Institutional Capital Raise Mistake #2 - Incorrect Positioning

Obtaining growth-stage investment capital has always been competitive. However, Growth-Stage companies currently face the most challenging capital raise environment in over a decade.

Ask any growth stage entrepreneur, and they can tell you that raising capital from institutional investors is a competitive and challenging game. This is the case in practically any investment market environment. However, the challenge is particularly acute in today’s market.

The rapid increase in interest rates that the market experienced over the last two years functionally hit the brakes on the deployment of capital into growth-stage companies. Most companies responded to this by retrenching, cutting costs, and decreasing monthly burn rates. The plan was to kick the capital can down the road and survive long enough for the funding markets to rebound.

However, because this was the strategy followed by most companies, there now is a significant backlog of growth-stage companies across all sectors actively engaging the venture capital and private equity markets for both new and follow-on capital. The marketplace is more crowded than ever. Capital providers with dry powder now have many compelling opportunities to choose from. In other words, raising capital has unfortunately gotten harder.

Save your company significant time and money – avoid the most common capital raise missteps.

At Bennu Partners, we have spent decades working with Private Equity, Venture Capital, Family Offices, and Strategic Investors. Each of these investor categories is unique and has very specific needs and expectations.

Unfortunately, many growth-stage companies lack expertise in raising capital and subsequently approach these investor categories as if they are all the same. In doing so, they miss the opportunity to connect effectively with the specific needs of each individual investor, often leading to a lack of success in the capital raise.

While each capital raise is unique to that specific company and situation, there are many similarities. Regardless of the product or industry, there are several major missteps growth-stage entrepreneurs commonly make. In most cases, these missteps lead to wasted meetings, wasted effort, wasted time, and most importantly wasted money. In extreme cases, it can lead to a failed capital raise or depressed company valuation.

In this challenging funding market, it is more vital than ever to optimize the engagement with every investor you meet. In order to help you with this goal, we have listed a common capital raise misstep that we see. Fortunately, this mistake is easily avoided with the proper strategy and preparation.

The Second Biggest Capital Raise Mistake – Positioning your company incorrectly. Not understanding the needs, expectations, and goals of your target investor.

As discussed above, private equity, venture capital, family office, and strategic investors all have unique needs and expectations when looking at growth-stage companies. Unfortunately, out of haste or inexperience, most growth-stage companies make the huge mistake of treating these investors as if they are all the same.

To run a successful capital raise process, the company narrative, positioning, message, and materials must be designed to meet the needs of the correct investor, with the correct expertise, at the correct investment stage. Unfortunately, in our experience, most investment decks, content, and messaging are generalized, poorly prepared, and are completely ineffective.

A vital step is to spend time upfront learning more about the needs and strategies of your target investor: how do they diligence their opportunities, what are their return expectations, in what other types of companies do they invest in, who are their stakeholders, what other types of investment firms do they partner with, do they require a Board seat?

For example, family office and wealthy entrepreneurs (Angels) often have different investment timelines and return expectations than institutional investors. In addition, they usually do not have extensive experience or processes structured around diligence. Instead, they tend to lean heavily on relationships. They want to know who you know, what you have done in the past, and if they can trust you. This type of investor will rely on the power of their connections and their network to confirm your credibility.

On the other hand, private equity, venture capital, and strategic investors operate in a completely different manner. They have very specific and rigid investment timelines, often higher return expectations, and limited partners with which they need to align.

These institutional investors (VC , PE, Strategics) by contrast, are more often than not, deeply engaged with your industry, product, or sector. They are far more intentional and programmatic than family offices. They seek entrepreneurs with domain expertise and proven success. Performing extensive due diligence is what they do, and most tend to do it well. If you can’t succinctly communicate your investment edge as well as show why it is replicable, they will most often pass on investing in your company.

Urgency and speed are always on the mind of growth-stage founders looking to raise capital. We understand the instinct to move fast and break ‘stuff’. However, spending the time upfront to diligently work through your positioning, messaging, and materials will ultimately save you significant time - and a LOT of your own money.

Going to market without mastering these aspects of your company will most certainly lead to countless wasted meetings, emails, and pitches over the course of weeks and months. Unfortunately, in the end, you will have secured little to no investment capital to show for your efforts. Understanding the unique needs and behaviors of your target investor group and tailoring your message for each can be the difference between success and failure.

Here are a few key areas to focus on to avoid this common misstep:

Take the appropriate time upfront to research your potential investor target list. Profile the appropriate potential investor for your opportunity at the stage of growth that you are in. Understand that investor’s needs, return expectations, and preferred communication style.
Create a narrative specifically targeted to your specific investor. This narrative should have several methods of communication including the investor deck, company branding, social media campaign, customized outreach. These modes of communication should match and support one another.
Don’t run an ad hoc effort. Create a sales process around engaging with your target community including pipelines, method of outreach, prioritization, KPIs, metrics, and milestones.

In this environment, getting help with a capital raise is a necessity, not a luxury.

As mentioned earlier, at the growth-stage, you cannot outsource the entire capital raise. It simply does not work. However, you absolutely CAN get help from professionals to optimize aspects of your company’s capital raise process.

Doing so can lead to more success, with less time, at an ultimately lower overall cost. You don’t have to do it alone. We call this the ‘Do it With Me’ business model, and we have found that this is the model that most often leads to success at the growth-stage. Investors want to meet with Founders & CEOs, but the process can be assisted by advisors and experienced professionals who can help with strategic refinements, pitch improvements, investment targeting and other optimizations that can make the process more efficient.

At Bennu Partners, we have spent the last decade helping growth stage companies create more meaningful and effective engagement with private equity funds, venture capital funds, family offices, and strategic investors. We completely understand the challenges that you currently face.

The power of our experience is that we have worked on both sides of the operator/investor divide. We've pitched, been pitched to, have asked for capital, and have invested capital. As such, we have invested alongside all of these investor types. We understand their needs, how they think, and what they are looking for in an investment. In other words, we have sat at both sides of the investment table.

In this challenging environment, your company needs to optimize every single investment connection that you make. Presenting the right message, satisfying the right need, to the right investor target is now more vital than ever. An effective strategy, process, and team will be the difference between success and failure.

Avoid the mistakes listed above, and you will help differentiate your company in this noisy, turbulent, and crowded capital raise market. If you are looking for some guidance, tips, or day-to-day help, give us a call and we can be your partner through this challenging market.

Your NameJune 24, 2024