Read the article in CFO.
Any company that intends to grow past a certain point eventually reaches the familiar milestone of pitching to private capital sources in hopes of securing additional funding.
Those businesses that tend to be most successful are the ones that are best at considering the point of view of investors, who don’t necessarily expect great success from every venture, but who also aren’t eager to throw their money away, either. Some CEOs have trouble understanding why their charisma and vision aren’t enough to get investors excited enough to open up their pocketbooks, but, as I detailed in a previous column, it often comes down to crafting a pitch that builds trust and makes the benefits of investment clear.
Over the past nine months, as policymakers have raised interest rates and the cost of starting new projects has gone up, investor appetites have started to pull in. We’re in a moment of consolidation rather than expansion, making investors even more cautious than they were a couple of years ago when, aside from some very real concerns about COVID-19’s length and impact, the economy was booming.
There’s still a lot of money out there for well-run companies that offer good ideas for profitable growth. However, there’s also an increased focus on metrics, perhaps as a way of cutting through the hype, to understand companies’ strengths and potential in purely black-and-white terms.
This, of course, is an area in which CFOs shine. By being the person on the executive team best suited to dig into a company’s financial minutia, a CFO can make sure an investor presentation is grounded in reality, providing necessary specifics on how investors’ money will be used and how the company intends to make it back. As they do that, here are a few points to keep in mind for crafting investor pitches in the current economic environment.
1. The Basics Still Matter
Even if prospective investors already have some basic knowledge about your company and aren’t coming from square one, it’s still smart to cover some essential details so everyone’s on the same page.
Answer the basic questions first:
- Why is your company unique?
- What problems does your company solve?
- How does your company make money?
- How is your company faring in the current economy, and where is it headed?
The CFO’s role here will be to keep the discussion closely aligned with the facts.
2. Don’t Make Promises You Can’t Keep
While the point of any presentation is to excite investors about a business’s ability to make money, don’t put unnecessary pressure on your business by promising something that you know is unattainable. Honesty is at the heart of any good business relationship, and building a foundation of trust with your prospective investors will require candor about the risks that exist, which can be discussed alongside the potential benefits.
Answer these questions:
- Where could your business plan go wrong, and if so, what steps will be taken to get the company back on firm footing?
- How do you plan to communicate with investors if there’s bad news to be shared?
- Can the company guarantee that investors will receive a portion of their money back?
The CFO can help set investors’ expectations by keeping the numbers conservative. In some situations, it can even be helpful to bring in outside consultants who can add another layer of objectivity to the numbers.
3. Faster Doesn’t Mean Better
When discussing a timeline for your business plan, investors will likely be less concerned with how fast you can execute the plan than about whether or not it’s realistic. While it’s wonderful when success comes quickly for businesses, seasoned investors are generally accepting of a path of slow but steady growth.
That said, even patient investors do have their limits, and when a business appears to be stuck in limbo with no real prospects for growth, there is a tendency for capital providers to want to cut bait and move on.
4. Don’t Be Shy About Being Bold
It’s okay to have a vision that makes you stand out — in fact, that’s ideal. But underneath, you have to do your homework and explain why your vision isn’t unrealistic. In a market where some players can’t handle pressure, explain how your business stands apart, then back it up with numbers. Show why you have the vision and discipline to deserve the more expensive money in today’s market. Remember that no matter the current state of the economy, a good idea is still a good idea.
Year after year, investors come to pitch meetings with the same question: Can this company make me money? It’s the CEO’s job to make a case for why that’s possible, presenting not just an exciting vision for the future, but a plausible plan for how that can happen.
But they can’t do it alone. The CFO can play a key role in that initial discussion as well as subsequent meetings, adding credibility by providing supplemental data, connecting stories to facts, and demonstrating that the company is taking the investors’ concerns seriously.
Frank Williamson is the founder of Oaklyn Consulting, an investment banking firm for small- and medium-sized companies under private ownership.