5 Unconventional Tips for Talking to Investors

5 Unconventional Tips for Talking to Investors

1. Start the conversation by asking questions like

What’s important to you when making an investment?

What’s frustrating to you about the investment opportunities that are available?

2. Really listen!  Imagine what it feels like to be them. Do a lot more listening than talking.

3. Show empathy – almost everyone has pain and frustration about money.

4. Next, ONLY if it feels like a good fit, share your passion and vision, authentically and from the heart.

5. If the investor seems to be intrigued by the vision you shared, only then provide the nitty gritty details – your company’s milestones achieved, your plans for growth, how much you’re raising, etc.

BONUS TIP: Enjoy the process!

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What stage of business is the right time to raise money?

What stage of business is the right time to raise money?

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I Can’t Keep Silent about this Anymore: Women and Capital Raising

I Can’t Keep Silent about this Anymore: Women and Capital Raising

I started helping mission-driven entrepreneurs raise capital almost ten years ago.  My clients have collectively raised almost $20 million, with amounts ranging from $150,000 to $4 million.

About two years ago, I was compiling a list of the clients that I had helped to raise money.  At that time, I could honestly say that every client that I had worked through the whole process with (i.e. if I excluded those that changed their minds and didn’t complete the process) had met their fundraising goals.  Some took longer than others, but all of them had eventually reached their goals.

Looking at the list, I noticed something strange: almost all of my clients were companies led by men.

I decided I wanted to start focusing on helping women entrepreneurs raise capital.  So that is what I have been doing for the last two years.  And here is the dirty little secret that I don’t like to talk about: I am not seeing the same success rate that I saw with my male clients.

Yes, some of my female clients are raising money, but I am seeing them take longer and struggle more than my male clients.

What is going on?  I have done some research, as well as paid attention to what women entrepreneurs say about raising money.  I’ve also reflected on my own experience raising money from investors three times in the last five years.  Here are a few data points that are consistent with my observations:

  • Men in the United States are about 25% more confident than women in their capability to start a business.[1]
  • Men apply for a job when they meet only 60% of the qualifications, but women apply only if they meet 100% of them.[2]
  • Women are 70% more likely to say “I didn’t want to put myself out there if I was likely to fail.”[3]
  • Investors prefer pitches presented by male entrepreneurs compared with pitches made by female entrepreneurs, even when the content of the pitch is the same.[4]

Based on my own experience and talking to hundreds of women entrepreneurs, I think all of these phenomena contribute to the problem.  Women entrepreneurs have less confidence about asking for money, feel they have to have a perfect business before they can ask, and would rather not ask if they think they will get a no.  To make matters worse, when they do ask, the deck is stacked against them because of gender bias.

Another problem is that the fundraising strategy that gets the most hype is the Silicon Valley model which requires super-fast growth at all costs, which just doesn’t fit what many women entrepreneurs want for their businesses and their lives.  They often don’t know that there are many ways to raise capital.

I am really tired of seeing women having to work harder to raise money!

So I am partnering with Amrita Sankar of ImpactAssets to do more in-depth research about what factors contribute to the funding gap that women face and what kinds of interventions are the most effective for helping women achieve their fundraising goals in a way that allows them to stay in alignment with their values.

Please stay tuned over the next few months to hear more about our findings.

[1] Global Entrepreneurship Monitor 2015 U.S. Report, Babson College

[2] Hewlett Packard report.

[3] “Why Women Don’t Apply for Jobs Unless They’re 100% Qualified” by Tara Mohr, Harvard Business Review, Aug. 25, 2014

[4] “Investors prefer entrepreneurial ventures pitched by attractive men” by Brooks et al., PNAS, March 25, 2014; available at http://www.pnas.org/content/111/12/4427.full.pdf

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Community-Funded Wool and Fiber Mill Nearing Completion!

Community-Funded Wool and Fiber Mill Nearing Completion!

I met John Kuhry many years ago.  He was running a small Community Development Financial Institution that invests in Mendocino and Lake County in California.  He was passionate about creating opportunities for more people in his region to invest locally.  So, I helped him and his team at the Economic Development and Financing Corporation (EDFC) launch a Direct Public Offering.

They registered the offering with the state of California so that they could publicly advertise the offering and anyone could invest.  They offered a promissory note which pays 2% interest annually.  The minimum investment was $1,000.

EDFC raised over $350,000 which they invested in a start-up wool and fiber mill in Mendocino County.  The mill will soon open its doors and will produce 100% locally sourced, processed, and dyed yarn.  For details, check out this local news story.

