Fundraising is No “Bull” or is it? – The Science of Funding Part II

In my last post, I introduced you to the concept of a science for fundraising. By analogy, I described briefly some of the work in trial science as illustrated in the CBS television show “Bull,” which is based on the early career of Dr. Phil McGraw.

In trial science, the goal is to select a jury favorable to the client based on research, profiling, and principles of psychology, then coach the client to evoke a favorable response from each juror by looking, acting, speaking and being in ways that, based on the scientific hypotheses, are likely to evoke that positive response.

The science of funding is analogous. The goal is to select appropriate investor candidates for the client based on research, profiling and an understanding of unconscious patterns, then coach the client to identify the dominant patterns in individual investors. Finally, the science of funding coaches the client to look, act, speak and be in ways that evoke a positive response from the investor.

The funding rate of young innovative companies is atrocious, perhaps 3-5%. Therefore, the goal of funding science is to increase your odds of getting funding by giving you an edge — an understanding of unconscious patterns in the minds of investors that, if unknown to you, are more often than not evoked negatively. In my last post I briefly laid out how we accomplish this:

  1. We help you to seek appropriate investor candidates, those who research indicates may have a positive response to you and your company in general;
  2. We teach you to shrewdly guide their thinking in your favor; and
  3. When dealing with a group of investors, we teach you to identify the thought leader of the group, then evoke a positive response from him or her.

But in order to actually accomplish the three outcomes above, we engage in a rigorous process that includes:

  • Training you to use our proprietary methods to profile investors so that we can find good matches (those most likely to want to invest in you).

Remember, while funding IS a numbers game, even if you meet a thousand qualified investors but don’t know how to gain any kind of edge over the competition, or how to evoke a positive response, your chances for success are very, very low. And, even if you are aggressive and well-connected, how long will it take to stumble upon and effectively impress that 1 in 1,000 who might say yes?

  • Applying a range of proven psychological techniques including colors, images, stories, word patterns, tones of voice, info-graphics, etc. that create exactly the right unconscious reactions in those investors to whom you’re pitching.

You’ll be amazed to learn how important some of these factors are to evoke a positive response. Watch an episode or two of Bull and if nothing else, you’ll begin to understand how powerful the unconscious processes really are.

  • Developing with the help of focus groups exactly the right 30-second “elevator pitch” that opinion leaders in the investment community will use to spread the story of your venture, making your story viral among investors.

Having a truly viral pitch is incredibly important to your success because it increases your odds of funding substantially through “warm” introductions from investor to investor, which occur when you’re not present.

  • Developing urgency by describing the major social, economic and technical trends that are converging right now to make your venture the most compelling investment at this time.

Here we are converting the investor’s reptilian brain “fight or flight” fear-based response into fear of missing the train. This psychological flip-flop can be evoked based on how you tie your business opportunity to certain macro trends in the world, then add a special phrase or two that puts you, not the investor, in the place of the morally virtuous.

  • Developing again with the help of focus groups (like the mock juries on “Bull”) exactly the right stories for you to tell that further relax the investor’s fear response (fear of being taken advantage of) and create positive human rapport and trust instead.

As I’ve written so often in this blog, nearly every investor (even your mother) has some level of fear about being taken advantage of, losing their money and damaging their reputation. You’re up against that and must find ways to overcome it. The right story, told at the right time, can reduce that tension and create the space for true listening to your pitch.

  • Developing and training you to deliver exactly the right opening for each page (slide) in your pitch so that the investor’s attention is newly seized every 60 seconds.  What does a great pitch do if no one is paying real attention?

One common problem that arises in investor meetings is that the investor begins to anticipate what’s coming next in your pitch, they become wrapped in their own version, complete with their own built-in biases, rather than actually hearing YOUR pitch. We train you to avoid this, or to notice when it’s happening and shift the conversation immediately.

  • Showing you how to deliver your pitch without using a projector or screen, so that the investor’s attention is riveted on YOU.

Mastering your pitch to the level where a projector or computer screen aren’t needed gives you power, confidence and the air of someone who isn’t “pitching” at all.

  • Showing you how to use humor to balance the mood and keep it light and enjoyable.

Sometimes, we can be so revved up and focused on our goal that we forget to be connected, person to person, with our investor candidate. Humor, at the right time, can forge a closer bond, add levity when tension is apparent, or shift a conversation from fear to openness.

  • Providing a simplified and compelling way of presenting each of the business-plan issues that you want the investor to really hear such as your go-market plan, intellectual property, competitive positioning, exit strategy, financial projections and use of funds.

Your goal is to excite the investor rather than throwing him into “analytic mode” which breaks the spell of human rapport just achieved.  This mistake by itself is the major reason why most pitches fall on their face and don’t result in second meetings.

To this end, we apply the launch system developed at MIT by William Aulet for successful launch of technology startups and the scaling system developed by Gazelles founder Verne Harnish, based on study of 35,000 fast-growing companies, to demonstrate that the investors money is used in a disciplined predictable way rather than to experiment, in order to sustain a high level of trust. We adjust risk expectations and other financial factors to increase perceived valuation, often doubling your company’s valuation and therefore halving your dilution when selling shares.

Our goal is to make sure you get a second meeting nearly every time and from there into due-diligence and funding. As you begin to prepare for investor meetings, we show you how to balance your team so that your investors are certain all gaps are filled or will be filled. We teach you tricks of corporate governance and formation that solve the dilemmas common to early-stage companies. After your first few pitches, you may not need to pitch very much again to strangers because your investors will be spreading the word on your behalf.

Because the game of raising capital is so deceptively complex, even the rigorous scientific methods described above are only half the story.  The rest of the story takes place after you’re ready to hit the field and start presenting.  The rest of the story (which I’ll cover in my coming posts) covers how to select the right investors, how to get the opening appointment with a warm introduction, how to track progress, how to stay in front of the investors without every seeming desperate — in fact, how you become the sought-after prize – which more than levels the playing field, but which actually tilts it in your favor.

With our support, you are your own DIY broker/dealer — fully capable of raising capital on your own, without having to pay the success fees of a broker.

Key Takeaways:

  1. Fundraising is a deceptively complex process that, like the trial process, require an applied science based on research and well-tested hypotheses;
  2. The overall goal is to understand the unconscious patterns and biases of investors, then coach you to evoke positive responses
  3. You can gain a clear edge on the competition and reduce the time required for funding once you are trained through a rigorous process we call The Science of Funding
  4. Without some kind of edge, fundraising may prove to be a frustrating, time-consuming, relatively fruitless process — the odds are stacked heavily against you;
  5. Fortunately, you can increase the odds of success by being trained in, then applying the principles of The Science of Funding