Business is about people. It’s about relationships. Relationships are built on trust. Trust takes time, it does not happen overnight. Nowhere is this more evident than in the capital markets where trust is paramount to getting quality deals done. Whether you’re engaging an investment banker to raise capital for your next phase of growth, looking to sell your business or grow by acquisition, trust in business relationships will be required at each step.
This post is not meant to be a diatribe on how to source investors for your next transaction, but more of a prime the pump discussion for issuers who may eventually be looking to dip into the capital markets.
When it comes to raising capital, the Pareto Principle is at work. The best deals often need the least introductions and some never meet the light of day because active, savvy investors simply take them down. In other words, the best deals often sell themselves.
Long before you make the leap into a venture, it is prudent to begin outreach to venture capitalists, private equity groups and investment bankers—not necessarily in that order. Doing so, helps to prime things for an opportunity that eventually will be. It’s the real world application of the speed of trust framework, a Covey classic.
By building relationships early—even before you need to raise money, you get yourself in front of relevant investors and investment groups ahead of any capital. Relationships of this kind can take time to develop.
Building investor relationships, particularly with institutional investors, can be time-consuming. Doing so should never be done in a shotgun approach. Finding the right, targeted investors whose investment mandates match the niche in which you play is critical in initial assessment of whether such investors make it on the shortlist for direct outreach.
In doing outreach, use the phone or, preferably, meet directly. While it is tempting—and easy—to use automated versions like email. It is best to get in front of real people to discuss the growth opportunities. There is a big difference between garnering simple contacts from big data sources and actually building meaningful relationships with active, relevant institutional investment groups.
Most importantly, do not plan “the ask” too early. Timing is critical when it comes to sourcing the capital. Most companies go seeking investment dollars when they are either ill-prepared or under-prepared to do so. That is, the business is too early, the offering memo and other marketing documents are not polished, and the management team is lackluster. Each of these components are critical to one’s success in accomplishing the semi-impossible task of raising capital.
The difference in speed and efficiency between your first capital transaction and your last will likely be stark, especially once you are able to build out a solid network of would-be funders and investors. Deals become much easier after you have the right relationships, not just contacts.