How to talk to potential investors – the Responses
Posted by Dr. Earl R. Smith II in Questions, tags: adviser, advisory board, angel investor, board of directors, CEO, chairman, coaching, consulting, director, dr earl r smith, dr earl r smith ii, earl r smith ii, earl smith, Executive Coaching, federal circle, federal contracting, funding, Governance, government contractor, investing, investment, investor, Leadership, leadership assessment, leadership coaching, leadership development, leadership styles, management assessment, managing partner, Personal Growth, the federal circle, turnaround, Turnaround Management, Venture CapitalDr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com
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I recently gave a talk to a group of entrepreneurs. Most of them were in one or the other stages of a fund-raising cycle. All of them were frustrated by a lack of progress. As the war stories started to come out, I realized that each of them suffered from the same malady; they could not see themselves through the eyes of the very people they were presenting to. So I wrote an article on the subject – Presentations from the Investor’s Perspective. The response to the piece was so strong that I decided to see if it would be useful to others. Take a read, let me know what you think and add in any stories that you would like to contribute. All contributions are welcome.
I© Dr. Earl R. Smith II
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Related Articles:
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The Money Chase: What Does Investment Grade Mean? Part 1
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The Money Chase: What Does Investment Grade Mean? Part 2
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The Money Chase: Oil and Water
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The Money Chase: One Way to Avoid Being ‘Avoided’
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Funding Strategies for New Businesses
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Angel Investors to Avoid
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Dr. Smith is Managing Partner of The Federal Circle. The Federal Circle partners with teams and existing companies. We help them up their game and win big in the Federal space. We also arrange funding for acquisitions and expansion by acquisition. Our model is based on the belief that, if you select the very best and work with them in a highly professional and focused manner, the results will be truly amazing. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.
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Vitaly, Thanks for the comment and links – very helpful. I agree that many CEOs have very spotty knowledge about IB and how they work. My group is organizing a seminar for this April and that is one of the focuses of it. Investment Bankers can be a great help is the client understands how they work and what their standards and objectives are. Lacking that, relationships with either inexperienced or unsophisticated clients can be very rocky indeed. I visited the article – if Hal would provide me with a Word file version, I would be glad to publish it on my website as a guest article. Dr. Smith
Vitaly Michka wrote:
Great article, Dr. Smith!
We work a lot with Investment Banks, I am amazed how little potential clients know about IB and how they work. My colleague wrote a great article on this subject: http://bit.ly/9ReCnS
I believe that one must know what the IB want to finance and what they are looking for. There are no point in presenting them a project they have no appetite for. Here is my short article on this subject for your perusal: http://bit.ly/9BsXYQ
Philippe G. Mitterrand wrote:
This is network sharing at its very best. Thank you for such a great article.
Philippe
Randy Mayley wrote:
Good Article, thanks, I’m in the same boat. Randy
Posted by David Weinstein wrote;
Thank you so much for giving me the investor’s perspective relative to what they are seeking relative to their return on investment. Very informative.
Peter, Thanks for the kind words and vote of confidence. My blog illustrates my commitment to providing guidance wherever I can. but you are right in observing that the real contributions that I or anybody else can provide only begins with such a blog. Most of my work is done directly with companies and individuals – and I do get paid well for that. Most of my new clients come from word of mouth – I regularly help clients outperform against expectations. One of the ‘soft returns’ of the work I do comes through watching a person or team realize a dream – manage something that they never expected to – achieve goals that were beyond their expectations. One of the reasons that I regularly achieve such results in my filtering process – how I decide who I want to work with. I only work with serious people intent on achieving serious results. That filter keeps me from dealing with the kind of people you mentioned in your third paragraph. People who are truly serious about what they are doing and dedicated to success know the value of what they are acquiring for the scarcest resources – cash and equity. They also tend to be very good at assessing value and making prudent decisions about who to involve in their efforts. thanks again for a great comment. Dr. Smith
Peter Ireland wrote:
Earl,
You give top notch advice to people and I really enjoy your blog. I did my first VC deal in 1987, but can still learn from you.
