Most first private investment conversations start with “we/I need A, in B timeframe, at C anticipated valuation for D needs, and E terms and conditions”. I can often count to “J” or “T” before there is any highly-personalised articulation of their ideal incoming investor(s) self-interests, and the discernible alignment with the potential investor’s financial capital, intellectual capital, cultural capital and social capital.

In an AI-world of OpenAI, Anthropic or Perplexity-generated investment pitches, decks and scripted processes, why are seller(s) first impressions so underwhelming? Assuming that you are speaking to a genuine seller, not a gatekeeper:

Talent and judgement.

“Talent” in the form of critical thinking, absolute credibility, the ability to build a seductive rapport and a compelling risk-adjusted return.

“Judgement” in the form of understanding the potential investor’s comfort zones and brevity. Only asking and answering those critical questions that lead to the potential investor’s “lightning diagnosis”. Nothing more.

The “human touch” assisted by AI, not AI assisted by the human touch.

More genuine investor interest and confidence is lost in the first 5 minutes than in days and weeks of follow-on investment conversations.

There are times when an investor has made a reasoned bet on an entrepreneur and their business but their confidence level is now at a point that they’ve concluded an investment of £X,XXX,XXX will not in all likelihood return £Y,YYY,YYY, in their desired timeframe. This is a rational determination but you, as the entrepreneur are now dealing with the emotional and psychological issues of the person managing his or her portfolio of investments.

They have private and maybe institutional investors, partners in a fund, employees, spouses, children’s school fees, private bankers and mortgage companies, philanthropic foundations and the gardener’s welfare, who depend on their judgement. The richer the investor is, the more they are a prisoner of their own wealth, and the “welfare system” that rides on their success. Downward social mobility, or the whiff of it, has a chilling impact on investor sentiment in times like these.

There are both “internal factors” (within the entrepreneur’s control and influence e.g. distribution, marketing, production) and “external factors” (outside the entrepreneur’s control and influence e.g. competition, interest rates, inflation etc.), at play.

Right now, EVERY entrepreneur in a growth business dependent on growth capital, needs Investor Plans A, B and C (investor names, structures, combinations of cash, debt and equity, and compelling propositions). What are yours? Don’t have them, you are living on very thin ice. Why take the risk?

There are 11 traits I observe with my best clients and others that separate superior entrepreneurs from the field and attract superior investors and talent. Here is a rare and highly important trait: maximum clarity of mind and the ability to maintain that “in the moment” when taking risks in complex and ambiguous situations.

Why is it so important? The fragility or antifragility of the business in an investor’s mind is directly linked to the entrepreneur’s behaviour under pressure. Their performance with allocating capital, hiring talent, innovation and implementing strategy smartly.

You’d pay a premium where an individual has that in abundance, equally you might hesitate or not invest where an entrepreneur struggles or is susceptible to wild swings.

It is a learnable skill. Although those that start with superior talent and judgement are unquestionably at an advantage. Experience is an important contributor, which explains investors preferences for seasoned entrepreneurs.

It is diluted when we are overwhelmed (priority), lose focus (second-guessing ourselves manifest as procrastination), ill-disciplined (routine and exceptional activities), disorganised (poor time use) and lack resilience (bounce back).

How do I see it? Take any superior risk taker in any sector globally, and examine how they have maintained maximum clarity of mind. Therein lies a pathway to profit. Superior investors such as Warren Buffett use “pattern recognition” to spot it in executives and entrepreneurs they routinely evaluate.

You may not be in front of Buffett but here is a simple question: how could your ideal investors see that you demonstrably possess that trait? What stories can you tell that powerfully articulate that? Who could credibly support your assertion and influence the investor?

You and business have relied on the benevolence of a long-term capital investor, who in turn has received “reciprocal benefits” from you, as the entrepreneur (dividends, asset growth and so on). How ready are you if that balance, in the investor’s opinion, is now deemed inequitable and must end?

1. How effective is your “early warning system” before the inevitable confrontation? (hard evidence, strong anecdotal information, feedback)
2. How much power and control over your self-interests do you possess now? (economic or legal rights, ideal alternative investors, your customers, your people, IP, technology)
3. How much influence do you have over the investor’s decision-making? (trusting relationships, leverage, timing, potential disengagement)
4. What must you accept about the finality of the investor’s decision? (direct and indirect consequences, risks, PR)

Seriously, when is the last time that you properly considered that scenario, if ever?

One of the simple but often overlooked aspects for sellers of businesses, is who will take credit in the potential buyer’s firm for acquiring my business and the results that ensue? Need a simple clue, look at the press releases or media interviews surrounding past acquisitions, in the prior 12 or 18 months.

Do you have a relationship with that individual today? If not, what would it take to establish a relationship with them BEFORE you both reached conceptual agreement on a sale?

Too many sellers readily allow themselves to be delegated to “gatekeepers” (Heads of M&A, Corporate Development), and left at huge risk, in the sale process without establishing a peer-level trusting relationship with that individual(s).

The emotional objectives of the latter, largely dictate the decision to proceed because that is where risk and reward collide (consequences), and where in all probability, the buck stops (accountability).

I hear a lot of seasoned executives and entrepreneurs in mid-market businesses reminding me that there is a “wall of cash” waiting to invest into their sector (media, industry conferences). Look at the love affair private equity investors like ABRY Partners, multiple Canadian pension funds and others have with the US and UK insurance broking segment currently.

In their next breathe, they explain their own difficulties in attracting any of it fast (largely external factors).

The tough reality is

1. They are insufficiently valuable today, and in future.
2. They are not a person of great interest to those controlling the majority of that cash
3. Those investors are not their ideal investors.

Which is it?

If you refuse to honestly answer that question yourself, it is tough to move forward with proper focus.

When entrepreneurs and investors forget that first and foremost they are in the communications business, I have two words for you: Neil Woodford. Silence is never “golden”, it is just a vacuum created into which people’s fears or concerns percolate unchecked.

Summertime at many British seaside resorts invariably includes a detour to the funfair for many families. The seduction of playing the 2p slot machines with a waterfall of coins tantalisingly perched at the edge. Just one coin might trigger a flood of coins or it might not?

The problem is, it is rare that one coin causes the breakthrough. Indeed, the “pros” around these machines line up a small barrel of coins in the slot and fire a cluster of coins, knowing that in the ensuing mayhem, one large jolt has the greatest probability of triggering the waterfall.

The same analogy is true for entrepreneurs seeking growth capital to exploit the “next big opportunity” (“NBO”) in their sights. The single shot strategy with investors rarely works. Yet a great many entrepreneurs I meet, particularly with enterprise technology, are hardwired to think that maintaining privacy is more important than attracting the widest pool of ideal potential investors. They are too slow in attracting capital, competitors arrive on the scene with bigger balance sheets and the riches go to them, not the entrepreneur.

Make speed your driving force in raising money. Remove everything that detracts from the speed of acquiring growth capital (process, procedure, structure). Do that and while you cannot guarantee success, you will give yourself the very best chance.