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Frequently Asked Questions from Investors and How to Answer Them

Frequently Asked Questions from Investors and How to Answer Them

I strongly recommend approaching all kinds of investors, including those who may have never invested before and don’t think of themselves as investors.  These people can be amazing supporters and allies.  The challenge is that sometimes some education is needed to help these folks even consider an investment in a small business.  They have been told for so long that “investing” is something done by VCs and hedge fund managers, not regular folks like them.  Here are some questions they might ask and how you can respond.

Is this crowdfunding?

It depends on what you mean by crowdfunding.  One very common type of crowdfunding is where you post some kind of a project on a crowdfunding site like Kickstarter and solicit donations.  Donors are often promised something in return for their donation like a t-shirt or a thank you note.

That is not what I’m doing.  I’m actually raising investment capital.  This means that if you decide to invest and things go as planned, you will receive a financial return on your investment – just like you do when you put your money in the bank or invest in the stock market.

How is that legal?  I thought it was illegal for small businesses to ask for investment from regular people.

Some lawyers and financial advisors might tell you that but it’s actually not the case.  My offering is being done in compliance with both state and federal securities law.

I’m not an investor.

Actually, if you’re like a majority of the US population, you are an investor!  You may not think of yourself as an investor, but if you have retirement accounts, bank accounts, mutual funds, etc., you are an investor!  And you have options about where you can put your investment dollars.

Are you paying a market rate return?

The term “market rate” is very subjective and hard to define.  What I’m offering is an X% annual payment in the form of [interest/profit distribution].  This return is much better than what you would get if you put your money into a certificate of deposit at a bank, where you can get currently get X% interest.  Of course, there is more risk if you invest in my business because your investment is not insured by the FDIC like a bank deposit is.  The return I am paying to my investors is based on my projections about the future of my business.  I want to pay enough to fairly compensate my investors while also making sure that I don’t promise more than I can realistically afford to pay and still keep my business healthy.

Remember that all investment is risky!  Even an investment in an indexed stock mutual fund can be quite volatile and is affected by factors that are completely out of the investors’ control.

Also, there is a lot of hype about what a market rate return is.  For example, you may hear some investment advisors say you can expect a 6-8% return if you keep your money in the stock market over the long term.  The reality is that the Dow Jones Industrial Average annual return for the last ten years is a less than 3.25% and past returns cannot be used to predict the future.  Some experts are saying that the world’s financial markets are likely overvalued by at least $20 trillion due to stranded fossil fuel assets and a recent analysis cited in the Wall Street Journal predicts a 17% stock market drop caused by a pulling back from liberalized global trade.

How will I get my money back?

You may have heard of the Silicon Valley model of investment where the investor gets paid back when the company is sold or goes public.  There are some stories of investors making millions when they got lucky and invested early in a company that ended up going big.  In reality, the majority of investments that depend on a big sale or IPO don’t succeed and the investors end up losing money.

CHOOSE FROM ONE OF THE TWO OPTIONS BELOW DEPENDING ON WHICH ONE IS TRUE FOR YOU:

That model doesn’t fit my business – I expect to grow modestly every year and I have no immediate plans to sell to a larger business or do an IPO.  That’s why I am compensating my investors by sharing my profits.  My plan is that by the Xth year, I will be able to pay back my investors their original investment, in additional to the annual share of profits.

OR

I do expect to sell my business someday, but I will not sell at any cost.  I will only sell to a buyer that I believe will stay true to the mission of the business and I want the freedom to choose whether or not to sell based on what I believe to be in the best interests of the business and its long-term impact.  However, in the meantime, I plan to compensate my investors by sharing my profits.

So are you saying this is a “lifestyle business?”

I have heard some people categorize businesses that do not follow the Silicon Valley model as “lifestyle businesses.”  This seems to mean a business that grows modestly and is not shooting for a unicorn exit.  In that sense, I guess you could say that my business is a lifestyle business.  I have noticed that some people think that these kinds of business are not “investable.”  Nothing could be further from the truth!  Investing in a business that shares a reasonable return from its profits every year can be a great investment, compared to an investment that gambles on that one in a million chance of a unicorn exit!

Isn’t this a risky investment?

Of course, all investment is risky to some extent and not all small businesses succeed.  You should only invest what you can afford to lose.