It can be painful reading some of the threads on Linkedin from people who with unrealistic expectations. They want years of funding to do coding or R&D for a project that may or may not ever pay off and are then shocked when no one shows the slightest interest.
Then after a few weeks or months of posting here, the paranoia creeps in and the accusations fly. Anyone who looks like they could help them get their house in order but who isn’t prepared to do it for free is accused of trying to take advantage of the poor entrepreneur. They expect people to give them millions but are outraged over being asked to pay for anything. (And no, I’m not talking about up-front fees to money finders. Never do that!) You find the same group complaining about everybody here, month after month.
I worked with startups from ’86 to the dotcom crash because it was a passion. Then the novelty started to wear off, and I productized my knowledge into a few financing manuals and moved onto other things. However, least once a month someone who has been knocking his head against the financing wall for 6 or more months will click through my Linkedin profile to my site and then return to Linkedin to accuse me of trying to take advantage of him. I got another one of these Linkedin PMs a few days ago. Hold on Buckaroo, let’s take a moment to consider this: you want me to take information that I have spent 1000+ hours into gathering since the mid-1980s through direct experimentation, reading, and interviews, and then writing it all down, and just give it to you for free? Have I got that straight? And if I pass on this wonderful opportunity, I’m the villain?
I see this Mexican Standoff everyday here. On one side you have permanently stalled entrepreneurial wannabes in desperate need of help; on the other side you have people who could help them but can’t or won’t work for free. Moreover, human nature being what it is, no one appreciates anything that they get for free.
On the plus side, 99% of the people here are realistic about life and you can engage with them without the paranoia creeping into the picture. Unfortunately, the handful who expect free money and expertise can leave a bad taste in one’s mouth. But that’s always the case when you’re dealing with the public.
If I need the services of a coach or consultant again, Earl will be on my short list and I will be more than happy to compensate him for his time monetarily.
Morten Nicolaisen wrote:
Earl, for me is doing it once, a successful project. We have to keep repeating it to form a success.
However, it is not the first time I’ve been asked your question. I started the company with my own money, and have done some mistakes costing me a lot of time, money and lost focus.
Lessons learned the hard way
Anyway, in my opinion I’m not giving up anything to outside investors. We swap shares for money, and form a commitment for return of investment. A bank loan would be a good solution if I thought money alone will help me succeed. But, I don’t believe that.
The right investor for me will invest knowledge, time and access to a business network along with the money. Working together towards our common goal of high return on the investments made is mutual beneficial.
In my perspective, is it better to own a share of something with high value, rather than all of something with little or no value. Thus, if I can’t find anyone that are willing to invest, I should not be doing it myself either, and put the plan neatly back in the drawer and forget it
Thank you Peter for describing the stairs to climb. It seems clear to me that I should aim my focus on the business angels, as the first step along the way.
I appreciate your contributions, it have been helpful!
Best regards,
Morten
Mohan Dharmarajan wrote;
Dr Smith
I have seen your post and the web article. The investors that I am working with go exactly as you have said. Its not only the content, but even the order of preference and process is the same as is in the article. In addition, in our location and platform lot of work also goes on in the title chek – which is a large part of due diligence.
Regards
Steve Wightman wrote;
Dr. Smith, I read some of your articles and I honestly felt myself holding my breath a few times, like when reading about the “crazy eight” entrepreneurs not to invest in. We miss any direct pies in the face but I think it is plausible that we might look ‘crazy’ from 30,000 feet due to circumstances we are not clarifying well. Valuable insight for me to make adjustments from.
Yosef Lifshitz wrote;
thank you for this article, Earl – you are supporting all points I’ve been presenting to my clients as Equity broker. you added more value to preparations we go thru when initiating contact to private equity investors.
yosef L.
