Archive for the ‘Investor Relations’ Category

Capital Reality

Friday, December 15th, 2017

I just finished reading a quite brilliant book, Lifestorming by Alan Weiss and Marshall Goldsmith. Marshall reminds the reader of one of his most powerful learning points from arguably one of the smartest minds over the past century, American businessman, Peter Drucker. I smiled when I reflected upon how frequently I am asked to correct this behaviour in my own work, particularly amongst entrepreneurs and private equity investors building businesses.

An excessive amount of time is wasted

  • Trying to prove how right we are (brilliant idea, investment decision-taking) and how good we are (vanity) with ourselves and our key constituents when the real objective should be to maximise the positive difference we are able to make in the life we choose to lead, and the world we live in.
  • Trying to control events or issues where we have ceded or have zero power over the outcome.

The private equity or venture investor doesn’t have to invest. The entrepreneur doesn’t have to accept the investment. When they do accept majority investment, the entrepreneur ceases to have the ultimate decision-making power. Don’t whine or somehow think you retain superpowers, you really don’t, concentrate on making a positive difference within those constraints. If you don’t like the constraints, let it go and move on. The same applies to capricious General Partners feeling that the private equity model is underappreciated in the wider world or when power has shifted from their investee businesses to their customers or competitors.

A case in point, yesterday’s headline sale to Disney of large chunks of the Murdoch empire, is just that recognition that the Murdochs cease to have the power to positively impact their family’s and their assets’ future within the constraints laid down (market competition). Letting go is a common sense response, nothing more.

© James Berkeley 2017. All Rights Reserved.

It Is Really Not About You

Friday, November 10th, 2017

 

Why do so many seasoned, and less seasoned entrepreneurs seeking to attract new investment shoot themselves in the foot? They are rarely short of industry knowledge but they are woefully lacking the process skills and critical thinking to attract serious investors. Acquiring investment is about investors. An investor validating their own judgement, no one else’s.

Yet all I here at the outset, is how great the entrepreneur’s business skills and judgement are, wrapped up in their business model and growth plans.

When I push back and ask, “what” (strategy) have/are you doing to help your ideal investor validate their own skills and judgement after they are done with your investment? I am invariably met by a blank stare. That is compounded by my supplemental question, “how” (tactics) have/are you planning to help your ideal investor validate their own skills and judgement when they are done with your investment?

In the absence of a strategy and tactics for creating powerful, sustainable and profitable partnerships with  investors, an entrepreneur’s mission will never be met and manifest. Here is three powerful lessons from my most successful clients:

  1. Raising, deploying and realising capital is a “process”, not a small number of events. It has a “before” (trust, relationship building, conceptual agreement culminating in agreed terms), “during” (effective implementation, impressive value creation, robust risk mitigation) and “after” (planned disengagement, rapid realisation of committed capital plus impressive gains, efficient remittance of resources). Or to put it crudely, cash and resources “in”, cash and resources “out” / time period.
  2. Timing has a “hierarchy of priorities”. (1) the investor’s financial, intellectual, social and cultural needs (most only think about the first need and rarely consider how those are changing in the lifetime of the investment), (2) the availability of an appropriate exit to ensure the investor’s objectives are met and (3) the  future of the business.
  3. They think and act like a successful investor. An investor thinks with logic but acts on emotion, although in some cases the latter might be as heard to discern as Robert Shaw’s face in that infamous card game on the smoke-filled train carriage to Chicago, in my personal favourite, The Sting.

