The Three Rules of Fundraising

In the span of the past few weeks, I have conducted a couple of training sessions with students in NUS on fundraising. Teaching fundraising is a challenging task. It can also be a painful exercise if the students keep making the same mistakes over and over again.

The way to teach this is not to waste an hour lecturing the “dos” and “don’ts” in fundraising because the student will forget about ninety percent of the material after the lecture. I did not learn fundraising through books (that’s the worst place to learn it from), but through real life experience. I did most of my fundraising from business angels, venture capitalists and executives from multi-national companies and government bodies in UK. The best way to teach them about the subject is to employ the role-playing approach.

Here is the method which I employed to educate my students. The students are handed a set of information for sponsorship and was asked to pitch to potential sponsors. Following that, the potential sponsors will ask questions about their sponsorship package and try to force a deal on them. The deal is usually an unfair one which will benefit the investors and not the students. Sometimes, we can dress a deal which appears reasonable and in actual fact, it is a bad deal. Interestingly, I was told that a verbal agreement in Singapore is a legally binded one. This made the whole exercise much more interesting.

Through these sessions, I learned a lot more about the psychology of students in fundraising and how they positioned themselves when it comes to selling their value proposition to their potential customers. As a matter of fact, I have 100% casualties when I played the investor and put these students in situations which they have no idea to respond to them. Their lack of experience will also end them into picking very bad deals from the investor. Even if you have explained the whole deal flow structure to them, they did not manage to use those information to their advantage. Instead, they ended up complaining to me that I was very harsh on them.

Rule 1: Know your investors

In Sun Tzu’s “The Art of War”, one of the most important rules in war is to know your enemy. I am not advocating that you have to treat your sponsors and potential investors as enemies. In actual fact, you have to treat them as potential collaborators and clients. You have to understand the motivation behind your investors. They come in all shapes and sizes.

Before you can offer a value proposition, you need to do due diligence on your investors. That information you gathered about a person or group will be pivotal in how you pitch your idea. For example, I gave a test case for my students to seek sponsorship from Prudential, an insurance company. Most of them just took the information and plainly sold their sponsorship package to the people who were acting as investors. The first question that caught them off guard, was to ask them how much they knew about the company. Immediately, most of them stumbled, and worse, there are some who tried to bluff their way out and got ridiculed. It is important to know who you are talking to.

If you do not know who your investor are, the chances of making any progress in raising cash from that investor will be virtually zero. You must know your investor so that you can work out the strategies to convince why he or she should put money in you.

Rule 2: Selling a solution to a problem

Once you realized that you are in that position, the next thing you need to remember that you are selling a solution to their problem. The motivation behind your fundraising, be it sponsorship or raising capital for your venture, is irrelevant. What is relevant, is how you can solve your client’s problem. A simple example that addresses this issue is selling a bottle of mineral water. What is the problem that your bottle of mineral water is solving? It is the solution to thirst.

While there is a signifcant group of science and engineering students in my fundraising training, I discovered a common characteristic in them. Despite their rigourous training in mathematics in schools, they displayed a lack of understanding in acquiring information from numbers i.e. they may have compiled their numbers about their product on an information sheet but do not know how to use them for raising money. Let me elaborate this in detail.

Most investors ask this favourite question, “What is your reach (or coverage)?” The key for the investors is to market out their brand out to the world. Suppose you are asking Microsoft for sponsorship, what would be the two key numbers you would want them to sponsor you? You should be focussing on the number of participants and the percentage of the IT entries in the competition. You need to convince that you can reach out to the client base better than the investor themselves. Of course, you can also provide the value proposition that you can give your clients the first hand investment opportunities to potential disruptive technologies. Getting these numbers from your own competition is easy, but using them to procure sponsorship is a skill.

Rule 3: Be prepared, never beg nor be intimidated

It is important to stand firm in front of your investors. Before you walk into your investors’ office, you need to establish the strategy and work out the best and worst case scenarios. With all your options laid out, you will be able to decide when you want to walk away. If you don’t, you are ready to be in for bad deals.

Before I go on, let me say a few words about culture. It is in the Asian culture to respect our elders. Hierarchy is an essential component to our culture. You have been conditioned from young that you have to respect authority (usually your elders) in whichever ethnic group that you are, be it Malay, Chinese or Indian. However, blind obedience to authority can lead to disastrous situations. The investor can be a vice-president of a big multi-national company or a powerful bureaucrat, but it does not give them the licence to engulf you with their ways. This is where the third law comes in play. You have to be prepared to walk out of the deal if it does not favour you. Do not appear desperate and never be ready to pander. If you do that, the investors has more advantage over you.

I invited friends who have fundraising experience to assist me in the workshops in which one of them is a Caucasian. Before the fundraising workshop, I have indicated to them that their task is to put forward a ridiculous deal to trick the students into submission. Not surprisingly, their credentials have intimidated the students before they are on negotiations. Of course, coupled with the forceful stature from my American friends, the students are literally coerced into submission. Very few of them actually stood up and said that it was a bad deal. To my shock, some of them actually pandered to the “investors”.

That comes to my point. One battle does not win a war. You might want to raise a million for your business. Sometimes, walking out a bad deal is better than signing it. A bad deal weakens your position. If you are not ready to fall back on principles, you will lose even more. There will be good and bad days, and you should not give up because one potential big sponsor say no. There are enough companies out there where you can source for money.

Conclusion

Fundraising is about negotiation. It is about leverage your position against your investors. You have to appear that you are here to offer the solution and reach which your investors need, not be desperate or praying that they will sponsor you because you are students. I have an important rule when I search for people to be in the sponsorship team: always pick people who are ready to say no on a bad deal and stand firm on your ground.

Dedicated to the student team in Start-Up@Singapore competition

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