Saturday, 28 January 2012

Pitching to the super rich - do you want to be more rich or famous?


I work in retail banking mostly. That’s what I know and what I’m good at. However because we are involved with starting, acquiring and transforming companies I’m increasingly exposed to the world of investment banking. Now investment banking is a catch all for many different things, I’m not talking about trading but the scenario where you want to secure a very large amount of money for your venture, +100 million, you can’t just walk into your bank branch and get a business loan. You need investment.
So you go to an investment bank, they essentially act as the broker. Their job is to find people or companies willing to invest in you. If the deal goes through the investment bank receive a large fee. It’s very similar to selling a house except the money is bigger. My impression is that investment bankers aren’t the high flying sleazeballs they are portrayed as, I would rather describe them as clean cut, small round spectacle wearing, prep school boys. As a middleman you want to be credible but not too flamboyant.
So the investment banker will introduce you to a private equity firm. These tend to be small companies overseeing vast amounts of money. Often the PE firm is lead by rather more colourful characters, the super rich who have a sizeable chunk of their inheritance invested in the fund. If you are in the UK you’ll also encounter a certain amount of Lords and Sirs and other fancy titles here. I assume it has some sort of positive effect on their ability to attract money to their fund. Why? Well one theory would be that PE firm, handles money from many foreign wealth funds. One can perhaps assume that the 'royals' in charge of these eastern wealth funds have a soft spot for titles. If you are digging money out of the ground you are probably more interested in cool friends and status than more money.
So we go to the investment banker, the investment banker to the PE man and the PE man has what is called commitments from foreign wealth funds to allow him to draw some of their money to invest. It takes time and many many meetings to get your hands on that pot of gold at the end of the rainbow. Slowly slowly catchy monkey.
So what do they want in return? They like to get a return, yes, but the people we are pitching to already have more money than they can comprehend, so just telling them "I can make you a lot of money" doesnt really get them  excited, but "I can make you famous" does. They of course don’t want you to pee away their money either, so a plan for acquisition of a large amount of assets (their security) would probably go down better than a very ambitious start up. We have therefore concluded that a business case with a steady conservative return, considerable tangible assets and a very PR friendly proposition, is the best investment profile for us.
So ask yourself, do you want to be rich or famous? If you don’t care about the latter, find somebody who does, position yourself as the one who can help them achieve that ambition, somebody who has 5 billion and effectively don’t care if its 4 or 6, help them leave that legacy they desperately crave. The bigger the plan, the better the response and we have a pretty grand plan.

to be continued..

3 comments:

  1. Interesting position. A person who has 5 billion and does not care if it was 4 or 6 - why does he need an investment banker to make him famous ? He could just get famous giving money away, can he not ?

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    Replies
    1. Yes they can and some are, it’s called philanthropy and it’s the in-thing at the moment. Other people like to buy sports clubs and throw away their money on that. I’ve been to a number of charity auctions where you pay incredible amounts of money for some crap (there is a very fine line between rubbish and antiques) to support a good cause. Ask yourself why people prefer to do that in front of a room full of their peers and not as a discreet private donation in front of their computer.

      My point, although exaggerated to get you to comment, is if you are pitching to a person who has more money than they could ever find a way to spend you can’t excite with ‘more money’, what’s the hook? A level of return might be a prerequisite, but it isn’t what gets you that signature. All likelihood is that they don’t need what you are selling, so you have to plug into what it is that they desire. Why should they want to be associated with your idea?

      Businesses tend to focus on a need, identifying a need, satisfying a need, I’m not particularly interested in that, I’m much more interested in their desire.
      You don’t need to be with that 22 year old with the double d’s, yet many are willing to risk almost anything (job, family, wealth) for a few pointless encounters, why?

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