Uncovering The Investor’s Logic and Emotional Reasoning

  1. The reward logic behind the deal. How might it meet or exceed the investor’s need for capital preservation and capital gain, the return on the investor’s intellectual time invested, the social impact met and the cultural benefits accrued (for example, greater affinity with like-minded investors)?
  2. The risk logic behind the deal. What is the seriousness and probability of foreseen and unforeseen obstacles with the deal preventing the investor meeting or exceeding their desired outcomes? Then, what preventative and contingent actions can realistically be applied to arrive at the deal’s “ultimate net risk”?
  3. The sum of the above is the investor’s “great deal” logically. We are not finished yet!
  4. The emotional rewards behind the deal. How might the emotional imperatives of the investor (“reward”) be transformed (repute, peer recognition, trusting relationship with the General Partners and co-investors, promotion prospects, larger bonus and share of carried interest, ego, greater responsibilities, career development, future capital made available, new fund created, more impressive future dealflow presented and so on)?
  5. The emotional risks behind the deal. What is the seriousness and probability of foreseen and unforeseen obstacles with the deal preventing the investor meeting or exceeding those desired outcomes? Then, what preventative and contingent actions can realistically be applied to arrive at the deal’s “ultimate net risk”?
  6. The sum of the above is the investor’s “great deal” emotionally. That is what they are going to make their final decision based on. Are you investing sufficient time and energy in the right area? Are you thinking it through smartly? My guess is most entrepreneurs are spending 90% of their time on the logical reasoning and perhaps 10% on the emotional reasoning when it probably needs to be inverse. Why would you do that?

The smart readers will quickly grasp that a PowerPoint deck or teaser is largely worthless at addressing the latter. You need absolute credibility. You need to take time to build a peer-level trusting relationship. You need to ask powerful questions in a way that the investor is willing to reveal his or her priorities. The shorter the question, the more the investor will reveal. It crystallises it for them. “What are your hopes? Why? What are you fearful of? How did you get to your position?” Frame the question, listen and follow up in a smart way. You cannot coerce or motivate them.

Your job, as an entrepreneur, is to aggregate and connect the dots for the investor. To convert, the credibility and seductive rapport into committed capital with the use of powerful language and a compelling interface for the  investor.

After reading this you may very well panic and spot a yawning gap in your skills and techniques. That is OK, find an entrepreneur, who has done what you successfully seek to do and who can translate and transfer it to you.

A word of warning, a great many advisers don’t qualify, nor do a great many entrepreneurs, who are inept at the translation and transference. Hire qualified advice sparingly.

© James Berkeley 2017. All Rights Reserved.

 

Warning Light!

Friday, September 22nd, 2017

 

When an entrepreneur or his/her Adviser overlook or cannot clearly articulate in 3 or 4 sentences, the greatest anticipated weaknesses in their business growth plans (markets, products, technology and relationships) given competitive market trends, you have a plan that won’t survive serious investor scrutiny. To pretend otherwise is to start driving a car where the wheel nuts lie strewn on the ground.

© James Berkeley 2017. All Rights Reserved.

 

 

Lifting The Cloak Of Private Equity Secrecy

Monday, June 26th, 2017

 

 

How do you tell whether a private equity investor is “absolutely credible”? Realised investments, success stories, lists of co-investors, testimonials, references etc. are all valuable but can I actually see their intellectual property? I am referring to the availability of tangible communications (articles, presentations, models, audio, video etc.) encapsulating the investor’s best ideas, experiences, education, managing cultural change etc. – their intellectual capital – synthesised or recombined  into value for the would-be seller or top management. In almost all cases, the answer is a resounding “no”. You are asked to take it on trust.

I asked a serial CEO, and now Board Chair and Senior Adviser to many of the world’s largest private equity firms, how the secrecy helps the private equity investor? He was largely at a loss to explain it apart from avoidance of past PR bloody noses.

Would you allow a surgeon to operate on your heart or the school to teach your child without a pretty clear understanding of how they think and operate, beyond the odd PowerPoint presentation or a few lunches? The time has come for more humility from private equity investors of all shades. That doesn’t require them to diminish their own worth rather to accept that greater transparency upfront is an accelerant to higher levels of trust with their key constituents and superior short and long-term performance.

© James Berkeley 2017.

