Catching an Elephant by the Tail: How to Pitch for Strategic Investment Capital

Star date: September 23rd, 2007.  NY, NY.  I stood at the base of a sterile, overly gray, valley-like lecture hall with 70-80 first-year MBAs in front of me.  My opening line:

“My job is to keep you out of Banking.” 

I was a second-year, and the president of NYU’s Entrepreneur’s Club.  I believed what I said to them:  Don’t do it.  Don’t go into corporate.  Hold onto the dream.

Of course that school tempted you into banking in a big way by its rightful credentials and design, no matter your major.  Even I’d been drawn into it a year earlier.  I entered Stern in 2006 with the ambition and ideas-set (plural) to graduate and start my own thing… yet when the herd ran to Goldman Sachs and Deutsche Bank interviews, I was right there with them, even though I’d had, life-to-date, only 240 minutes of Finance education.   Turns out, despite a wicked downturn in that profession and the economy, I’m humble enough to admit the interviewers got it right when they detected my lack of technical knowledge and wished me well.

Alas, here I am today, not in banking, but, admittedly, about 10 years-on with a career squarely in the corporate world.   That said, I am proud—perhaps envious, and still with my ideas-set (plural)—of those visionaries who made a go of their own thing.  I assure you I can relate.  Sure, I haven’t had the courage, nor the timing, to execute my ideas as you have, but I study your world.  I imagine the choices you have to make between additional R&D investment or more sales people--about whether to lock-in a strategic partnership, or to target a given industry organically. 

Today, my job is business development, and whether you know it or not, if we talk, I am thinking about whether my firm (a global corporation) should acquire yours.  Today, I’d like to let you know what intrigues me and what advances conversations between an early-stage firm and a FTSE Top 30 company.

To start, and something neither you nor I can control, there has to be some strategic fit.  My firm has to need something that your company adds to our capability-set.  For a public firm, that direction will be set at the Board level, or some similarly high-level business unit.  When the CEO of an early-stage firm finds me or another Director or VP-level person, the architecture I’m solving for is set above our pay-grade.  Thus, tip #1, drive towards conversations about capabilities you have, and that which the corporation is hunting.  If you don’t sense it, bail.  Said differently, it’s a low-probability to pitch me on something—even if it’s amazing—that my firm isn’t looking for it.

Next, tip #2, and this is my primary message:  develop and present your business.  Take your story beyond a product or a singular technology.  I have had the pleasure to talk with 25+ early-stage companies this year.  Some have held truly leading technologies, but what will ultimately compel my firm are those who can represent processes and rigor around their core competencies.

I think this is rational.  My Board’s job is to protect and enhance shareholder value.  Every new venture—whether internal or external—introduces dimensions of risk they have a fiduciary duty to evaluate.  Alas, beyond the obvious financial performance an investment or acquisition must deliver, the attributes of such an activity must meet our risk-profile.  In no particular order, below are concepts and questions the Board considers when it evaluates how to allocate capital and advance my firm.  To some extent, your company must exhibit that you’ve thought about these things.  There are no expectations that you will have Toyota-like Six Sigma processes, no.  But during interviews and via any data-rooms that may open, you can show you’ve anticipated some of the following: 

What are your pricing policies?

I am not saying: “what do you charge?”  For now, I will assume you have that nailed. Instead, I’m wondering about how you deploy, tactically, those prices to market.  Who gets to make the decisions when price flexibility is required?  Do sales people get to flex themselves?  Must the CFO or CEO get involved? Having an answer that matches our policy is not the answer, but having an answer in general is required.  What will not fly is suggesting anyone can change prices.

What processes do you employ to ensure production quality?

For a company we were evaluating, I was asked by my general counsel’s office: “How would they handle a component defect, or outright recall?”  Wow.  That was a tough question to point at an early-stage company. (Note, that firm had an answer--score!) Another time, we subsequently went down a path of evaluating supply-chain vendors. Fair enough, we had to demonstrate the target-company had no direct or indirect connections to countries or companies flagged for bad practices.

What is your product roadmap?

Compelling firms can show a 1-, 3-, or 5-year vision for their evolution, and with some market-basis for that view. More interesting is when you can share a framework for how roadmaps are reviewed and amended in general.

If you have intellectual property, how robust is its protection?

Other quick, but not insignificant points like: 

  • What are your travel and expense practices?
  • How are budgets developed?

I am mindful that many start-ups and early-stage companies pivot around a product or technology… and that you must.  But when you’re ready to think about next steps—whether a fund-raising round or positioning yourself for sale—you must present a business.  The CEO and/or the co-founders should have the vision to surround themselves with people who can (i) advance the product so they can think of the “business” or (ii) advance the “business” while they manage the core. 

Getting the attention of big, slow corporations can be likened to catching an elephant by its tail.

Getting the attention of big, slow corporations can be likened to catching an elephant by its tail.

The title of this post—Catching an Elephant by the Tail—may or may not make sense but here’s how I was thinking about it.  Corporations, those who would make strategic investments with and in your company, are big and really slow (ergo, an elephant).  Grabbing our attention is not easy, but if you have something exceptional and have the foundations for a business around that, I am excited for you.  As the B/D guy, I want to meet firms with those attributes.  I want to tell my president and Board that I found something special.

Going back 9 years, perhaps I was persuasive enough to convince someone to stay out of banking or the corporate world (though I doubt it!).  To be fair, I bet my emotional appeal rang true for many, even though it was not practical for most.  In 2016 however, I assure you, my advice here is practical and based on experience.  If you can develop your business alongside of your core product, you will have options.  I still envy your courage and vision for doing your own thing.  I welcome stories about catching elephants, and maybe one day one of you will convince me not to be the elephant.