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Pitching to institutional investors

Article Date:  Sep 12 2008
Philip Dumas, Dowgate Capital
Philip Dumas, Dowgate Capital

As a public company, some of the most important conversations you’ll have are with institutional investors who know little or nothing about you. If you’re lucky you’ll get around 20 minutes to persuade a complete stranger to part with the equivalent of a small lottery win, writes Philip Dumas, joint head of corporate broking at City broker Dowgate Capital.

Most entrepreneurs can talk about their products and markets at great length and with enthusiasm, but few have the skills or experience to sell that dream succinctly and effectively to a cynical fund manager with an eye for a bargain.

Your broker will have undertaken this exercise literally hundreds of times and it’s his job to ensure you meet the right investors and that you are suitably prepared for each meeting. It is not uncommon for ‘roadshows’ to include 50 or 60 investing institutions over a two-week period and many of them will differ from each other as chalk to cheese.

Clearly it is important to choose the audience carefully. There’s no point taking a pharmaceutical company to see someone who runs an oil and gas portfolio. Happily, most institutional small-cap investors are generalists and have a wide knowledge of different sectors.

From the outset, it’s important to understand what institutional investors are looking for. They invest millions of pounds on behalf of thousands of individuals and if their focus is on small-cap growth companies they willingly accept higher levels of risk in the hope of richer rewards. So they need to see that the business proposition is sensible, the model is workable and there is ample opportunity for above-average growth.

More than anything, they want to be convinced that the day-to-day management of the company is in the hands of a dedicated and professional team who are prepared to put a substantial amount of their own money at risk. So how do you get this message across in the short time allotted?

Preparation is vital. A good broker will ensure that you have rigorously practised and honed your presentation until it is word perfect. You only get one chance to make an impression: fund managers often meet up to ten companies a day.

Here are my tips for a successful presentation.

The presentation document
1.    Never do a Powerpoint presentation: you waste precious time while someone from IT sets it up.
2.    Always use a hard copy and keep it brief, preferably fewer than 20 pages.
3.    Number the pages. There’s nothing more frustrating for a fund manager than asking you to comment on a page in the presentation he can’t identify.
4.    Include pictures: a graphic representation of a plant, office, process or product speaks a thousand words.
5.    Make sure the document is ink-absorbent. It is usually the fund manager’s only record of the meeting and he will want to scribble notes on every page.

Structure
Every company is different, but most presentations follow a tried and tested formula. The following template can be applied in most cases. Bullet points are usually sufficient and you can elaborate should the fund manager need more detail.
1.    Who am I? (John Smith, CEO)
2.    Who are we? (J Smith Widgets Ltd)
3.    Who owns us? (current principal shareholders)
4.    What do we do? (manufacture high-quality widgets in Doncaster)
5.    How do we do it? (outline of manufacturing process)
6.    How much do we make? (financials)
7.    Where are we going? (future plans)
8.    What do we need to get there? (£5 million for an acquisition)

Valuation
Don’t be greedy. Your most important task is to address the quality of your shareholder register from day one. If you have to compromise on valuation to ensure the participation of certain institutions it’s generally worth it, and they are usually in it for the long term. Remember, a successful fundraising is a very public endorsement of your company and a list of blue-chip shareholders underlines the quality of your business to potential customers and competitors alike.

Most importantly, keep your promises. You will probably want to go back to your investors again.

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