Time and time again, we see companies expecting to raise capital with extremely tight timelines and with minimal effort. Even the best businesses fail to get investors’ attention with this approach. Last week friend of the firm, Marc Patterson, wrote a post that resonated strongly with me on growing capital. His article gave a clear portrayal of the true nature of funding a business.
Patterson explains that to capture investors’ attention in an overcrowded marketplace, it is necessary to rethink the concept of ‘Raising Capital’.
– Alex Kramarchuk, Managing Director, Colton Alexander
Capital Is Grown, Not Raised
Raising Capital is NOT a one-time event, as many groups treat it. It is not a function to be loathed or endured. You do not raise capital in the same way that you ‘raise’ a barn.
Capital is ‘grown’. Capital is ‘grown’ in the same fashion that a garden is grown. It is a mindset and an ongoing process. A process that must be constantly refined and adapted for success. Growth takes time. Growth takes nurturing. Growth takes forward planning. Growth takes resources. Attracting and growing capital requires all of these things as well.
Successful groups understand that there is a fundamental difference between treating capital as a short-term end game versus an ongoing need that requires commitment, care, and nurturing. The most effective way to grow capital is to properly prepare the fertile ground. Growth begins with the foundation of necessary nutrients and elements. Each new element created and nurtured adds a layer that will strengthen the elements already in place. In the end, the whole is greater than the sum of its parts.
Sound like hard work? It is. However, plan effectively, and it doesn’t have to be so difficult and should get easier with time.
First, Stand for Something.
In order to build a fund or a company that will capture investor attention and endure, you first must stand for something. ‘WHY’ you do something is often more powerful than WHAT you do. If you want to separate yourself from the crowd, have a compelling WHY, and effectively communicate that to your ecosystem. The best way to communicate a powerful WHY is through the strength and clarity of your Brand.
Rethink the concept of branding for your company or your fund. Your brand is your logo, your website’s color scheme, the fonts your use, your pitch deck, your bios, your professional headshots and your video representations. All of those things are brand. But those things alone are not the true essence or power of your brand.
Apple has a stellar brand. However, the Apple brand is not just the color of its computers or the cute apple logo. Apple’s brand goes much deeper. Apple is an emotional feeling. Apple is an expectation of excellence. That expectation carries through the website, the store, the chat-bot, the packaging…and of course, the product. A strong brand builds trust with every touchpoint.
In investing, YOU are the brand. YOU are the expectation of excellence. YOU are the quality of design. YOU are the emotional feeling of trust. You STAND for something.
Your brand is your expertise. Your brand is your viewpoint. Your brand is what you stand for and why you invest the way you do. Your brand is a collection of all of these elements working together. Your brand is a promise that you make to potential limited partners. A promise that you deliver over and over again. There is confidence in clarity about who you are. You build that clarity over time by managing all of your branding artifacts in the digital and real-life worlds.
If you want to successfully grow capital, don’t just rush through this process. A strong brand that ‘stands for something’ is vital to your ability to attract and grow investment capital.
Next, Remember That It’s Not Just Connections. It’s Connectivity and Engagement.
Contrary to popular belief, connections alone are not going to lead to capital. Many groups just want to be introduced to money and connections. They believe that if you get the connections, the rest will just take care of itself. Many groups enter into the capital process with the mindset of a hunter-gatherer, solely-focused on the milestone, and ravenous for the right connections that will lead to capital. I understand this mindset. Connections are certainly important.
However, in reality, just being introduced to money is not enough. Connections get first meetings. Superior teams with high levels of connectivity and engagement with their ecosystems get capital.
Potential institutional investors need to be comfortable with your team. To gain this comfort, they need to understand your view, your target market, your expertise, and your performance (among many other aspects of your opportunity). Branding and positioning play a vital role at this stage. A successful process will develop into a balance of outreach, as well as attraction. Teams must constantly work to foster this type of two-way engagement with their investor ecosystem.
Potential investors can gain comfort only if they have had ample time to follow your team beforehand. One pitch meeting and a few follow-up emails are not going to be enough and doesn’t respect your LPs process (see: “Invest in Lines, Not Dots” by Mark Suster). Your team’s burden is to establish the relationship early, broadcast your brand, and nurture the relationship through several touch points over time. In short, potential investors want accretive engagement. It grows over time and increases in meaningful value.
This process can take up to a year or more, so get started early (and often). Build and nurture the ‘next-level’ investor ecosystem effectively, and you can potentially save your team countless hours. Without question, not spending the appropriate effort engaging the investor ecosystem is the single largest mistake that companies make.
Finally, ABC – ‘Always Be Capitaling.’
Capital is the lifeblood of business – every business. It doesn’t matter if that business is a startup, a growth-stage firm, a fortune 500 firm, a Venture Capital Fund, or a Private Equity Fund. Ongoing access to capital is the single most important part of that business. Unfortunately, many groups treat it as an afterthought.
Access to capital is as important as product, technology, data, R&D, marketing, sales, accounting, administration, and infrastructure – combined. Successful companies treat it as such. I am not saying that those other elements are not necessary for success – they are. What I AM saying is that if your business is not properly capitalized, none of those other things matter. Successful companies plan for capital BEFORE they need it – well before. Growing capital takes forethought, planning, commitment, consistency, execution – and yes, resources.
Groups that successfully grow capital are highly collaborative, engaged, flexible, open to advice, and willing to change and adapt tactics when necessary in order to win. Capital flows to those groups in which every single person has bought-in, every single person is pulling in the same direction, and in which all stakeholders are involved.
Successful companies do not treat capital as a one-time event. Successful companies plan ahead and budget the necessary time, tools and resources required to grow the capital ecosystem that their business needs. In other words, successful companies are always growing capital. They treat it as a function, not as an event. ABC – ‘Always Be Capitaling’ – should be the mantra.
Do You Want to Be Capital Successful? Then Grow It.
Successful groups are constantly engaging, nurturing and growing their capital ecosystems.
Marc is the Managing Director at Bennu Partners with 25 years of experience advising institutional investors, private equity funds, venture capital funds, ultra-high net worth families, growth-stage companies, early-stage companies, entrepreneurs, founders, and CEOs. He has assembled the team at Bennu Partners because they all share a passion to help these communities navigate the investment and capital markets.