Raising capital involves telling a story to investors about a company’s past, present, and future. One powerful capital raising storytelling narrative is the hero’s journey, a storyline that involves the company and investors joining forces to overcome a vital market challenge. This article sets forth the key elements of the hero’s journey and discusses how it can be used to strengthen investor engagement.
Common Capital Raising Narratives
Imagine that you are raising capital and making a pitch to a venture capital fund. During the pitch, you will likely describe the company’s view of the market, a market challenge, the company’s business vision, and the impact that will be created if the company’s vision is achieved.
Conveying this information to investors is, fundamentally, a story. And, like all stories, how it is structured, who the characters are, and how it is told can significantly impact how the audience reacts to the story. Some stories are confusing, do not have a plot, and do not leave a lasting impression on listeners. Others allow people to imagine a different world and are extremely inspiring. The more compelling the company’s story, the better the chances of raising capital on the best terms possible.
Several types of narratives are often a part of the investor pitching process.
No Narrative. In a no narrative presentation, different facts are presented about the company and what it would like to accomplish without any coherent connecting framework. This might include some facts about the company’s business plan, team, and competitors, but these facts are not tied together convincingly.
When faced with this type of presentation, investors often impose their narrative on the company’s pitch, which is usually not in the company’s best capital raising interests. Without any clearly articulated features about a company that makes it stand out, an investor is likely to assume that a company is similar to other companies with its business model or operating in its sector or country. As relatively few companies are highly successful, the assumption that a firm is just like others rarely generates a high degree of investment enthusiasm.
The Invincibility Narrative. A second type of narrative is the invincibility narrative. In this narrative, the path to the company’s business objective is easy, the investment is risk-free, and the only thing required for the company to accomplish this easily achievable goal and provide outsized returns to investors is to obtain funding. It can be accompanied by the intimation that the investor is fortunate to have such a rare investment opportunity, and if the investor does act immediately, a once-in-a-lifetime opportunity will be lost.
This narrative is difficult for most investors to believe and can create more doubts than enthusiasm. Building and running a successful business in the face of many uncertainties and competition is never easy, and downplaying these difficulties will make most investors believe that the company either has little business experience, does not fully grasp applicable challenges, or, even worse, is disingenuously trying to gloss over difficulties to increase its chances of raising capital.
The Overly Technical Narrative. This happens when companies center their investment pitch on a deep dive into highly technical product, service, or market details without explaining how these details relate to the company’s business model, its competitive ability, or its value creation objective.
While investors need to know that a company’s technology is viable and scalable, an overly technical pitch can alienate non-specialists and overshadow the overarching narrative of how the product will change the market, solve real-world problems, or generate compelling investment returns.
The Someday Soon Narrative. In this narrative, companies over-rely on future potential without showing substantial traction or evidence of current demand. This narrative is often accompanied by downplaying current low demand levels. While it is common for early-stage companies to emphasize longer-term growth potential, and at times, market demand lags significantly behind new products and services, when the company’s vision lacks near-term proof points, investors can question its feasibility.
The Unfocused Narrative. This narrative results when companies lack a clear value proposition, are unsure how they will accomplish their vision, or try to address too many different markets or problems simultaneously. An unfocused story can make it difficult for investors to understand the core business, diluting the impact and making the company appear scattered. It can also create the negative impression that the company has not weighed and prioritized different strategic courses of action.
The Noble Cause Narrative. While it is great to showcase the positive impact of a company’s business model, sometimes companies overemphasize their mission or “social good” elements without tying it to a sustainable business strategy and a clear operational plan. Even investors who want to make impact investments wish to see good investment returns; focusing only on impact without explaining the viability of the company’s underlying business model will lead investors to question how long the company will be able to remain in business.
The Defensive Narrative. This occurs when companies anticipate too many objections and spend more time addressing potential criticisms than presenting their strengths. It also can involve overly focusing on negative things outside the company’s control or the types of challenges common for the company at its growth stage. While preparing for objections during the capital raising pitch process is wise, focusing too much on defensive explanations can make the pitch feel negative, blow risks out of proportion, and amplify concerns to the point that they overshadow the opportunity.
The Hero’s Journey
One narrative companies raising capital can use to strengthen investor engagement is the hero’s narrative, which has been one of the most powerful story structures throughout the history of humanity. While this journey has many forms, such as those articulated by Joseph Campbell, it generally involves the following steps:
The call to the challenge. Before the hero’s journey, the hero is often called to solve difficult challenges. If the challenge is not met, disastrous consequences will ensue.
The first part of the journey. In the first part of the journey, the hero sets out, and the nature of the challenge becomes more apparent. The hero often faces obstacles but can overcome them at this point in the journey.
The second part of the journey. In the second part of the journey, the challenges become more complicated to overcome, and the stakes of winning or losing often increase. At this point, the hero usually becomes blocked from advancing and meets an ally who can help the hero overcome the obstacles. The hero overcomes the obstacle and advances toward the ultimate goal.
The end of the journey. The hero meets the most significant challenge and triumphs at the journey’s end. Following this, the hero and the world around them are somehow transformed.
The Hero’s Journey and Capital Raising
The following is one way the hero’s journey can be applied to capital raising.
The hero. The hero in the capital raising story is the entrepreneur or the company. This person or entity will undertake the journey to complete the mission. The entrepreneur has strengths, such as intelligence, drive, and experience, but also has weaknesses. These weaknesses could include a lack of a team, a lack of resources, or some key contact to enter a high-potential market.
The mission. The mission is the second component of the hero’s journey in capital raising. The mission typically involves solving an essential problem that the market has been unable to solve or solving that problem less expensively. The larger the mission, the more compelling the narrative often is.
The villain. There can be many villains in the capital raising story, including general market practices, competitors, or other factors that created the problem or allowed it to exist. The villain can be powerful because it has significant resources, or the market practices that have caused the problem are deeply entrenched.
The allies. While there can be many allies in the capital raising process, such as law firms and investment banks, the key ally in fundraising is the investor. Investors can be strong allies because of their ability to provide capital and by giving the company strategic or technical advice or providing introductions to other parties that can also help the company. Together, the company and the allies make a strong team that can overcome challenges, defeat the villain, and complete the mission.
The relationship between the hero and the hero’s allies is not necessarily harmonious. While the allies have the hero’s best interests at heart and are often committed to completing the mission, significant tensions can mark the relationship. These tensions can occur if the company and the allies have different views regarding strategy, resource allocation, or how to respond to market conditions. Rather than necessarily being damaging, these tensions can strengthen the capital raising process.
The final battle. The capital raising journey often contains many challenges. While it may start relatively quickly, with many investors expressing interest, negotiations may become difficult as the process progresses. This difficulty can continue to escalate until negotiating the final terms of definitive documentation, which can be very stressful. A significant effort is often required to overcome these challenges and close the transaction.
The hero’s journey is a powerful narrative because it ultimately taps into the human tendency to support people who are often struggling to overcome difficult obstacles. It converts challenges not into reasons to abandon a project or an investment opportunity but rather a call to overcome difficulties. The winners of this mission are the company, the investors, and society as a whole.
Key Article Points
- Making pitches to investors is a form of narrative
- Many narratives that companies use, such as
- One compelling narrative is the hero’s journey.
- By using elements of this narrative, companies can strengthen their engagement with investors and other people involved in the capital raising process.