9 Influence Strategies While Working With Investors

Richard C. Wilson - Family Office Club

The field of influence and persuasion is all about how to communicate more effectively to influence what actions and decisions others are making most effectively. Kids want to influence their parents to buy them candy, the waiter at your table wants to influence you to purchase a bottle of Closed Domain Princely Wine of Liechtenstein instead of the house red wine, and you are trying to persuade potential investors that you will not waste your time and that they should take a 20-minute introductory meeting with you. Influencing others is needed to survive and studying it can produce great returns in your ability to get things done.

I first studied influence by studying the work of Dr. Robert Cialdini, then dove into it much deeper at Harvard University through their ALM program and wrote my thesis paper there on influence. I have read most of the works that Cialdini has published to date including his flagship book Influence and his latest one, Persuasion. There is no better investment of time in reading books to help you position or sell better than these two publications. In short, they helped me, like Verne Harnish’s work, stand out in a high value niche by becoming an authority, being a scare resource, and sharing knowledge in way that induced reciprocation, gained us valuable strategic turf in the family office investor space, and led to unique positioning.

Top 9 Influence Strategies for Raising Capital:

1. Commitment: It has been proven that we are all more influenced by those who show commitment and consistency. We like to know people can be relied upon and that we know who they are and what they stand for. If every time an investor meets with you there is a different kind of investment being pitched to them with no common thread pulling it all together, you will lose influence and credibility. If you show that for a dozen years you have been mastering your craft of investing in parking garages and have completed 22 deals in the space and know it well, you have increased your influence. Also important, it has been proven that after someone bets on a horse at a horse track that they are instantly more confident and positive about the attributes of that horse. Once they have committed to betting on the horse, it creates a positive halo effect regarding their opinion of the horse. I would propose that the same may happen as investors provide capital to you. First off, if your minimum investment size is too high or if you never get them to invest in the first place, they won’t be talking about you as much to other potential investors. Secondly, if you can get them started investing in you, they may double or triple their level of investment with you over time and that would never happen if they don’t get started. For these reasons, I would encourage those raising capital to have very small minimums—painfully small—so you can build momentum. For some this will mean a $10,000 or $25,000 minimum; for others it may be larger.

2. Social Proof: Scientific studies have also shown that when humans are unsure how to act or who to trust, we look around to others for cues. We trust the decisions of the “herd” around us, so if a movie is liked by a lot of people or a book is a bestseller, it continues to do well in the marketplace as others have “endorsed” that commodity with their dollars spent. Since we know this to be true, it is good to find a lead anchor investor for your capital raising to show others that someone truly credible has invested, even if their investment is small or has been completed on discounted terms. Also, many times people come to me saying they are looking to raise $20 million or $30 million for a first-time private equity fund, round of funding for their business, or first-time real estate fund. I believe this is a horrible idea. I would aim for $1 million or $4 million or something small for the first raise; you can always become “oversubscribed” and accidentally raise $5 million instead of your $1 million target. This can help on the next capital raise by giving you some added urgency to the pitch now that you can say that the last time around everyone poured money in and you had to close the investment round early. That is so much stronger than struggling for eighteen months to raise $10 million and perhaps even losing some soft capital confirmations and credibility because of the length of the raise. If you raise capital for too long, some may wonder if there is more social proof of investors saying no to you, rather than yes. You should leverage social proof in as many ways as possible, from mentioning publications and press outlets which have quoted you, to showing your education at a prestigious school if you can, to providing statistics on trends that your investment is playing off of to show that it is seeing great growth or that others are also investing in the area.

3. Long-Term Cognitive Bias – Since most people are naturally looking for short cuts and fast ways of doing things, but credible professionals have focus, know their unique ability, and are focused on long-term success, the more you can show investors that you are serious about your venture, 100% both feet-in committed to it, the better. Investors want to see delayed gratification, reinvestment, and prefer you to be long-term greedy and seeing the bigger picture rather than charging high fees or bad investment terms while trying to do your first capital raise. It is better to own a choke point that makes you into an authority and re-invest heavily than take a quick payout in other words.

4. Scarcity: It has been shown that those things in less volume are seen as more valuable. Gold is more valuable than aluminum and an alum of Harvard University is perceived as more valuable than someone who graduated from the thousands of public universities that are not nationally recognized. Everyone knows that this is true, but how do you use this to raise more capital? How can you be unique in your sandbox? How can you be the only investment or company that really gets your investor avatar and has every piece of your branding and messaging crafted just to reach them so that every message hits them right between their eyes? If you can combine a few benefits and positioning statements, you should be able to say “We are the #1 _________ in the ______ market.” It could be that you are #1 in self-storage investment management in Kentucky, or you are #1 in a niche within a niche in your industry, but is important to either define what you are #1 at or decide on what you will work to become #1 at or you will always be a laggard or average at best in my experience. We use this strategy all of the time, saying “We have the #1 bestselling book on family offices” or “We host the #1 most popular family office conference series in the U.S.” to build trust and show why we have such great quality deal flow to show the single family offices that engage us. If you have defined your sandbox right, you should be #1 of at least one thing, or soon can be. The main point, become scarce to some investor set of value.

