Last Updated on December 1, 2020 by John Fischer
Finding Qualified Accredited Investors
Despite much of the buzz surrounding Jobs Acts 1 and 2, I’m suspicious of things actually changing much. The risk of allowing general solicitation and “crowdfunding” investments is still high, regardless of what the law says (or will say once Title III is here). Neither altered laws or public opinion polls can change finance ethics or personality issues. Personally, I would never crowdfund, even if it were legal. I prefer working with the sophisticated, educated and understanding investor. I can’t imagine how frustrating it would be to have to handhold an investor through the process. Of course, it is enticing knowing that the less sophisticated may be easier to gull into a capital raise. It still holds true that, “A fool and his money are soon parted”.
There are certainly arguments for and against raising money. We’ve discussed them at length before, but the impetus–the catalyst–to business success is knowing the right people. The right people will mean something different for every potential business. Not all angels, PE groups or venture capitalists invest in the same market sectors or with the same types of people. They all have different strategies. So, having a killer idea, the right team and access to the right people at precisely the right time all combine to make for success. Let’s discuss the options available to the latter in that list: the right people.
Building the List
Timing and team are usually serendipitous when you’ve got the right people on board. Knowing the names, addresses, phone numbers and other contact information for groups of accredited investors is sometimes the easy part. You can buy accredited investor lists, but do they “know you from Adam”? Have they heard of your firm? Would they trust your ideas, the information you share with them or the other like-minded people you bring there way? Like contemplating mergers & acquisitions, building an accredited investors list is often the question of “build vs. buy.” In my personal experience, buying a list is easier, but the real work is in massaging the list.
Working an investors list can be a bit easier if the list has been built organically. This is partly because half of the effort involved in working a list comes from building the relationships. Such relationships are like plants in a garden, they need regular nurture if they’re to bring forth any fruit. Properly nurtured, you can–over time–begin to scale your outreach for specific deals. I’ve found Linkedin–and Linkedin Premium in particular to be an invaluable tool in networking and gaining access to the right niches and groups.
A good list can take years. The best lists are built over a lifetime of relationships. Fortunately, most accredited investors are savvy enough that you don’t have to date them for five years before they’ll do a deal with you. The educated and experienced are looking for a home for their capital. It’s waiting for the right deal that can sometimes be the sticking point.
When the right deal does come along, scaling your outreach is easy especially if your database is up to snuff. CRM technologies combined with appropriate outreach should be paramount. Many of these investors must screen large numbers of candidates they trash stuff that doesn’t pass the gut check before they even dive into the details. If your database of investors is good enough, you’ll know the appropriate markets, SIC codes, etc. where the individual may have keen interest. If your CRM or marketing automation is really good, you can streamline the entire process. If your list is big enough, implementing a scaled solution is a must. It’s can also streamline the process, save time and ultimately provide you with better metrics.
Make it Personal
True investing is like any other quality business: it’s all about relationships and people. A truly scaled approach is okay for tier 1 outreach, but as the investor list is whittled-down, the true relationship work is what separates deals done and deals lost.
In fact, the best accredited investor lists are the short ones. Less mouths at the trough can mean the control is held in the hands of the few. Frankly, that’s not always a bad thing. It’s easier to manage a short list and when decisions need to be made, the skids are greased much more quickly when investors are few, pockets are deep and control is concentrated. Furthermore, if you do it right, the right deals can cause an investor to come back to the table for second helpings.
Confucius said it best: “The superior man knows what is right; the inferior man knows what will sell.“
From my personal experience there is a fine line between the two. In most cases, the truly successful have a little bit of both. Unfortunately, there is a tendency in the capital raising arena to oversell. The conundrum of over-promise and under-deliver is not good, especially if it means bridges of investment that could be crossed in the future are burned in the present.
Sure, accredited investors are typically more sophisticated and tend to understand the risks, but if they’re sold a deal that goes even the slightest bit south, it could mean you’ve lost an investor for future potentially safer and more lucrative deals.
Be Cautious on Representation
Becoming a person of trust in private ventures often requires having the keen eye to filter crap even before you see it. Some of the best investment advice is to save and avoid the crippling effects of the downsides of a bad investment. The best advisors are able to successfully shelter their clients, but not pitching them garbage.
So, turn up your B-S filter hussle to find the opportunities and get to work procuring the right strategic private investors. Of course, that’s more easily said than done.