Here's How You Can Fix Your Capital Raising Strategy
You already know the common advice for how to raise capital. Whether you’re pitching investors for your PE fund, funding portal, or client, the advice is the same.
- Reach out to friends and family.
- Get an introduction.
- Network.
The trouble is, closing investors (especially for investment sales) is especially difficult. The majority of U.S. PE funds in the US failed to outperform public stocks in the last 15 years. That doesn’t spark confidence in most people, and the competition is fierce. Accredited investors only invest in a couple of deals a year. A fund of funds can invest in as little as 20 deals per fund. You’re working uphill to get their attention, and they’re trusting you to take care of their investment. So, how do you build that trust?
Investor Analytics: Your Unfair Advantage
Like job hunting, capital raising is a numbers game. At any given moment, only 3% of prospects are ready to buy right away. Once again, only three percent. How many times have you sent an email with no response, but didn’t follow up? When someone tells you the timing is wrong, do you move onto the next client and avoid contact? If this sounds like your sales strategy, you’re chasing the 3%.
Leaving a lead after initial contact is leaving money on the table.
Yet, there is some light at the end of the tunnel. 37% of investors are willing to buy if you nurture the relationship after first contact. So, what does that look like? Here’s what you can start doing today to start closing more investors.
1. Personalize your outreach.
To foster trust, you need to build a relationship with your prospects. In fact, you can start in your very first email. Refer to investors by their first name. Mention specific information you know about that investor: anything from the city they live in, that mutual connection you have on LinkedIn, or even their favorite food they mentioned the last time you spoke to them (and if you’re not tracking investor information in a CRM yet, here’s your sign to start using one). Your follow-up email could look like this:
Hi John,
Hope all is well over in New York. Last time we connected, you mentioned you were interested in Insuretech. I’m raising the Calma Ventures Fund II and thought it could be a good fit for you. Let me know if you’d like to chat about it.
Best,
Jack
Notice the words in bold? That’s data that can be pulled from your CRM and personalized for each investor. Not only are you building a relationship with your prospect that is genuine and personal, but you’re also building a scalable process that can be iterated amongst hundreds of investors with little time wasted. It’s nuggets like these that take minimal time to execute but are worth their weight in gold. When you retire to your yurt in Tahiti 5 years earlier than expected, send me a postcard.
2. Use behavioral data.
As the old adage goes, “Actions speak louder than words.” So, know what your investors are doing! Often you’ll use a data room when raising capital. In fact, it’s one of the most efficient ways to learn investor behavior. There you can see how long they look at your documents, what parts of your offering they aren’t interested in reading, what parts they spend a lot of time reading, and (most importantly) what information investors need to make a decision.
I often say it’s like knowing the answers to a test before you take it. If you’re collecting data across all your contacts, you can quickly learn what strategies are effective, and what really matters to your investor (before you even talk to them!). Just zero in on what matters, and ignore the fluff.
For example, you might hear an investor say, “I’m interested in investing if you have a lead.” However, you see that they viewed your data room for only a few minutes, and only skimmed a few documents. In reality, it’s very unlikely they’re going to invest. Some investors will never tell you no. Their reasons range from keeping their cards close to their chest, not wanting to burn a bridge, or wanting to keep their options open.
3. Target the 37% of prospects that can close.
Don’t focus as much of your time looking for the 3%. Instead, learn to find the balance between lead generation and lead nurture. You’ve already spent the time finding, qualifying, and contacting your leads. Don’t let that effort go to waste. Instead, identify which of your prospects are the 3% that are ready to buy, and the 37% that will buy after lead nurture. Then, you should treat both groups of potential investors with a value-adding nurture campaign (we'll talk more about that in a moment).
If you build a strong foundation for all your prospects, you'll appear more confident and honest in your outreach, rather than solely focused on their investment. Take the time to create value and build trust. Soon you'll notice trends in your investor’s actions and responses. You can use these trends as your secret sauce (or what some call your Unique Selling Position) to close deals faster! In doing so, you're already three steps ahead of the 37%.
4. Nurture your leads.
To build trust with your buyers, you need to add value through your outreach. After all, you’re trying to sell them an investment that should add value to their portfolio. Your communication should do the same. Crack a joke, share an interesting article you’ve read recently, and be yourself!
- Personalize Outreach. Show them they’re not just a number.
- Add Value. Provide information or advice that makes their life better.
- Be Authentic. A warm, human touch will do wonders for your campaign.
Let’s be real. Capital-raising is time-consuming, difficult, and frustrating. To make it easier, make mastering your craft your purpose. To begin, collect data, leverage it in your investor outreach, and use it further your nurture campaigns. Almost immediately, you’ll begin to develop increased trust with your investors, scale your productivity and dramatically change your raise for the better.
Now, go make magic happen!