5. Addict Your Investors: Virtually everyone becomes addicted to something at some point in their lives. Many times, it is to drugs like nicotine, alcohol, or caffeine, but it can also be to adrenaline, sex, or the feelings experienced while shopping with a group of friends. Our brains are wired to reward positive experiences that benefit us while minimizing those things that create negative feelings. This reward center pathology is at the core of what creates patterns of use that are very reinforcing and can lead to positive habits or horrible drug-related addictions to substances. This is because the brain can become conditioned to desire a certain behavior or substance to the point where the logical points of ceasing the activity are ignored. Scientific studies have found that there are four factors that affect the addictiveness of any experience or substance. The factors are pleasure, pain, speed of onset pleasure, and timing before onset of pain. Anything which very quickly produces a very high level of pleasure and very slowly releases a feeling of pain is highly addictive. For example, someone drinking alcohol very quickly can feel most positive while the primary effects take place in the body, while the hangover is delayed until the next morning, which makes alcohol addictive. If alcohol gave consumers a hangover 5 minutes after becoming drunk, it would be far less addictive. What does all of this have to do with Capital Raising? On top of the regular psychological benefits of making a good first impression, you should focus on overdelivering and making a powerful first impression in every way possible. You should do whatever necessary to provide enormous value to the investor, listen to their needs, and connect in a real way during your first encounter. The second lesson here is to avoid any early-in-the relationship hangover that could be created due to being unorganized or rushed in trying to raise capital from the investor. To be clear, this is about adding so much value to potential investors that they are drawn to you, not about leveraging addictions or weaknesses in people, but maximizing your value to others.

6. Orienting Reflex: One way in which people are influenced every day is through our orienting reflex. The orienting reflex is the process we go through while reacting to something novel, new, or mysterious. It is what makes first dates, roller coasters, and vacations to exotic islands so enjoyable. When a loud alarm goes off, we stop and ask ourselves why it is going off and if it has any effect on us. If you are in the middle of a movie at your local theater and the fire alarm starts to go off, everyone will look around for a minute before taking action. Each person is orienting themselves to this new situation and combination of variables and they are looking for instructions from other people's actions, their past experiences, or some sort of authority. The same thing happens when there is a market dislocation or when a new regulation comes into play, or a new market opportunity unfolds. Investors and the general market overall is looking for leaders, for opinions, for confidant industry mavens to invest with and follow into investments.

7. Imputing Value: Closing in relation to Scarcity is the association of something being more valuable if it is more expensive, for example a Lotus Exige and a Ferrari are both fast cars, and yes the Ferrari has more comfortable seats, but Ferrari does charge a very large premium over Lotus and part of this is just branding and positioning. Lotus is trying to bring high-performance cars to each person’s driveway where Ferrari wants to be the high-end toy that is exclusive to millionaires. I read the 500+ page biography of Steve Jobs and the #1 thing I got from it was the value of imputing value upon an object based on its packaging. When you impute value, it means to package something and include such high quality materials that the components itself are assumed to also be of very high quality (such as the iPhone packaging materials and polished metal case). While I wouldn’t recommend to price your fees high; treating yourself well, showing respect for the investor and yourself in the quality of inputs into your process, and who is on your team can all lead to a sense that you are valuable and your team and ideas are valuable. One marketing trainer that I know, Frank Kern, has purchased two Rolls Royce Phantoms now and he jokes about how if he pulls up to a meeting in that car that he knows he is getting a yes just because of how influential it can be to associate with something so scarce and expensive.

8. Authority: The whole point of building an investor funnel is to build your credibility and authority. People listen to doctors because they are thought to have great authority. There are many signs of authority— having written a book on a topic, the clothes you wear, the education you have, the track record you have, your investment returns, where your office is based, your place in society, etc. What I have found is that thought leadership assets are the quickest way to build up authority in a space, by speaking publicly, writing whitepapers, publishing the #1 book on your niche or sub-niche topic (sandbox), you can build up authority very quickly and do so in a genuine way were you deserve to have authority because you have interviewed every expert in your niche and helped document models of operating in the area. The more authority you can build, the more influential you will become and the nice part is that if you do so using thought leadership, you also happen to attract prospects that never would have heard of you otherwise, so it not only influences existing relationships, but creates new ones as a byproduct.

9. The Scarce Authority: The final influence principle I want to touch on is the acute focus on becoming THE scarce authority on your topic. The idea here is to become such an authority on your area that you become a scare resource, a respected expert, THE expert on your area of business or investment. If you can accomplish this, doors will open that would not to anyone else and you will build a real competitive advantage in the marketplace that will last typically for decades. As long as you have conviction that you have completed your analysis correctly, chose your positioning right, and defined your investor avatar appropriately, this should be the goal while executing your capital raising strategy. Note: This is not about tricking or manipulating investors; in fact, I think sometimes family office investors (the investor group that I work with most closely) are treated like dumb money and they are far from that.

The Family Office Club was started in 2007, has 16 team members, interviews one new investor every day & has over 2,000 registered investors: http://FamilyOffices.com