IPO: Pitch, Follow, Close

In this week’s Cents of Security Podcast, explored with Jeffrey Fidelman of Fidelman & Co. how startups can apply sales-style thinking to fundraising.

Mary MacNamara

Hello everybody and welcome to the Interactivebrokers.com Cents of Security podcast. Today I’d like to welcome back Jeffrey Fidelman, CEO of Fidelman and Company to continue our IPO series. Today we’ll be discussing the fundraising funnel. Welcome, Jeffrey. How are you?

Jeffrey Fidelman

I’m doing very well. Thanks for having me back, Mary.

Mary MacNamara

It’s our pleasure. So, what inspired you to approach fundraising with a sales pipeline mindset, and how does that shift the way founders should think about investor outreach?

Jeffrey Fidelman

I guess for a reminder for those that heard the first podcast or even if this is the first one that they’re listening to, my background was in investment banking for quite some time at Morgan Stanley, then HSBC, and what I really learned and recognized there was their systematic approach to whether it was fundraising or anything else that was done at those banks.

And I just had this conversation earlier and when I moved over into venture capital. As a partner at a venture fund, immediately what I recognized in terms of differences, specifically around fundraising, was that most entrepreneurs, founders, emerging managers, when they were raising capital, a lot of what they were doing was either spreadsheet focused or in some sort of CRM that they were probably mismanaging.

And I say probably mismanaging just because there was no structure. Or systematized approach to their fundraising. It was, let me blast out friends and family. Let me throw spaghetti at the wall to see what sticks. Whatever comes back I’ll work at my discretion or availability of bandwidth. And that’s why we ended up starting this business 10 years ago to say, look, let’s take systematic approach, process-oriented approach to fundraising that investment banks and institutions currently use and apply a very similar structure now. Not a template, but rather the structure of doing the same thing to raising capital for early-stage companies.

And just like with sales, just like with anything else when you’re building, I’m a really big fan of applying the scientific method to business cases. Now, what I mean by that is you have a hypothesis. You have an experiment with a control and a variable. You run that experiment, you understand what the conclusion is based on those guidelines, and you reiterate over and over again until you perfect it.

And the same thing is with sales. The same thing is with raising capital. Or when you’re fundraising, that you absolutely must have a systematic approach to when you go out to raise capital. So the difference between sale and sales engine or building a sales pipeline and building a fundraising pipeline is really minute and in the details of what the content is that is being communicated.

But if you’re taking a step back and I’ll just talk about the two layers, and we can go from there. But from a very high level, if you have a pool of prospects, ideally you are qualifying and personalizing your pool of prospects as much as you possibly can. And that will give you effectiveness of when you’re doing that outreach.

So instead of throwing spaghetti at the wall to see what sticks, calling somebody who might not need your product or calling an investor that whose investment philosophy doesn’t align with your industry or with your business, you want to do a lot of that research upfront so that you can make sure at the very least, that you are confident in whomever you’re reaching out to is the appropriate person or the appropriate party of investor.

And as you are maturing that outreach and as you continue to do more and more outreach. There should be learnings that you take from that. And the only way, in my opinion, that you can learn from any type of process that you input or install into a business is by collecting the data behind it. So you personalize you, you rather you qualify, you personalize the pool of contacts that you’re reaching out to, and then you start the outreach in a systematized approach where you have an email or a set of emails that are going out.

You’re tracking open rate; you’re tracking reply rate. You’re tracking where you’re getting these phone numbers from and who’s answering the phone at what time they’re answering the phone of what day of the week they’re answering their phone. And all of this is incredibly valuable data that over the course of time, you’re able to I don’t want to say monetize, but you’re able to create more eff effective processes by looking at the data that you’ve collected over that time. So, I’ll pin it there, hopefully that answers the question.

Mary MacNamara

Yes. So, can you briefly walk us through the key stages of the fundraising funnel from initial outreach to closing, and how each stage mirrors the traditional sales process?