In The Eye of A Private Investor

Monday, June 5th, 2017

 

You are a C-suite executive or senior manager (probably with a successful career in a mid and large organisation) flirting with future advisory roles (Operating Partners, Senior Advisers and so forth) with private investors (Family Offices, Ultra High Net Worth individuals and some funds) and their portfolio companies. I meet half a dozen a month. Are you looking through your lens or that of the investor’s? When I ask bluntly, “why would a private investor be interested in you?”, most default to regaling their past (skills, expertise, accomplishments) or they way they like to work (imparting advice, influence, guidance). Here is the tough news, most private investors really don’t care. They want to know about

  • the “transformative value” (TV) for the investor after the Adviser has applied their past to the future of their investee businesses (logical reasoning – increased revenues, stronger brand, faster growth etc.)
  • the speed and quality of the “validation” (V) for the investor’s own reasons to back or not, a specific business (emotional reasoning – “am I going to look good”, enhanced credibility, mitigate personal risks, obtain future opportunities or relationships with peers, other investors, investee businesses etc.).

TV * V = Private Investor’s return on investment or “Great Deal”

“What”, “where”, “when” do you score highest as a potential Senior Adviser? Why? How do you get to those private investors with the highest need for that value?

Keep that equation and those critical questions uppermost in mind BEFORE you walk into your first meeting with a private investor.

© James Berkeley 2017

The Uncomfortable PE Investor

Friday, May 19th, 2017

Whoever taught a young investor how to create great relationships? The thought dawned on me leaving a meeting with two forty-something European mid-market private equity investors. One was open, welcoming, used self-disclosure and possessed a mindset that actively encouraged reciprocal exchange of ideas, names and insights. The other, hid behind a corporate ethos of privacy, rarely showed interest in reciprocity and maintained a mindset that he knew everyone worth knowing. The former is a top performing fund manager running a $500M fund with over 6 closed deals in the public domain this past 18 months, the latter recently closed his first $200M fund with zero visible public success. If you were a limited partner or an entrepreneur, wouldn’t you have expected the exact opposite traits given the track record and profile?

Private equity is first and foremost a relationship business. Relationships based on trust and value. Developed by creating a seductive rapport (personal chemistry, powerful intellect, effective use of language) with entrepreneurs, limited partners and advisers. Manifest by converting that seductive rapport into deals closed, value created and profitable exits that create a “win-win” situation for the firm’s key constituents. Yet it seems a great many leaders in European private equity firms are totally complacent about their fund managers’ relationship building skills and behaviours, believing that financial acumen and capital alone will lure outstanding entrepreneurs with outstanding businesses. That is crap but hey, they’ll wait for 10 years to find the errors of their ways. In which time, the Fund Manager will have collected his monthly check, been promoted twice and sit smugly admiring his or her personal bank statement.

© James Berkeley 2017. All Rights Reserved.

 

The Investor Casting Couch

Wednesday, March 22nd, 2017

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“The Investor Casting Couch”: a mindset that says we are best served at our first meeting, acting cagey, and getting the other party (co-investor, adviser or entrepreneur) to reveal themselves to us first to protect our own self-interest, at all costs. In extreme cases, we must do as little as possible to reveal our own past, ideas or intellectual property.

Reality: Your actions merely serve to show that you have close to zero interest in building a trusting peer-level relationship, collegiality or collaborating in anything other than constant “fear” (stolen IP or contacts). You might, of course, be right on the odd occasion when you have a rogue across the boardroom table. However, 9 times out of 10 assuming that you have done your due diligence properly, you are merely revealing the depth and breath of your own insecurities. Why would you create that first impression? In the misplaced belief, it projects your superiority when all it does is project your stupidity. Why would anyone, except the desperate, choose to spend a millisecond further in your company?

I see this mindset widely adopted by experienced bankers, corporate financiers, private equity and venture capital professionals to the point of huge irritation. They have been a success in their career but they refuse to act like a success. Stop, in the name of common sense!

© James Berkeley 2017. All Rights Reserved.

 

 

Framing Your Ideal Investor

Monday, February 27th, 2017

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“We need more investors, can you help?” is a request I hear daily from entrepreneurs and executives, co-investors and seasoned corporate finance experts. The obvious response is “yes, maybe or no”. Sometimes the obvious is not the most helpful to gain control of the conversation and kick start movement. Let’s frame the real “need”. Remove the irrelevant, focus on the relevant information. You will get dramatically quicker towards your goal.

