When you pitch a banker or venture capitalist, you may think you're asking for money. That's not really how it works.
I recently listened to a management team practicing their money-raising pitch. The pitch was well-honed and hit all the right notes. The management team was adept at looking at their business from the outside, assessing its strengths and weaknesses, and outlining how they would use the money. They deftly raised questions that an investor would ask, then showed how those concerns weren’t real or could be mitigated. They were well-spoken and knew the key financial drivers in their industry. The company was growing, and was on a path to even greater profitability.
But it was at the very end of the pitch where they really hit a home run. The CEO thanked the potential investors and proposed some next steps to help the funders get to know the company better. Then she then asked for questions―and waited.
When you go out to raise money for your company, there’s a special skill in knowing when to “call the question.” This CEO had it. She knew that the folks on the other side of the table needed to get to know her company, and she understood that asking point-blank for capital at the end of that meeting didn’t make sense. She also understood that investors have their own processes to go through, and that they don’t make funding decisions in an instant.
The CEO also knew something else: Her goal, in this meeting, would not be to get a check. It would be to get to the next meeting.
Asking for something too early isn’t likely to be nearly as successful as building trust and comfort. In many aspects of our lives, the quick “ask and answer” does make sense. The raw speed of technology only encourages our desire for instant decisions. But signing up to invest in a company for three to seven years is not done quickly.
How do you increase your chances of getting to the next meeting?
Stage your information: When pitching investors, do you present something quick or something deep? The truth is you will need both. Take an extra minute to think about your presentation, and the order in which you present your information. In general, be ready to start with your brief overview, and then give more and more data to the investor.
Prepare in-depth data on what an investor will ask: Think through the questions an investor is going to ask and prepare that data for follow-up. A good answer to a tough question is, “You’re right. Why don’t we show you more detail on that issue as a follow-up?” You will build legitimacy with a potential investor if that follow-up is well thought-out and arrives soon after the meeting.
Lead the horse to water: Financiers have a bunch of options to choose from, and sometimes the pitch that wins is the one with the best follow-up. What questions were you asked in the first meeting? What are the investors’ next steps (if you don’t know, ask). Then prepare and provide information proactively, so that the investors can clear their next internal hurdle.
Learn: The worst thing about raising capital is you take a lot of swings and miss. The best thing is that you learn what the fastballs will be. If you are asked the same question each time you present, then integrate that issue into your pitch to inoculate yourself against it. Ask yourself the hard question: “Why didn’t those folks invest?” You will learn a lot from investors who don’t invest. Turn that information into an advantage next time around.
Presentation alone doesn’t raise capital. Putting on someone else’s persona doesn’t work either. But presenting well and creating a process to move things along does increase your odds. If you are successful in consistently getting to the next meeting, you will eventually get to the money.
Based in New York, ED POWERS is a managing director and head of the Capital Access Funds team at Bank of America Merrill Lynch. Capital Access Funds is an experienced, returns-driven private equity fund-of-funds.