Build relationships with investors even when not in capital campaign

A seemingly never-ending number of opportunities to pitch for money has left the average person and quite a few entrepreneurs believing in instant gratification.  To raise money, all an entrepreneur needs to do is stand up on a stage or in front of video camera or post online.  Simply stick out your hand, tell people you need money, and it will come.  This professional style of panhandling has become an accepted fiction within the growing entrepreneur world.

Missing from this story is the old adage that “People don’t invest in people they don’t know.”  When evaluating a potential investment, the single most important factor is the management team. What is their experience? Do they know the market? How hard do they work? Can they be trusted?  Do they work well together? Will they put the interests of the investors ahead of their own? All of these questions examine the capabilities of the team to implement a plan and successfully attain the goals of the business.

It is common to hear that this business or that business raised money at a capital conference or competition. A closer investigation commonly reveals that the business had been in talks with the investor for a long period of time. The event simply served as a good opportunity to announce closing of the investment.  Conversely, some investments occur six or more months after the event. Between the time of the event and the investment, the investors were getting to know the management team and assessing their capabilities.

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An investor needs to know the entrepreneurs in charge of the business. The ability of the Internet to spam millions of people quickly and inexpensively does not change this. Digital access to someone’s email address or social-media profile is not a relationship. It does not represent a foundation for putting money at risk. Investors are not nameless ATM machines that dispense cash upon demand. It is necessary for the investor and the entrepreneur to know and trust each other.

An entrepreneur with a long and successful track record of starting businesses will find it easier to raise money. A rookie entrepreneur will need to offset their lack of experience with credibility, demonstrate their knowledge and/or surround themselves with more experienced entrepreneurs.

An entrepreneur seeking capital should develop a strategy for building a number of quality investor relationships. This strategy should present the entrepreneur as a person worthy of receiving investment dollars. It should enable an entrepreneur to differentiate himself or herself from other entrepreneurs that are competing for the same investment dollars.

Entrepreneurs should invest their time in building relationships with investors. This investment is best completed when the entrepreneur is not conducting a capital campaign. These relationships become a savings account for a rainy day — when resources run short and raising money becomes necessary.

Karl Dakin is principal with Dakin Capital Services LLC. Reach him at 720-296-0372 or kdakin@dakincapital.com.