  1. You’ve asked for capital raising assistance. Are you talking about your ability to attract follow-on investments from your current investors, new investments from your current investors, new investors for your current businesses or new investors for new businesses? What is it exactly?
  2. Then, I am curious where is your current marketing time and money being deployed? Is it being directed to all investors, or those within a specific geography, deal size, stage, investor type? There are 5 generic types of investor for you. Those that are apathetic, pretenders, aspirants, serial developers and leading-edge investors. The first three make up the majority of your audience and are the most price-sensitive, the final two are highly value-driven. Who exactly are you currently talking to? Would you recognise the differences (past relationships, capabilities, substance, style etc)? Let’s agree who you should be talking to?
  3. Then, what are the existing or anticipated needs or needs that you can create for your ideal investors that you are uniquely able to address? How is your investor better off or personally better supported after realising their investment with your help? (Financial, intellectual, social, cultural improvements)
  4. Then, who ideally has a need now or one that could be readily developed for that “return” on their investment? Who has the means and authority to approve the investment? Who can move quickly? Who is not overly prescriptive about the your “past”?
  5. How do you best reach those investors and they you? (referrals, networking, publishing, speaking, awards, media interviews etc)
  6. How do you create the ideal conditions? (eager to meet you, strong word-of-mouth)
  7. How do you create the ideal time? (no disruptions, no delays)
  8. How do you create the ideal location? (neutral, zero distractions)
  9. How do you create the strongest first impression? (impressive content, credibility, rapport)
  10. What competitive, distinctive or leading-edge offerings do you have to draw them in as a current or a future investor? (increasing investment, intimacy)
  11. Are there gaps where you need to add new offerings or to create greater differentiation (value) between existing investor offerings?
  12. What have you jointly agreed to do next? (exchange information, call, meeting)

You can see quickly here that framing your investor question, creates a dramatically sharper point on your arrow.

 

© James Berkeley 2017. All Rights Reserved.

Startup, Startdown

Monday, January 23rd, 2017

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Are you taking advice from an experienced entrepreneur as you proceed (business growth, raising capital, building partnerships and so forth)? Have they done what you want to accomplish successfully? Can they translate and transfer their expertise, knowledge and contacts to me? Never hire anyone who you cannot confidently answer a firm “YES” to those questions. There is a huge cottage industry of fawning advisers, business brokers and connectors, prying on startup and early-stage entrepreneurs with lousy and unproven advice. A great many entrepreneurs are drawn to these individuals by people they assiduously trust (family, friends, past colleagues and so on).  The giveaway is a promise to introduce the entrepreneur to a “celebrity” investor, adviser, potential client etc. The entrepreneur signs away a monthly retainer, and lo and behold they are taken on a merry ground, laced with excuses and failure. There is close to zero commitment because the economics don’t justify it.

You are building a “start-up”. Make sure that you are not consciously or unconsciously now in a “start-down”.

© James Berkeley 2017. All Rights Reserved.

 

Compelling Investors

Thursday, December 15th, 2016

“Please feel free to share investment opportunities in the future….” or “This isn’t right for us at this stage we have a prefer businesses with positive EBITDA” The problem with so many investors is there is no “siren call” to them. Their language is weak, their feedback is meaningless, and there is visibly close to zero commitment to a future relationship with the introduction source. In return, there is no compulsion to make you THEIR priority. To put you at the top of their call list. To keep you uppermost in their thoughts. To reciprocate, in a meaningful manner.

If the game is about identifying, attracting, evaluating, and applying impressive levels of knowledge to high-quality investment opportunities and making wise decisions consistent with an investor’s strategic goals, there is a need to constantly nurture referral sources. You don’t achieve that with bland throwaway sentences or anaemic feedback. You do that best by providing something of value to the introducer quickly (ideas, insights, other investor names, a promotional opportunity and so forth). Of course, that assumes your real intention is to have an ongoing relationship and not banish the referral source to Siberia.

© James Berkeley. 2016 All Rights Reserved.