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.

Equilibrium: Achieving balance in investments

It is easy to go wrong in investing, and while various trends and philosophies may point to different directions for sure profit, experts believe that the secret to a successful investment is creating a balanced portfolio. With risks aplenty in the investing arena, Forbes offers some advice on how to get to that sweet spot between risk and return.

Image Source: waveneymckenna.co.uk

Avoid allocating too much for IRA or 401(k)
While an IRA or 401(k) plan offer investors a chance to place their money in stocks that are familiar to them—their own employer, most likely—allotting too much and concentrating one’s assets in one area can be risky, as decline can have a huge impact on the portfolio as a whole.

Try investing in small-cap stocks
The right number of stocks with small market capitalization in a portfolio can sufficiently amp up returns. However, it is best to avoid microcaps as these can be very risky.

Image Source: mint.com

Don’t go all in on stocks
Stocks have very well defined advantages, such as higher long-term returns and dividends that can act as an excellent hedge against rising prices. In fact, stocks are a basic component of newly created portfolios. On the downside, their prices can shift dramatically every now and then.

Don’t go all in on bonds either
Bonds give return, but they can be problematic in an economy afflicted with inflation. It also gets harder to sell them when interest rates begin to rise.

Image Source: cbc.ca

It takes time and experience to truly grasp the nuances of investing and be considered an expert in the field. It is impossible to create the perfect portfolio, but investors can definitely strive for a balanced one.

JSK Associates is composed of experts who provide valuable investing advice. This website offers more insight into the firm’s investment philosophy.