MS – Beyond
Rasim Huseynov wrote;
I greatly enjoyed reading articles. Thank you Dr.Smith!
Very useful and I will go trough it more than once.
If we will look at many aspects major is value creation and monetizing. As soon as entrepreneurs starting to realise their role as a guardian and prophet of value creation things should not go as bad as they can under different circumstances.
Best advise is try to start trying investors shoes and always keep him in mind first. It is not all that simple of course. Good chemistry, team spirit and luck also must be there.
Manoj Shah wrote;
Good insight, would definitely help. Thank you
Dr-Smith.comdr-smith.infoRaj, Thanks for the comment. My experience has been that the process generally runs in spurts. Investors who know the space are quick to identify companies what interest them. But, once that stage has been passed, the process slows down considerably. Investors want to know a lot about a series of issues. I have described them in my series of articles on ‘investment grade’. You will find the articles on the website http://www.Dr-Smith.com in the category ‘venture capital’. Here is a link to the first one – http://www.dr-smith.info/the-money-chase-what-does-investment-grade-mean-part-1/ . Dr. Smith
Peter Samuel Cugno wrote;
Your article was well done. I only wish I could run into a genuine potential equity partner that had the good sense to do at least ‘most’ of what you suggest — boy oh boy have I wasted a bunch of time on clueless ones!
One small bit of humor I would like to add … as I have carefully read the details of websites of some 500+ venture capitalists – private equity funds (worldwide) it’s surprising MOST of them have been in business only about has long as some of my neckties!
I wonder what that tells me about them?
Rajeev (Raj) Seshadri wrote;
The gulf between the power-point and the funding: However, the ‘dance’ is led, the question, “is there a business here?” and the ROI calcs need to to get answered quickly. The longer it takes, the less the likelihood of a positive conclusion….my 2c worth.
Ron, That would be a good question if things were that simple. But, in the real world, each party pursues their own best interests. The result is an accommodation rather than an election. The point of the article – and of several others I have recently written – is that, without a more sophisticated understanding of the process, simplistic approaches result in train wrecks. Dr. Smith
Ron Worman wrote;
Buyers and sellers may get invited to a dance. The question is: who leads?
Barry Borden wrote;
Dr Smith – nice article and sound advice.
Another opportunity when pitching to investors is demonstration of a keen understanding of the market decision process and “adoption rate”. While adoption rate is usually speculative, being prepared to describe normal adoption trends (including “the wall” that often occurs between early and mainstream adopters and plan to overcome “the wall”)…. can be the fine line between being perceived as “enthusiastic” and “unrealistic”. And if you are lucky enough to get funding, a plan that embraces market realism can also improve the level of management control/influence you are able to negotiate with your funding source(s).
Rudy Mollo wrote;
Very good advices to the people that are looking for investors Dr Smith !!
I select two items as very usual according to my experience in Brazil : ” avoid answering questions about results and avoid redundancies ” , during these meetings !
I am sure that this article will help many people to improve them projects, including my team !
Congratulations,
Rudy
Mark L. Rosenberg wrote:
Excellent discussion. You are certainly correct that entrepreneurs do not understand how investors approach initial meetings and your article is illuminating.
Peter, Thanks for a very helpful comment. The core of your message is the central point of my article. Investors have standards – a definition of what they see as investment grade. Sure, that definition varies from one to another but the existence of standards is the issue. Either you understand and strive to meet or exceed those standards or you end up the proverbial ‘old man yelling at clouds’. The hard truth is that there is much more investment money than solid opportunities to invest it. Investors are starving for good, investment grade opportunities. What they get is half-baked, casually slapped together proposals from founders who try to value their pre-revenue company at ten million dollars in order to induce the investors into providing two million for twenty percent. If you could sit in on some of the sessions that I have and listen to the frustration, you would clearly see that the real gap is with the entrepreneurs. They just don’t know – or don’t want to accept – what makes a company a good investment. I am organizing a seminar later this year to focus on precisely that. Dr. Smith