But here are some things to keep in mind when evaluating risk:

  1. Look at your whole portfolio and remember that diversification mitigates risk. If almost all of your investments are in the stock market, investing in a small business whose success is not tied directly to the ups and downs of the public markets can be a good way to diversify your portfolio.  Think about it – almost all of most Americans’ investments are in giant multinational public companies.  But 99% of US businesses are small private companies that account for half of all employment and half of all production.  Why put all of your investment dollars in only half of the economy?
  2. The stock market has been likened to a casino – it has become so opaque, trading is increasingly conducted by algorithms, and financial instruments have become so far removed from the real economy that it is hard to trust that it will continue to be a safe place to put your nest egg.
  3. Warren Buffett’s advice? “Never invest in a business you cannot understand.”  Most investors not only don’t understand the businesses they’re investing in, they don’t even know what businesses they’re invested in!  They just let they’re fund managers make all the decisions and hope for the best.  Why not invest in some of the businesses that you know and understand?
  4. Most of our investments are made through intermediaries (often more than one) like stock brokers, fund managers, and investment advisers. When you invest directly in a business, you eliminate the fees and percentages taken by these intermediaries and there is more transparency about what you are actually investing in.
  5. A business is all about the people who run it. When you invest in a small business, you’re investing in the founder based on your opinion of his or her commitment, integrity, and abilities.  A small business owner is generally going to be much more committed to her business’ success than a CEO of a multinational public company.  CEOs move around from company to company and get their golden parachutes when they leave.  Entrepreneurs usually start their businesses to express their most dearly held dreams and passions.  Their business is their baby so they will stick with it through thick and thin.
  6. When you invest in a business based on your relationship with the owner, that owner is going to feel personally responsible for your investment dollars. The last thing she wants is for someone she knows to lose money by investing in her business.  She will do almost anything to avoid having to tell her investors that she has lost their money or is unable to pay them as much as she had promised.  When you invest in a faceless multinational corporation, there is no similar feeling of personal responsibility to the investors.

Besides the financial returns, what are the other benefits of investing in your business?

When you invest in a small business, you often get benefits that go beyond purely financial returns.

These vary depending on the particular investment and business but they often include

  • Having the pride of knowing that you helped a business that’s important to your community
  • Being able to tell your friends and colleagues that you invested in a business they may know and love
  • Being part of a community of investors with similar values
  • Having the opportunity to learn from the business owner about the details of the business
  • Providing support to the business owner when she needs it – advice, contacts, business referrals, etc.
  • Having some ability to affect the success of the business as a customer and a source of referrals
  • Being invited to special events
  • Being recognized publicly as a supporter of the business
  • Discounts and perks
  • Knowing that your investment dollars are supporting something that is having a positive impact in the world

Remember, all investments have an impact – what impact do you want your investments to have?  When you invest in a mutual fund of public company stocks, does that create any positive impacts in your community or on things that are important to you?

Investing in small businesses allows you to invest in the real economy in a business that employs people and provides useful goods and services.  When you invest in public company stocks, your money doesn’t even go to that company – it just goes to the previous owner of the stock!

Why not use some of your investment dollars to invest in things that are important to you?  Community gathering places, alternative energy, businesses that create good local jobs, etc.  Imagine if everyone moved just a small percentage of their investment dollars to small businesses creating a positive impact in the world – we could create a better world by simply being more mindful about where we put our money.

Interested in learning more? Get in touch!

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A Great Way to Make a Small Change

A Great Way to Make a Small Change

Eve Picker was introduced to the concept of real estate crowdfunding in 2012.  As a real estate developer who focused on underutilized assets in struggling neighborhoods, she had long wrestled with the impediments to financing projects that banks thought were too risky.  When the JOBS Act passed, Eve recognized an opportunity to finance impactful projects with the help of the very people who populate these struggling neighborhoods and cities.  And so she launched the real estate equity crowdfunding platform, Small Change.  The platform is not just about investing for a return, but it’s about investing to do some good.

Small Change focuses on catalyzing neighborhood projects that make their communities and cities better. It’s the nation’s first Funding Portal dedicated to funding real estate projects.

When I first met Eve, I recognized her as a direct descendant of one of my heroes, Jane Jacobs, a brave and tireless advocate for great cities.

The Small Change platform includes a proprietary “Change Index” to encourage investing in real estate projects that change cities and neighborhoods for the better by increasing walkability and bike-ability, public transit access, access to green space, and other measures of improvements to quality of life.

To learn more about Eve, check out her awesome TedX talk about the cure for the common city.

Interested in learning more? Get in touch!

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