Posts Tagged ‘raising money’

Losing The Potential Investor

Monday, November 7th, 2016

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Why do so many executives and entrepreneurs lose control of discussions with potential investors at an early stage in the capital raising process? Most don’t have a route map. A set of small steps that starts from the first approach direct or by their adviser and takes them through and beyond committed capital into the value creation phase. Since they have no way of knowing where they are, they don’t know when they are lost.

Here is three common mistakes, and quick ways to avoid the landmines:

  1. A Failure to Identify the “Economic Investor”. Definition: The individual within the investment firm with the ability to approve the investment, the ability to sign off on the terms sheet, whose fund  will support the investment into your business, who will be held accountable for success or failure and so forth. In large firms, private offices and funds, of course, there may well be multiple “economic investors”. Obstacle: Too much time is spent with non-investors or worse, you are caste as a peer of the junior folks, never welcome in the inner sanctum. Next Step: It is your job and that of your adviser BEFORE you enter the conversation ideally to know, who the economic investors are specifically and to work out the ideal conditions (warm referral) in which they will respond favourably to your request to meet. Thereafter, the goal is to build a comfort level and sufficient trust that an informal or informal relationship can ensue.
  2. Hiccup or Fatal Diversions. Having broken the ice with the “economic investor” in a first call or meeting, he or she asks that you meet with some of his junior analysts to qualify the investment opportunity, as he is currently “travelling / busy this week / unable to respond quickly” (code: you are not my priority). You have two options: say, “No, quite frankly, we are both first, making a strategic decision on whether to invest in a potential relationship, unless I am wrong we don’t need others to decide that for us. If not now, when can we meet or talk next?” or “Yes, we will happily agree to talk to them but we must have a definitive time and date for us to speak again. Specifically, to compare notes on what we hear and more importantly, to agree the nature and direction of our relationship.” The mistake many entrepreneurs make is once they meet the junior folks with a propensity to please them, they start engaging in a more detailed conversation (sharing follow-up information with them, agreeing to their next steps). They are now a “plaything” of the junior people, which is great for them but potentially deadly for you. The economic investor watching from the sidelines is quite happy to allow this to happen because it is one less priority for them, creates distance (another layer of protection) and the unpleasantness of rejecting your proposal. You have now descended from the executive floor to the second floor, not only had a conversation when the elevator doors open, you are now following them through the corridors on the second floor, at their speed and direction, getting further away from the executive’s office. I find that entrepreneurs of an amiable disposition or those that somehow feel fortunate to be in the building are most susceptible. There is also a cadre of restless entrepreneurs, who won’t take heed of their adviser’s warnings. Bye bye!
  3. Talking About Valuation Before Defining The Investor’s Objectives – I see this so often it is almost laughable. Unlike a game of monopoly or snakes and ladders, this isn’t bad luck, this is self-inflicted pain. You know the question is coming your way, you either choose to neatly sidestep it, by re-framing the conversation in the investor’s self-interest or you allow yourself to tread on it at your peril. Think about this way. How many times does the investor respond, “Wow, you are massively undervaluing your business” or “That is an eminently sensible valuation”? Perhaps, 1 in a 100. I’d say, 30% respond “that’s way too rich for us” (immediate termination), 40% respond “we are struggling with those kind of valuations”  (highly probable termination) and the final 29% “tell me where did you get that valuation from” (needs a lot of convincing). You are left constantly defending rather than explaining your approach to making your investors money. If it comes up early on, you are wise to say, “it would be unfair to throw a valuation at you without first explaining how we intend to accomplish your objectives and secondly,  determining whether a relationship is in both of our best interests. If you are willing to listen, we’ll happily address it at the appropriate moment.” (Note, if they won’t listen, they almost certainly see you as a commodity. Do you need that kind of investor relationship?).

© James Berkeley 2016. All Rights Reserved.

