REPOST: The Secrets To Raising Money---For Any Endeavor

When it comes to business, capital goods make the bulk of the investment. However, the ability to secure funds on limited resources is still the most cost-effective way to generate good returns. This Forbes article provides three money-raising mantras that investors and entrepreneurs can use to streamline their investment decisions.

Think a sound plan and solid numbers are enough to attract investors? Prepare to starve.

The truth is that strong performance is only one pillar of an effective marketing strategy.

Bryan Johnson brought that point home for a roomful of hedge fund managers in Nashville, Tenn.—though he could have been speaking to any group of entrepreneurs or business-development types. Indeed, you needn’t know a thing about managing money to apply Johnson’s sage advice on raising capital.

A former global head of business development at Moody’s Investors Service, Johnson started Johnson & Co. in Austin, Texas to help aspiring hedge fund managers clear a daunting hurdle: According to The Journal Of Alternative Investments, 89% of hedge funds fail to reach $100 million in assets under management, a common threshold for attracting large institutional clients like pension funds and endowments.

The trick for entrepreneurs of all stripes is marshaling funds while generating nice returns with the resources they already have. For Johnson’s clients, “it’s not as simple as posting returns on hedgefund.net and watching the money roll in,” he said on Tuesday.

Drumming up capital isn’t just hard, it’s expensive—especially for small investment firms with less than $250 million in assets under management. According to a recent Citigroup study, small firms on average spend a heavy 2% of their assets covering various operating expenses, excluding salaries and payouts to their investment teams. That 2% chunk, which includes marketing and investor-relations activities, equals or exceeds the annual management fees that fund firms charge their clients. (Many funds also charge “performance fees”—typically 20 percent of the profits above a minimum return.)


Getting to this stage starts with making an emotional
connection with investors.
(Image source: wikimedia.org)

Johnson offered three money-raising mantras that all entrepreneurs, not just hedgies, should remember:

1) People buy on emotion, and support the decision with logic.

This law of human nature is why merely crowing about your numbers doesn’t get the job done, says Johnson. Squishy as it sounds, if you want to raise money, you have to make an emotional connection with investors. Two proven ways:

— Make them feel smart. Tap into the satisfaction investors get when they feel they’re doing business with the right people—and never forget their bone-deep fear of embarrassment at losing their stash. “Currency of reputation is greater than financial returns,” says Johnson.

— Keep it simple. Complexity = headaches. That’s the governing equation for high-net-worth types (and everyone else, too). Whatever your pitch, Johnson says, always remember the “five C’s: “Be concise, clear, consistent, compelling and compliant.”

2) Effective marketing requires a replicable process.

There are myriad opportunities to lose prospects during the marketing process, Johnson warns. That’s why hunting for capital demands the same precision as your core business does. One hiccup and the tenuous trust you’ve built with prospects could evaporate.

3) People invest with people they know.

This one’s still true and always will be. Referrals are everything—and you never know which “intermediary” (Johnson’s term) will lead to pay dirt.

As for striking a balance between raising money and running an operation, Johnson shared these additional time-management tips:

— Profile investors before calling on them. Have a two-year track record but know your prospect prefers to invest with more established players? Skip a doomed courtship and troll for more adventurous souls instead. (The same logic applies when looking for investors in all varieties of startups.)

— Stick within a manageable geographic footprint. It saves time and money you don’t have.

— Avoid expensive conferences. “Unless you can get three to five face-to-face meetings [with potential clients], don’t go,” says Johnson.

— Easy on the special sauce. Prospects may be less interested in the technical nuances of an investment strategy than in your general view of the world. If they want more specifics, by all means serve them up. Until then, focus on forging those emotional connections rather than dazzling with details.

The more you follow Johnson’s advice, the better your chances of corralling that other crucial asset: luck!

Founded in 1982, New-York based investment adviser JSK Associates, Inc. applies a holistic approach to all its financial advisory services. Visit its website for more information.