Chapter 8 – Advice for Raising Private Equity
In Chapter 8 of Entrepreneurial Finance: Finance and Business Strategies for the Serious Entrepreneur, Rogers take a moment to give his readers some advice about private equity. To sum it up, here are his three:
- Do your homework on investors
- Get an introduction before submitting proposal
- Be aware of post-pitch communication
Do Your Homework on Investors
This is a pretty straight forward piece of advice. Just find out if the investors you are seeking buy into companies like the one you are pitching. I think back to a podcast I listen to, called The Pitch on Gimlet, and there are certain investors on that panel who only buy into businesses that meet certain criteria. One only invests in business that generating revenue (no pre-revenue companies), one only invests in altruistic businesses, one only invests in companies that can use a smaller amount of money to achieve their goals, and one only invests in businesses that they have exposure to. With that being said, it’s important for us to know if our investors are interested in investing within our market niche, if they invest amounts under or above what we are seeking, or if they only look for businesses that meet certain parameters.
Get an Introduction Before Submitting a Proposal
If you know how to get an “in” before you submit your proposal, then your deal can get a great deal more attention than if you didn’t get an introduction prior. Rogers goes on to mention, “Find someone who knows one of the general partners…ask that person to call on your behalf…this action will maximize the attention given to your plan and shorten the response time.” This is a great piece of advice because getting faster information is always better! The waiting, and uncertainty, is what drives people crazy…but getting the in can get you information much faster. We all want that, right?!?
Be Aware of Post-Pitch Communication
This is more of a “read between the lines” piece of advice. After you have pitched your idea and you are reaching back out to the investors to follow up, take some time to notice how they are interacting with you. If they are quick to respond and show interest in you and your business, then they are, likely, still interested in your business. If they aren’t reaching back out to you, or showing a lack of interest in communication, their interest in your business has likely waned. “A slow ‘maybe’ feels much worse, but is more common than a fast ‘no’.”
Rogers, Steven. Entrepreneurial Finance: Finance and Business Strategies for the Serious Entrepreneur – Third Edition. McGraw Hill, 2014.