 

Fishing For Investors

Monday, August 22nd, 2016

 

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In August the docksides and inlets in North Norfolk are lined with kids casting bait (bacon or salami are highly effective) on primitive fishing lines to catch the abundant crabs that lie close to the surface. Perhaps the crabs know the odds are stacked in their favour or they are so greedy but little boys and girls pluck them out at will before returning them to the sea.

What would entrepreneurs and executives give for a similar ease with the capital raising process? The reality today is that unless you are a well known “brand” with a powerful investor network, raising money is hard. Investors can be very choosy, they largely congregate in locations with big clusters of potential businesses to invest in and they are drawn to people, who have demonstrably made investors serious cash on cash on multiple occasions.

1. What are you doing to dramatise your value to your ideal investor(s) and the singularity of your investment proposition? (Use of powerful language, a peer of opinion makers, harnessing evangelists, creating excitement and so forth)
2. Why invest in you? (“Hot” proposition in the investor’s sweet spot)
3. Why invest now? (Brief window of opportunity)
4. Why invest in the manner you are proposing? (Special circumstances).

Time is the most precious commodity. You cannot rely on the kids fishing line, you must caste a fishing net to attract potential investors. You need to know where the high potentials reside. You need compelling “bait”. You need multiple conversations to be constantly moving in parallel, not sequential stages. You need to be constantly replenishing the investor pipeline with high quality leads. This is not a kids sport, this is your wealth at stake. Time to get serious.

© James Berkeley 2016. All Rights Reserved.

The Insurance Corporate Venturing Pulse

Monday, July 18th, 2016

When you introduce two good friends that you know from two completely different walks of life, there is that pregnant pause in which both seek to find a common connection and language to build a relationship. To the introducer, it seems perverse that there would be a delay, you know both people intimately and you have thought long and hard before introducing them. So I liken the insurtech corporate venturing world today.

Inherently it makes sense that entrepreneurial tech businesses have the capability to transform venerable insurance businesses. In most cases there are shared values and a receptiveness to make a relationship work. Yet there is an uncertainty born of speaking different “languages” and the reality that operates in their respective sectors (resisting and embracing change, regulation, corporate bureaucracy and inertia).

Having assisted a number of businesses on both sides of the table, here is my current take:

  1. The quantum of insurance tech money will double in the next 24 months. There will be a greater concentration of capital in the hands of a smaller number of powerful brands (VCs, CVCs and UHNWs), who are able to raise capital faster.
  2. You will rarely hear about the failed insurtech investments but be certain 80% of the so-called strategic investments will never be strategic, in that those technologies are successfully adopted into the insurance corporate venturing unit’s mothership.
  3. Only 50% of an insurance corporate venturing unit’s invested companies today will be their best corporate investments next year in view of internal and external changes.
  4.  A more formal insurtech investment ecosystem will arise with greater concentration in a smaller number of hubs (Silicon Valley, New York, London, Singapore) that foster innovative environments. If you are not “present” locally, as a service provider, you will not be in the game.
  5.  Speed will be as, if not more important a factor than the quality of the capital, for entrepreneurs in the best insurtech opportunities. Bad news, for insurance corporate venturing unitss with long decision-chains or timelines.
  6. Insurance corporate venturing units that create a powerful gravity to their brand will triumph over those who are largely reliant on opportunistic investment ideas landing in their “inbox”. Heightened importance of peer referrals, networking, publishing, speaking, writing and so forth.
  7. With increasing numbers of people in the insurtech ecosystem, there will be a filtering out of people (entrepreneurs, investors and others) who are truly centres of expertise and objects of interest. Having your CEO make blow-hard statements about his visit to Google, facilitating an insurance disruption event or thinking that merely pushing out generic position papers on your own or a third party’s platform will get you there, is a fool’s paradise.
  8. Tech entrepreneurs that live at 35,000 feet and are beholden to the future without regards to the health of today’s insurance industry, today’s realities of marketing an early stage business and today’s decision-making are living in cloud cuckoo land.

Copyright James Berkeley 2016. All Rights Reserved.