Want Investor Capital? WHY You Do Something Can Be as Important as WHAT You Do
‘WHY’ you do something is sometimes more important than ‘WHAT’ you do.
“Most company founders know that showing passion is important, but often they become focused on getting all the information they can into a pitch. It’s crucial for them not to forget to display how much they care about their company”
Want to Showcase Your Company’s Uniqueness? Then the Pitch May Need to Venture Beyond Product/Market Fit
As funding markets tighten up in 2022, raising capital - from both VCs and PEs - may get a little tougher. The competition for investment capital is always fierce. However, a pullback in the funding markets will make that task even more difficult.
For CEOs, the reality is that when raising capital, you actually must overcome two challenging hurdles.
The first hurdle is to convince investors that your company has the ability to execute on the plan you have created. Generally, this involves successfully articulating the mission and business strategy of the company. I call this the WHAT and the HOW of the pitch. WHAT you do and HOW you do it. Most companies that I have met over the years are fairly good at this aspect of the pitch.
However, it does not end there. Most VC and PE firms see many strong companies with excellent business plans. When ‘picking a winner’ investors often have to dig deeper than the numbers.
The second major hurdle for CEOs is to convince investors that your company is THE ONE that deserves the investment capital. The one that is a better bet than all of the other great companies that they see. This hurdle is slightly different from the first, and requires a slightly different strategy. This is where passion comes in.
The ‘WHY’ Can Set You Apart
As the attached article from the Wall Street Journal indicates, the ability to convey passion is one of the most effective ways to set a company apart. From the article, “Want to win over investors when delivering a pitch? Look passionate. That is the conclusion of 12 studies by researcher Chia-Jung Tsay, an associate professor at the University of Wisconsin-Madison. She gave investors different types of records of pitch competitions—such as video only or audio only—and asked them to guess which entrepreneur had won each round. The investors who made the best guesses saw only visual images of people making pitches, with no sound or information about the pitch itself. The factor that swayed them, Dr. Tsay determined, was body language from entrepreneurs that showed passion.”
While most companies are fairly effective at clearly articulating the company strategy and mission, they tend to be less-effective at this second challenge - articulating the passion behind the company. One of the most important goals for a CEO is connect with an investor on ‘WHY’ you are doing what you are doing - not just WHAT and HOW. Passion tends to reside in the WHY. It is the WHY that is going to keep the company’s fuel burning as it works its way through all of the growth challenges that it will inevitably face.
The Earlier Stage the Company, the More Vital Passion is to Success
Why is passion such an important aspect to get across - particularly in Venture Capital? It is important, because as a founder, you are going to need a whole heap of passion to breathe life into the business, and grow it from scratch. In many cases, that is a very different situation than that faced by later-stage ‘PE style’ businesses. In the PE markets, businesses generally have a history of sales, revenue, cash flow, and EBITDA. These vital aspects of the business do much of the selling to investors. Not so with most early-stage companies.
Venture capital investors know that, at the outset, a CEO’s plan will often be wrong in several ways. The market will change, the product or service will change, etc. Chances are high that a company will have to pivot, perhaps several times. That is where passion comes in, and why it is so vital to success.
Getting the Vulnerability/Professionalism Balance is Not Always Easy - But it is Worth Trying
One of the interesting things that I have noted when working with entrepreneurs, is if you ask them to pitch the story to you, they tend to tighten up. They end up pitching an accurate, albeit formal and somewhat watered down version of the story. Then, when I just sit back and chat with them about the company, they get tremendously excited, animated and passionate. Oftentimes, important aspects of the company come up in casual conversation that are never mentioned in the pitch.
I am not sure exactly what is happening, but in some form or another, we are self-filtering our pitch. When forced to pitch to an investor, we only give the clinical version of our opportunity - not the one that really gets us excited. Perhaps it is fear. Perhaps it is nervousness. Perhaps it is us putting on our ‘game face’ and being the professional business person. Fair enough. But I have noticed too many times that so much gets dropped in the translation to our formal pitches.
This phenomenon was detailed in the article, “The research holds important lessons for entrepreneurs, as well as investors, she says. Most company founders know that showing passion is important, but often they become focused on getting all the information they can into a pitch. It’s crucial for them not to forget to display how much they care about their company, she says.”
The key is to get the passion/information balance right. The truth is most professionals have developed a very deep habit of self filtering. We do it A LOT. We are afraid to put ourselves out there and be vulnerable. I get it. My advice - push through that and get a little uncomfortable. For me personally, I have learned to be far more ‘out there’ with the passion. Just get it out. Because in most cases, when we feel we are way out there, and vulnerable, that is the point that we are probably finally conveying the passion that we need to display.
Trust me, I know that it is not easy. But, done correctly, it is very effective.
© Copyright 2022. Marc Patterson/Bennu Partners. All Rights Reserved.
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