Raising Capital—The Magician or Pickpocket

Are you a magician or pickpocket? Do you get in front of an investor audience, say abracadabra, wave your hands, and hope to transfer money from an investor’s pocket to yours?

Well, most investors will get wise to your attempted sleight of hand before the end of your pitch. Will you be found out and get a “no”?

Magician or Pickpocket?

Many founders come across during investor meetings as magicians or pickpockets. They get excited, increase their speaking volume, speaking speed, and body movements. They do their best to misdirect investors when they don’t have immediate answers to difficult questions. We call this behavior hand waving.

If you’re in the hand waving camp, beware. The problem with hand waving is that investors have been through this process many more times than you; they aren’t easily misled. They want you to tell them a compelling story about your business and demonstrate how you’ll make real magic with your new product.

A Short Tale of a Magician

A few years ago, a colleague asked me if I would listen to an investor pitch and tell him why the founding team hadn’t been successful in raising money after more than twelve months of investor meetings.

The CEO—we’ll call him Bill—was thrilled about his product and potential business revenues. He showed me a projected total available market (TAM) size for his product of more than $50 billion—which seemed plausible—and revenues in year five of $500 million based on capturing just 1% of the market.

About ten minutes into the presentation, I stopped Bill and asked questions about competition and the initial and ongoing investment in marketing and capital equipment required to capture his projected 1% market share. He did his best to answer my questions, getting more and more excited as he spoke.

The problem was that he was hand waving. Bill and his team had drunk the Kool-Aid. He just “knew” that his business was going to be huge and nothing would dissuade him. Bottom line: Bill couldn’t justify his business case and wasn’t willing to take advice. He tried to raise money for almost twelve more months before throwing in the towel.

What’s Needed to Raise Capital

To raise capital, you need a solid business plan, a strategic financial planning model, and company presentation deck. You also need a warm introduction to investors who are a great fit for your business, eager to listen to your pitch, and in a position to invest.

Then, you need to tell investors a compelling story. Unless your product speaks for itself—which is rare—being animated and doing some hand waving is usually required to get investors excited about your product. However, you must be able to answer investor questions without misleading them and back up your answers with solid data. Pulling a rabbit out of a hat should not be a part of your pitch.

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Do you need help with your business strategy or documents for raising capital? Are you uncomfortable about creating a compelling business case or presenting to investors? Schedule a one-hour call with us here to discuss your situation and how we can help.

Until next week!

All the best,