Pitching to Raise Capital

“Do you know how many business owners stand in this room and fifteen minutes into the meeting, I still don’t know who the customer would be or what the product would do for them?” says Michael Della Fortuna, an investor in private companies.
“What don’t you like?”
“It’s the lack of a big, driving goal. Imagine if General Montgomery spent all his time discussing how war ships and planes were built - and their fire power - instead of getting on with the big picture for D-Day. It’s the same for entrepreneurs. They must show the vision of D-Day, the milestones to get Normandy done and what the results should be. Cost – reward. They must show they can use the left side of their brain to steer their earnings before interest, taxes, depreciation, and amortization (EBITDA).”
Michael takes a breath and continues. “It’s never the technology alone that gets money out of the customer’s wallet. Ask Beta, Eight Track tapes, Lotus Notes, and all those companies with the way-cool technology that overshot the customer’s need. If you spend your twenty minutes telling me about your technology, I can’t stand it! It means you’re just not CEO material.”
“You hate seeing pitches?”
“Nope, I just get bored out of my skull by people who have not taken the time to expand their skill set. Owners bogged down in their product are like finger nails down a blackboard.”
Crikey! No wonder business owners get intimidated by pitching to investors. It is why I tell company owners who are about to raise capital that pitching to the fund managers is fifteen minutes under a hot, hot spotlight. When you get before the investors with the big bucks, you may have been invited for an hour, but in reality you have just fifteen minutes to break through and get them wanting to know more. For those silver-tongued owners who can communicate their business situation effortlessly, they will attract the finance partners to take their company to the next level. For those lesser mortals (most business owners) they could learn a lot from Andy Warhol’s phrase “fifteen minutes of fame” when prepping for pitching.
Make no mistake, the initial pitch is a short time to explain your value and, quite frankly, this process annoys the heck out of owners who know their companies are solid performers with a good financial record. They bristle, “Can’t these guys just read the business plan and we can email the PowerPoint?”
Eeeer, no. Private equity investors put their money (and it is often their own cash) into management and the pitch is their first opportunity to assess the team. Put yourself in the place of these investors. Imagine that you must make an investment decision. How would you make your decision? Would you choose the owner who froths at the mouth about their fabulous technology that U of Waterloo admires? Then there’s the owner who is obviously a great manager but the product is iffy. Lastly, you meet the owner who talks in broad brush strokes about the technology, how it will translate into cash, but also how much your investment could earn you over the next five years. The entrepreneur who can communicate and is thinking about my investment gets my vote – n’est pas?
For many owners, it can come as a surprise the extent that quality of management influences the investors. Most fund managers will tell you they would rather put their money into the great management team with a B product, rather than the less than stellar team with the A product because leadership is what gets results.
One of my clients, Angella Hughes of Xogen, swept me up in her enthusiasm because of her ability to get across her business value. Angella said, “Water is a scarce resource, not here in Canada but across the world, and it is dwindling every year. We have a cheap way of purifying water.” Ok, got that and I know fund managers in the green sector would agree. She pitched a brief investment thesis in a few words that people can grasp. She understands that there is time to get to her technology and complex business model in the second half of the meeting, once the value has been established. If she spoke about her water purification technology too early, her science would only serve to numb the interest of her investor audience.
The best case scenario is to get plugged into advisors and investors who really know and love their industry before you decide to take on private equity. “Even if they aren’t looking for capital at that time,” says Robyn Lawrie Rutledge, an investor with TSG Consumer Partners. She advises, “When the time is right for both parties, there will be a relationship in place which will lead to a more streamlined process and a stronger partnership out of the gate.” You might not have to burn under that fifteen minute spotlight by then.
I don’t want to suggest that pitching is like taking in a Staples “Easy Button” and the fund mangers will punch it, writing you a fat check. Simple is never easy. Deep preparation is needed and those who do it, get the funding. The investment community is globally small and, by golly, if you treat the visit to any investor with the same forethought as a chat with a friend in the school parking lot – well, put it this way, you don’t deserve the money. If you are one of the many business owners not comfortable with the communication required to finesse a capital raise, for heaven’s sake hire a professional corporate finance expert. Or find yourself a partner who can communicate.
Jacoline B. Loewen is the author of Money Magnet and managing director at Loewen & Partners, a private equity and venture capital firm based in Toronto. Jacoline works with the owners of companies to access capital. Jacoline can be reached at www.moneymagnetbook.ca.

2 comments:

Michael said...

Too funny. I just received a ‘pitch’ – basically a patent application – no marketing, no business plan, no costs, no potential customers, no market size, nothing but a sketch, a product description and a patent number. I felt like introducing this firm to one I met with a few months back - all marketing, market size, competitors, price points, sensitivity analysis, no working product, no product sketch, not a rendering, no IP.

I realise it’s an impossibility, but only if these two were working on the same product, we might have something.

It’s a real shame – people just don’t prepare. There is a basic requirement that must be satisfied and then there are the ‘tweaks’ that have to be added in. Those little things specific to a particular VC or PE firm, specific to an investor group.

If you want to be successful in any undertaking keep Henry Hartman in mind when he said “Success always comes when preparation meets opportunity”.

And for all those entrepreneurs that have capitalized on PE or VC support that were LUCKY, I refer them to Seneca, a Roman philosopher who was quoted as saying “luck is what happens when preparation meets opportunity”.

Best advice – it you don’t know, ask, and ask early.

Don’t use your opportunity to learn something fundamental. You need to make that impression that sets you and your concept apart.

J. B. Loewen said...

Seneca is a great source of wisdom and thank you, Michael, for these comments. This blog is going into the next edition of The Women's Post.