Top 5 Essentials for Raising Private Capital
Written By David Thompson, Thompson Investing
After 8 deals and $13 million raised in 18 months, I condensed my top ten tips to five essentials for successfully raising capital. I continue to learn new things on every deal, but this is the best of the best so far.
If you can master the art and skill of raising capital, you have a big advantage. It’s one of the top 3 skills in demand in this highly competitive and increasingly complex world according to Cal Newport in his book Deep Work.
Everyone seems to need capital to grow including startups, businesses, communities, nonprofits, you name it. Even companies I’ve talked with that have a ton of experiences and rich capital sources are interested in talking with me because at the end of the day, it’s just human nature to grow. A small firm can also negotiate better win / win terms from the operator’s standpoint versus wall street private equity that often may negotiate less than favorable terms with them.
Companies either want to grow bigger, faster, or take advantage of opportunities that often come in bunches instead of at systematic intervals. Lack of capital stops ideas, companies and people from growing. If you focus on this one skill you will have folks wanting to partner with you in a variety of areas. Your goal will be to stay focused, establish key relationships with a few very experienced operators, build your reputation and network of investors by honing your craft and providing them with sound and logical opportunities while taking care of their needs. So, here are my top 5 essentials for being successful in this area.
1) Partner with experts
- You increase your experience and credibility faster when you are working with partners that are experts in what they do
- You will be sharing good deals with investors in strong markets behind an experienced team
- Your learning and development accelerates because experienced partners can share their knowledge. You’ll avoid newbie mistakes that can harm your reputation
- Your brand becomes more known and credible building on an experienced partner’s track record
2) Be Yourself / Authentic
- Focus on education with investors as the primary objective
- Don’t sell or appear needy. You have something that investors want
- Being knowledgeable increases confidence and the investor will feel that you know what you are talking about. You will be more relaxed and natural when sharing the idea with investors.
- Keep the message logical and simple. Frame the opportunity around a good market, a good deal with an experienced team behind it. Share with them what’s driving value creation.
- Prepare for investor questions: review my blog on 25 FAQs
3) Play to your strengths
- Analyze your network and know where your investors are coming from
- Focus on getting stronger in the areas of your strengths. Pick the top two areas you are finding most of your investors and develop a more comprehensive plan to further develop those areas
- Don’t waste time in areas that aren’t working or are not natural paths for you
- Bonus: Read StrengthsFinder 2.0 (Tom Rath) to help you understand the importance of playing to your strengths
- Return customers and referrals are 85% of my business now so understand it gets easier over time
4) Raise min 25% more than you need
- Know investors may change their mind for a variety of legitimate reasons such as pending job uncertainty, health or family emergency, unable to get liquid in time, etc.
- Don’t be surprised when investors change their mind. Be mature and empathetic with the investor
- Focus on building that long-term relationship so they are ready next time
- To avoid big investor decommits, take half and put the rest on backup reserve in case you need it
- Demand and interest increases when folks are put on backup. Psychologically, folks want in more when they can’t get in. They assume they are missing out on a great opportunity
5) Develop a thought leadership platform for long term success
- Building your brand requires a long-term strategy of developing content and knowledge share
- Create good content for free and focus on educating others to increase awareness of your brand
- Thought leadership ideas are blogging, podcast interviews, newsletters, videos, special reports, website, online forum or meetup group participation or start your own meetup group.
- Most of my new leads today come from my thought leadership platform
In summary, building a foundation on these five essential factors will accelerate your capital raising efforts and enable you to add significant value to the partners you work with in your business while building an investor base that has confidence in the ideas you share with them.