March 23, 2021

Capital Raising Worst Practices: Part 3 – Going After the Wrong Audience

Capital Raising Worst Practices: Part 3 - Going After the Wrong Audience

In part two of our series, we focused on putting process in place for your capital raise. 

Ultimately, your process is only as good as the prospects you run through it.

So, now we’ll focus on dialing in your qualifying and targeting to get the right types of capital providers into your process.

By doing so you can execute with precision.

Fail to do so, and you’re behind the 8 ball already.

Don’t Delude (and exhaust) Yourself

When kicking off a capital raise, it’s easy to go out there and get a lot of names of people and firms with money and work that list.

If you have a never-ending target investor list, you end up wasting a ton of time chasing people who are never going to write you a check and probably wonder why the hell you’re reaching out to them in the first place.

Don’t be that person just blindly arriving with some pitch/ask that has no alignment with a capital provider’s core investment model.

That’s some dumb outbound right there, and it’s just not productive in this exercise.

We’re not looking for quick hit, dopamine-inducing activities to trick ourselves into feeling like we’re actually doing something of value for our business.

If you take this approach, you will stall out, flame out and give up.

That is, you’ll fail in your capital raise.

Be a Lion

Lions must hunt to survive. Their hunting is exhausting and risky to their health.

They can’t just run around chasing everything with a heartbeat whenever the fancy strikes them. 

To succeed and survive they must optimize their process.

Lions know what, when and how they hunt, and they deploy the same process every time to reach the same targets, some of which they close (in their jaws). 

Sometimes they succeed, but mostly they fail (with an ~20 success rate). And these are friggin’ lions we’re talking about!

Think how bad your capital raise will go if you don’t act like a lion. You’ll run in circles exhausting yourself with nothing to show for it. And beyond your own health, the health of your business will be severely (maybe critically) impaired.

The purpose of your process is not simply to court everyone with money. It’s to be organized, precise and effective. Being all over the place with your outreach, significantly comprises its efficacy.

I want you to take the predictable revenue approach to outbounding in your capital raise.

Do your homework:

  • build a targeted list that’s big enough (at least 50 names)
  • customize your messaging
  • be thorough and relentless, demand an outcome (a “No”, a Next Step and ultimately one or more tangible “Yeses”)

This takes time and effort to execute, but it’s what’s required to succeed in a capital raise. 

At the end of the day, you need to strap on your sales hat, come correct and navigate your way to the right parties you can build a partnership with for the long-term. 

A Closing Example

I didn’t go into the tactics of qualifying and targeting your outreach, but here’s an example of what the output should not look like.

Let’s say you’re a self-funded $2M ARR B2B software company projecting to be at $5M in two years. You’re targeting me as a potential capital partner or you’re asking me for help.

Don’t show me a list that has any of these as potential targets:

Private equity firms who invest in manufacturing companies

  • You: “My college roommate is a VP there. They’re thinking about getting into software.”
  • Me (at least thinking): “Great, and that’s meaningful here why? Their first software investment will be in a company doing $2M in revenue? Not happening.”

VCs who write $20M checks

  • You: “They invested in $30M in [comparable company].”
  • Me: “Ok, and that company is doing what in revenue? And you think they want a smaller direct competitor in their portfolio, why?”

A bank

  • You: “I bank with [bank name] and they sometimes lend to software companies.”
  • Me: “You’re not venture-backed, so if they’re doing venture debt lending, you’re not viable unless you raise a $3M+ institutional equity round. You’re not EBITDA positive for the past 12+ months, so no cash flow loan for you. You don’t have traditional collateral to lend against, so not sure they’re going to wrap their heads around it. You’re not personally really wealthy and signing a personal guarantee, so that’s not how they’re going to lend to you. They’ll give you a credit card, possibly a small line of credit if you have A/R or sign a personal guarantee.”

* This is an example, not gospel, and I’m not an asshole, so I won’t actually talk to you the way I’ve written it here.

I’m surprised sometimes by what ends up getting done, but more times than not, these are not your target and you should prune them from your list and process so you can focus on what’s actually viable.

You learn as you go with this stuff, and hopefully next time you come around I’ll have less of these questions because you’re targeting is spot on.

Capital raising is a path (one that’s relatively well worn). Different pieces fit in at different stages in different capacities. It’s a lot to navigate.

The purpose of this piece was not to go into every type of capital under the sun.

If you’re interested in that, here’s a detailed post I wrote on the top 10 types of capital for a SaaS business from inception to exit. You can see what’s viable when and what the considerations are for each. Hopefully some of this helps.

Questions/thoughts? I’m at

Thanks for reading,