from business owners experiencing their own trials and tribulations in the search for capital.
Here are a few of the lessons I’ve learned over the years:
First, get started as soon as you can because it’s going to be harder and longer than you expected. Second, be prepared for the emotional rollercoaster. You set out with good intentions but be prepared to critique yourself through the downs and pick your energy up to propel yourself forward. We’ve found in each of our past fundraises, there’s been at least one major pothole or obstacle to overcome, so it’s important to be mentally prepared for that. It will never be perfect, so get out there and road test yourself, your pitch and the opportunity.
You need to have a realistic timeline. If you’re a company seeking capital, and you’re currently burning money, or making monthly losses, be realistic about how long your capital runway is going to last. Also, be realistic about how much money you’re seeking to raise within that timeframe.
If a capital raise is going to take a large amount of time, it’s important to have short term goals. If the capital raise is 6 to 9 months long, that’s quite a long period to keep yourself motivated so set some interim goals.
Understand the likely sources of initial interest. We see many people unwilling to commit until others have done so. It’s a little bit like trying to herd sheep through a gate, so identify some potential investors that are highly likely to invest, and then use that committed capital to go and enthuse others to get involved.
Before the initial meeting with a prospective investor, do your homework. I think it’s a basic common courtesy to do at least some background research, whether it be a general Google search, or the company’s office etc. to get a sense of what types of things they’ve invested or been involved with previously – the types of industries, companies and whether there’s some sort of overlap. You should be aiming to get a sense of their risk appetite. I found out early on the best thing you can do is get an investor talking about themselves, their career and their experience. It’s a great conversation-starter. Be prepared to sit down with an open mind, ask plenty of questions, shut up and do a lot of listening.
Don’t think of it as a sell job or as a pitch. Think of it as a conversation with open-ended questions and don’t be defensive in your answers. You’ll get a good sense whether there is a connection with a potential investor or not relatively quickly. I far prefer a one-on-one meeting or conversation as pitching to a group of investors can be somewhat clunky and impersonal. I think investment is a very private activity for some people and I completely respect that. Because of this, I learned quickly to never ask investors for referrals. You are not selling a widget, you are selling an opportunity and a financial commitment.
Follow up is critical. I like to finish a meeting with a potential investor with some sort of commitment either from them or myself. Make sure you follow up if the commitment is with you. If the commitment is with them, it’s a good reason to go back to that investor and have another conversation. Beware though, you don’t want to be seen or perceived as the person that’s harassing. I think a gentle light touch is the best way. If there is silence, there is usually a reason for that silence. It’s either a “no” or there’s something else going on. If you can get some sort of reason as to why it is a “no”, that’s good. Think, can I turn this around? If not, take that message on board, read the tea leaves and move on.
I think another key aspect is building a database and managing it. We have found that a lot of people who later ended up committing to one of our funds were initially either uncommitted or negative about the proposal but they came around after we followed up with updates.
It’s important to keep confidence levels up. At the end of the day, the worst that anyone can say to you is “no”. If you work on a relatively realistic conversion ratio, you will get a good number of people saying “yes”, so thrive on those and refine your thinking around some of the “no’s”. You need to be resilient, confident & like fundraising otherwise you’re in for a really challenging, difficult time.
There is some luck involved. You’re going to have some bad luck and you can’t control that, but the harder you work, the luckier you get.
When considering how long the process might take, look at your guesstimate and double it. When we first set out raising funds externally we thought the fund raises would take about 6 months. In fact, they took about 18 months! We think as Movac gets more mature and more experienced in this market, the timeframe should shorten so we’re thinking 6 to 9 months for the next fundraise.