Growing Capital is an ‘Us Against the World’ Situation - Create the Team Dynamic That Leads to Success
Yes It Sounds Trite - But It Really Does Take a Village
All entrepreneurs, founders, and General Partner teams want to know one thing - “How can we do a better job of engaging potential capital partners?”
I have been involved with capital markets, private equity, venture capital, and growth-stage companies for over two decades. I have been an investor, have invested on behalf of clients, have worked with companies raising capital, and have worked with funds raising capital. It has been quite a journey to view ‘the game’ from every angle, in every market environment, and through years of ups and downs.
No matter the circumstances, the companies that engage investors most effectively are those that approach the task with a team mentality. Yes, it really does take a village.
Feels Worse Than a Sharp Stick in the Eye
Unfortunately, most groups do not manage the capital growth process well. Most groups struggle. I don’t say this to be critical. It is not because they are not smart, ambitious, passionate, etc. They are all of those things They are not good at it, because they have not done it before, and have no experience with it. And, let’s be honest here, most simply do not like the process and would rather not do it at all. It is as simple as that.
My experience has been that most teams loathe the process of meeting with potential investors and raising capital. I get it. They did not go into business to raise capital. They went into business following a passion, to build a product they love, or to serve a community that they care about. Knowing that, human nature dictates that working on those goals is where the energy resides. The capital is merely a means to an end. Time spent raising that capital can feel far worse than a sharp stick in the eye.
Us Against the World
But does it really have to be that way? Actually, no, it does not. I have met some teams over the years that DO handle the process well. Those teams ALL have a common thread - they view the process of growing capital as a ‘team commitment’ - not just the responsibility dumped on the shoulder of one person (aka the Founder/CEO). After all, if the company is unable to grow capital everyone loses a job. It truly is an ‘us against the world’ situation - treat it as such.
Successful capital raises most often take place when everyone on the team is contributing and pulling in the same direction. Teams are accountable to each other and the ultimate goal. These teams are highly collaborative, engaged, flexible, open to advice, and willing to change and adapt their tactics when necessary in order to be successful.
Team is a philosophy and mentality that is worth embracing. If your company or fund is getting ready to go through the capital raising process, you would do yourself a huge favor by organizing your efforts around this philosophy. If you are a Founder or CEO, and for whatever reason, this task has fallen (or been placed) solely upon your shoulders - that is a heavy cross to bear and a lonely journey to embark upon.
Fully Embrace the Team Mentality
First, to the extent possible, push back on that sole responsibility and get as many hands on deck as possible. Engage everybody on the team - and I mean everybody.
For sure most companies involve the Partner-level/C-level on the task. That is common. But why stop there? What about the investors currently on your cap table? If you have done the work to build a strong relationship and you are building the successful company they hoped for - it would stand to reason that warm introductions to additional capital partners is an easy ask. If they want the entire round for themselves, even better. However, if they cannot take the full round down, throwing you a bone on helping you connect with other like-minded investors should be well within reason.
Same can be said for your Board of Directors. You have established an impressive, collaborative, strategic Board of Directors with domain expertise (if not, that is an entirely different conversation). Just like the current investors on your cap table, these individuals should have the highest level of buy-in for you - the management team - and your mission. Great! They sound like the perfect group to help you meet and engage with the ‘next level’ of investors.
Many growth-stage companies are hesitant to leverage their Board or cap table. That is a mistake. These are the closest working partners a company has. They should be able and willing to validate the team and the company mission better than anyone. If they are unable or unwilling, that is an entirely different problem and a post for another time.
By the way, I have received plenty of pushback on this over the years from investors and Board Members. I would warn CEOs and Founders to expect a little bit of the same. My advice, however, is to pushback on the pushback. Good capital partners are in it for the long-haul and are invested in the success of the business, at every stage. Solid, strategic investment partners will willingly pull their weight - which is one of the reasons I am often against bringing ‘dumb money’ onto the cap table (dumb money has no weight to pull and is a dead zone on your cap table).
Don’t Just Stop at the Village Chiefs - Engage the Villagers as Well
Once again, I mean bring in everybody. If the cap table and Board of Directors are your village chiefs, then don’t be afraid to bring in all of the villagers as well. What do I mean by that? How about your employees, lawyers, bankers, CPAs, and others? This list can go on and on. Many companies approach the task of capital growth as a state secret - only those at the top are involved. That is the wrong approach.
What about these other groups just mentioned? You have some bankers. I wonder if your banker has a college roommate that is the portfolio manager for a fund that specializes in your space? What about your lawyer? Did he ever tell you about his best friend that left law practice to pursue his real love of investing that now works on the investment team at a famous Single Family Office? No, you probably have not run across these connections - because YOU NEVER ASKED THOSE QUESTIONS. You most likely never bothered to engage the networks of ‘the villagers’ to see what might reside there. Do yourself a favor. Bother.
The most common theme that I hear from CEOs and Founders is that they want to meet more NEW people. I get that. However, I am always trying to coach groups to dig even deeper into the strong network partners that they ALREADY have. Most groups only scratch the surface and do not go deep enough. Give the people in your network that already trust and are committed to your success the chance to help you out. You might end up being surprised. Rather than having to always be out digging for new capital - someone in your network might bring it to you on a silver platter. But… you have to ask first.
No One is Born Good at This
I don’t really believe that the universe ‘creates’ great capital raising ability. Well, maybe there is that one individual from business school that was unusually adept at networking and always seemed to have the inside track. But, you never really liked that person anyway. I believe that for the rest of us mortals, it is a skill that is learned. One that has to be practiced, tried, failed, and tried again. Learn it well, and it is a skill that will pay off. Get the full help and support of your entire ‘village’, and it will pay off more quickly.
© 2021 Marc Patterson/Bennu Partners. All Rights Reserved