Jeffrey Fidelman

Sure. I’ll start maybe backwards of answering the question. In traditional sales or sales 101, it is said that you need to have at least five to seven touchpoints with a prospect before a sale is made. And it should be looked at in a similar light. When you’re thinking about raising capital, there should be somewhere between five to seven touch points before you feel confident enough that capital is going to come in from that individual investor.

So, I think the best way of describing the indi the specific processes is to go through really how we approach it. And I always say that nothing we do is proprietary. We’ve just taken best practices that you can find on Google or GPT or whatever, AI or browser software that you use now.

And what is the best practices of raising capital? It’s exactly what we do, and it works. And that goes back to first identify who is the right person to reach out to, the pool of prospects, the pool of potential investors. Make sure that they’re writing the correct check size or they’re appropriately sized for you.

So, if you’re raising a million-dollar round, you shouldn’t be going out to a billion-dollar fund unless they have a specific sliver. And there’s always outliers and everything I say, but unless they have a sliver for early stage or startup capital, you don’t want to go out as a million dollar raise to a billion-dollar company.

Similarly, if you’re raising $50 million, you’re not going to go to a $20 million fund because they can’t participate meaningfully enough in year-round to make it worth their while or even participate at all. So, understanding who is your initial pool of prospects? Is who you want to go after. Same thing with sales.

You’re not going to be calling an individual sales a consultant to sell them a payment processing system because they probably use Stripe or QuickBooks or something that they’re comfortable with. But rather you would go to a QSR, or you would go to a restaurant chain, or you’d go to a, I don’t know, some sort of retail store because they actually may have a need for what you are ultimately trying to communicate to them.

So, qualifying around the prospects and personalizing that outreach is step one of what a successful fundraising campaign or sales campaign really will look like. The second step is creating that outreach. What does that outreach, what does the cadence of that outreach look like? Typically, the way that we’ll approach it is a combination of calls and emails, or usually over the course of about two weeks.

And you can never know. There’re holidays, there’s school days, there’s people are sick, kids are sick, there’s vacation. So, you never really want to condense all of your outreach into a single week. But we’ve found that somewhere between two and three weeks of consistent outreach in terms of a cadence of consistent outreach will typically, if you are going to get a response from someone, it will happen within that period of time.

And again, I mirror a lot of our fundraising strategy and processes around sales process and strategies. Whether it’s investment, sales or otherwise. So, I think that’s really step number two is understanding what the cadence is going to be, and then writing the copy for your specific investment opportunity.

The copy, whether it’s a phone call, script that you have in mind, or a copy meaning email sequence that are going out really should convey. What you are, what you do, rather, what your company does, whether it’s a product, service or otherwise, where you are in terms of ready to raise capital and maybe some financial or milestone achievements that you’ve recently accomplished, and then what you’re looking for.

So, in terms of investment, I am looking to raise capital. And I think that’s totally fine with reaching out to investors because at the end of the day, and this is something we talk about a lot internally as compared to a traditional sales process, is that you have so many BDRs SDRs, so business development representatives and sales development representatives.

That work in, let’s say software sales as an example, and we probably all have gotten these types of calls, whether it’s software or refinance our mortgage or get a hip replacement. That was a big thing for a while I remember. And you’re getting calls or people are calling prospects that do not need your solution, which is often the case when you’re raising capital, as long as you’re qualifying and personalizing correctly.

Your likelihood of reaching somebody who wants to get your call is so much higher, exponentially higher. Because when you think about what an investor does and how they actually derive income and how they derive money, how they make money, it’s not because I am, I’m the investor. I raised a bunch of money and I’m sitting on my hands collecting fees, but rather I’m an investor and I need to allocate my money.

I need to go and deploy it. I need to invest it in companies. And that’s how ultimately I’m going to make money. So an investor, regardless of where they are in the chain, are constantly looking to originate new opportunities. And that’s why at least our dynamic is slightly different than traditional sales in that as long as we’re qualifying and personalizing, and I’ll keep repeating this because it’s so incredibly important and also so incredibly overlooked, oftentimes by founders and emerging managers, that as long as you’re doing that properly.

