While financial markets are often not equated with athletics, capital raising has a lot in common with sports: there is a clear objective, the playing field is constantly changing, competition is fierce and mental factors often separate winning and losing. When walking the narrow path between triumph and defeat, a strong, flexible mindset is vital. This article discusses how to build a strong capital raising mindset to increase the chances of fundraising success.

Capital Raising and Sports

Capital raising and sports both have a clear goal. In an athletic contest, the goal is to win; when capital raising, the goal is to secure funding.

Both sports and capital raising are focused on achieving a clear goal.

Many sports events and capital raising initiatives are carried out within defined time periods. A regulation basketball match is carried out in four 12-minute quarters. In business, companies are often pressured to obtain capital before business opportunities are lost, market conditions change or funds run out.

In addition to obtaining necessary funding, a capital raising objective is to secure financing on the best terms possible. This means:

• obtaining debt funding at the lowest interest rate possible
• obtaining equity funding at the best valuation possible
• trying to secure investments from investors who can provide “smart capital”, which means investors who can contribute other things to an investment besides money, such as strategic guidance, operational know-how, technology and business contacts.

The Moving Market Playing Field

In sports as well as capital raising, the playing field is constantly changing. In a sports event such as a football match, players come in and off the field, momentum shifts and even weather conditions alter game dynamics.

The fundraising playing field is also constantly changing. Here are some key types of changes that often occur while raising capital.

Market conditions. Market conditions are in constant flux. Interest rates rise and fall, capital costs increase and drop, market liquidity levels change and different industries, sectors or geographical areas gain and lose investor popularity. These changes affect capital raising probability.

Firm conditions. Firms are also constantly changing:

• revenues and costs fluctuate
• new products and services are launched
• business priorities shift
• people join and leave the firm
• new technologies, practices and work approaches are adopted
• client relationships evolve.

Playing Field Fog. The other similarity between capital raising and sports, particularly in team sports where many people are moving simultaneously, is what could be called “playing field fog.” This is a situation where people lose perception of what is occurring and have to act, often quickly, based on incomplete information. Companies often raise capital and have to make strategic capital raising decisions with very limited information about markets, actual investor preferences and competitor plans and actions. As discussed in another article, it is important to consider unavoidable incompleteness of knowledge when evaluating leader performance.

The Competition for Capital

One of the defining elements of sports is competition. In group sports, teams compete against each other. In individual sports, athletes compete against themselves to improve their performance.

The search for capital is also highly competitive. There are many firms searching for capital on the best terms possible and investment deals for some types of investors that provide large amounts of private sector financing have significantly fallen. According to one article, the value of private equity deals done during the first half of the year dropped by more than half compared with 2022.

Further, given that many investors invest in multiple jurisdictions and countries, a company in the agriculture sector in Chile may be competing for investment capital with a company from Peru, Spain or even Australia. This is an extremely important dynamic, because a company is not only competing with another company’s business results, plan or track record but also dynamics that are present in another market. If an excellent company is in a country with poor macroeconomic fundamentals, it may be put at a disadvantage with mediocre companies in countries with much stronger macroeconomic profiles.

The Importance of the Right Mindset

Faced with these challenges, a key factor is mind set. In athletics, mindset has a decisive impact on sports performance. This affects not only individual performance but the performance of other team players as well. Further, a mindset can generate negative or positive momentum that gets stronger and stronger as other people adopt the same mindset.

Mindset is a key factor in business. The following are some key mindset factors in the capital raising process.

Confidence. The first fundraising mindset component is confidence which comes from preparation. If the capital raising team is not prepared, it will often lack confidence and this will affect every part of the capital raising process. Preparation means:

• have carefully prepared a project or initiative before the fundraising process starts
• carefully analyzing the funds that are needed for the project or initiative and understanding how changes to proposed deal terms will affect a project’s viability
• developing a strong capital raising strategy based on market realities and reasonable potential deal economics
• assembling a strong team to implement the capital raising strategy.

Focus on Facts Rather Than Myths. A second mindset component is to be wary of myths regarding the capital raising process and investors. These myths can overstate the ease or difficulty of fundraising. A number of capital raising myths are set forth here.

The best way to cut through these myths is to set up and respect a process for carefully analyzing market and investor realities. This means:

• rather than assume that “now is good time to be in the market” based on scattered news reports or the commentary of professional acquaintances, conduct research on the number of deals actually being transacted, deal terms and overall market sentiment
• rather than assume that “deals are being done at x multiple” or other shorthand financial terms, try to understand the circumstances underlying a transaction. Deals may be done on very favorable or unfavorable terms that are not easy see just by looking at announced deal prices
• rather than assume that investors “like” some types of investor opportunity profiles, take the time to build a dialogue with investors, ideally before the start of the capital raising process, to understand what their deal motivations and objectives are.

Another core strategy for debunking capital raising process myths is to make sure that you do not obtain facts from one source but rather from a reasonably wide set of sources, ideally with different perspectives, to get a balanced view. Many efforts to obtain facts constitute in reality converting one person’s limited opinion into an assumption about the market as whole. This form of extrapolation carries a high risk that actual reality will be distorted.

Agility. A third component of a capital raising mindset is agility. Once the capital raising process starts, many assumptions will often turn out not to be true:

• market conditions may suddenly shift that improve or cast doubt on a company’s business prospects
• competitors may take actions that affect the company’s business model
• people may leave or join the firm
• investors may propose deals that are very different from what was expected.

As situations change, companies must have a defined process for reviewing the changes and deciding whether or not the companies should shift their approach or continue with their original course of action. Agile thinking should be function of careful deliberation rather than improvisation.

Tenacity. A third component of capital raising is tenacity. This refers to the ability to keep going even when the capital raising process becomes difficult. It means continuing on the path even when there is a strong desire to quit. The capital raising path can become difficult because:

• the combination of capital raising while running the business at the same time can put large strains on company resources
• investors may say no over and over again to investment pitches
• investors may say critical things about the company’s business model or growth prospects
• the capital raising process may drag on for months, or even years, with no end in sight.

While these things are difficult on an individual level, these challenges can become greatly amplified in firms. This is because it takes a lot of energy to continue to motivate teams to carry out an activity for an extended period of time. If the capital raising process faces setback after setback and optimism turns into doubt, firm management may lose focus on the capital raising initiative and team members may begin to dedicate time to other matters. This can set in motion a downward focus spiral that makes capital raising success harder and harder.

When this occurs, firms have to return to the core reason for fundraising and simply commit to not giving up. Firms should also be careful to set expectations at the beginning of the capital raising process so people do not expect victory overnight. Capital raising is a long road and in many senses a process that never really ends for a firm because even if a firm successfully raises capital it may try to raise more capital or replace raised capital with capital that is provided at better terms. In this sense, capital raising should not be viewed as a sprint but rather as a marathon toward overall firm value creation and risk reduction where a slow and steady approach is the best way to go.

Conclusion

One of the best ways to face the challenges of the capital raising process is through a strong and flexible mindset. Through confidence from careful preparation, avoiding myths, remaining agile and being tenacious firms can significantly increase the chances of capital raising success.

Thanks very much to James Coleman for the photo of a rugby match at Westpac Stadium in Wellington, New Zealand. Unsplash. Beautiful Free Images & Pictures | Unsplash