Raising Capital: About Fit and Timing

I was in New York last week speaking with existing and prospective investors in my investment fund, Greybull Stewardship.  The match-making activity between capital seeking returns and opportunities seeking capital is truly amazing in the United States.  Nothing brings this home like New York City with its tremendous variety of people and families and investment styles.Raising Capital New

Capital, on one hand, seems all to be the same — money looking for a good return.  The closer you look, however, the more large variations in types of capital become apparent.  It reminds me of a talk Bradley Fisher of Featherstone Holdings, LLC made a few weeks ago about family offices.  Fisher made the point that families looking to invest capital can be very different.  They are all looking for different combinations of things.

A few of the variables that Fisher mentioned:

  • Operating families versus financial families.  Some like to be involved in their investments and some do not.
  • Alpha families versus beta families.  Some are looking to outperform the market and some just want to make sure they don’t under perform the market.
  • Private equity families versus liquid families.  Some do not mind the illiquidity of private companies (or may even prefer it) and some want to be able to move to cash at any time.
  • Fund families versus direct families.  Some want other people to make the fund allocation decisions and some want to make those decisions themselves.
  • Control families versus passive families.  Some want to be involved in the activities of their investments and some want to be an arm-length away.
  • Generational differences. Some parental generations want different things than the younger generations and sometimes it is vice versa.
  • Consensus versus majority. Some families want consensus and some don’t mind a vocal minority.

Align opportunity to money rather than change the money

To me, this suggests that we often get distracted while raising capital about whether our idea/project/company is good enough. I find that the more important thing is to get yourself in front of enough people to allow the appropriate capital to become aligned with your opportunity.  It is often more about finding the right fit.  How can my opportunity find its best capital?  Someone’s outlook on investing won’t change very often, so it’s more important to find the best match.

This suggests doing a few things:

  • Spread the word widely.  You need a big enough sample set to allow you to find the best fit.  In many ways, it is more of a numbers game than anything.  Or, in a circumstance of raising capital from venture capitalists, it pays to be smart about finding the firms and partners that are predisposed to your type of company and opportunity.
  • Give yourself time.  It takes time and serendipity and many conversations to find a good match.  You may be lucky and find the right match right away, but it’s better to give yourself time and let the match-making take its course.
  • Be clear on what you are looking for.  Give capital enough information to find you.  This helps the capital to self-select to you or away from you in a smaller amount of time.  Written information or web information that capital can use before any meeting is key.   I have also found that the more clear you are about what you are looking for, the more that people can help you find it (and they want to help you if it’s not too difficult to help).  In a way, the world seems predisposed to guide you to the right match — like grandmothers match-making their grandchildren.  If what you are doing or what you need is not clear, it doesn’t give people enough information to make referrals and help you find the right capital.Raising Capital is Like Match Making
  • Focus on the “what” characteristics you need;  do not focus too much on the “whom.”  Focus on getting internal conviction and clarity about the characteristics in the capital you are looking for — not necessarily the whom.  Our minds sometimes jump ahead and look for the personal “whom” — foisting our desired characteristics on people we imagine to have the characteristics we are looking for.  This is sometimes true, but often not.  We cannot know what affects someone’s ability to participate in or have an interest in our opportunity.  Focus on the characteristics of the capital first, and let the people follow.  You may be surprised who comes forward.

Raising capital seems more like “discovering alignment” rather than “selling.”  There are plenty of capitalists in this world — we just need to find the match-making capital which is looking for the opportunities we offer.