The likelihood of you getting a call with, and then ultimately having the opportunity to pitch that investor is exponentially higher. So that’s really step, let’s say step two is creating the cadence and the structure. Step three, writing the copy and making sure that you’re not overstating or overselling in your copy, but it’s enough to get the person interested.

Make sure that aligns with their investment philosophy or thesis, and then they’ll have the call with you.

Mary MacNamara

So I have a question. I’ve been recently talking to about this with somebody and that is nobody wants to get phone calls anymore, right? So I hardly ever pick up my phone when it rings unless, it’s really just a family member or I recognize the phone number. So would you say, in the recent years that it is more like an email campaign than a phone call campaign, or do you find that investors still pick up the phone?

Jeffrey Fidelman

They absolutely do.

Mary MacNamara

Oh, really?

Jeffrey Fidelman

They absolutely pick up the phone, probably more so now in the last couple of years than in the years prior. And I don’t know if it was because of COVID or because everyone has stopped calling entirely one another and the only people that call are spam callers, but we have these spam filters on our phones now that will say probable spam or potential spam, or you might not recognize the area code that’s calling from.

I’m often on calls, but if I’m not on a call. And as long as it’s not a potential spam call, I will, I’ll pick up the phone as well. Oftentimes do I want to be talking to the person who’s calling me? No, because it’s a salesperson selling me something I don’t need. But aside from that fact very oftentimes we’ll have our analysts tell us that how of how refreshed an investor was by getting a call will actually say, oh my God, you actually picked up the phone and called me. So, remember what we’re, the way that we’re positioning is it’s really the company that’s reaching out to the investor. So the investors always want to hear directly from the company. Email is fine, most people, especially investors, are probably inundated with emails. Google or Outlook is filtering it for you and a lot of it is going to spam, so picking up the phone and calling someone in addition to the email.

And just to be clear, what is important here is not one or the other, but it’s both because if I’m sending an email and then I’m calling to follow up about the email now there’s kind of two points of reference to who I am and why I’m calling, and that goes all the way back to what I was saying earlier around points of contact in a sales process.

You have a call, you have an email, you have a call with the founder. Now you’re at the third point of contact. You have a monthly update that you send to the investor, maybe something ad hoc, and now two months later, you’re at the fifth point of communication. You’ve shown forward progress in your business to the investor, and they’re much more likely to invest at that point in time.

Mary MacNamara

Last question. What are some common mistakes that startups make when managing their fundraising pipeline and how can they avoid them?

Jeffrey Fidelman

I would say two, two main mistakes. One is not following up consistently and again, I keep saying the same things because at the end of the day, best practices are our best practices for. For the reasons that their best practices. So, following up being personalized, not just copy pasting.

Hey, are you ready to invest in our company to the 15 investors you’ve spoke, or 30 investors you’ve spoken with? But really be authentic around your communication and don’t drop the ball, right? The person has taken time out of their schedule to speak with you once. Make sure that you follow up with them over time, right to you.

Whoever’s raising capital, the founder. The emerging manager or whomever it is that is, whether it’s paying for our service or paying their analyst to do the outreach every time that there’s a point of communication with the potential investor is an increase in value to that potential investor.

Maybe it’s started as a dollar for the investor because you pulled it through a Pitchbook profile or you had an analyst paid some time to do the research, but every time there’s a point of contact and that investor engages that investor lead. It becomes more and more valuable to you, the company that’s raising and the last point that I always try to hammer to our clients as well is ask for money.

It’s so important that you’re having this conversation with an investor. Ask for money. You’re already on the call with them. They know what this is about. You’re pitching your business. And I can’t tell you how many times our clients had come off of investor calls, and we’ll do a debrief with them afterwards and I’ll ask them, did you ask for money?

And they say, no. So, to that, I’d say modesty is a great policy except when you’re raising capital.

Mary MacNamara

That is so true. Okay. So we are going to include in the show notes, the link to the prior episode where we talked about an overview of IPOs. W e’ll continue to add those in the show notes as we move ahead.

So, Jeffrey Federman of Federman and Company thank you so much for joining us today.

Jeffrey Fidelman

Thanks again for having me, Mary.

Mary MacNamara

Thank you.