Innovation is about breaking the rules. Or, as Oracle founder Larry Ellison said in a recent talk in Israel,  “innovation is finding the flaw in the conventional wisdom”. [He clearly found it – the proof is Oracle, #462 in the Fortune 500, whose $18 b. revenues in 2007 were up 25 % over 2006. The bottom line wasn’t that bad either: $4.24 b., in net income, up 26% from 2006.]

The question is: Which rule should you break? Answer: The one that seems most inviolable, most sacred.

Take, for instance, the holy of holies: Raising money. After all, the rules about money are set by those who write the checks. Want a check? Follow their rules and procedures religiously. 

Recently, Eli Reifman, entrepreneur and kabbalist, founder of Emblaze, spoke to TIM’s MPEC participants.   His topic: How he raised over $2 b. by breaking some of the rules while adhering to others. If results are the best proof-of-concept, Reifman has results. Emblaze Group had revenues of $387 m. in 2007, but has lost money for the past three years, partly because of interest payments that probably accrued through financing acquisitions. Yet Emblaze survives and grows, partly because of Reifman’s skill in raising money.

Rules not to break: The key rule never to violate, when you seek money, is this: Never fail to understand fully, and appeal to, the underlying motive of the investor. 

•  For venture capitalists, it is ‘exit’ and little else. When seeking VC funds, be sure to present a forceful and realistic model for a 10x (ten-times) exit, one that brings the VC investor 10 times his or her investment.  

•  For an investment fund manager, the motivation is the bonus. Bonuses are based on investments outperforming the industry – not the market. If your Earnings Per Share falls by half, but that of the industry falls by two-thirds, you have outperformed. The investment manager’s bonus is secure. So, in speaking to them – show how and why you will outperform the industry. 

Which money-raising rule can and must you break, according to Reifman?

•    Do It Yourself…  break the rule that says, you need experts (i.e. investment bank clerks) to do everything for you, including writing the prospectus. 

A prospectus is just a business plan, Reifman explains. It is written in sometimes obscure language. When floating Emblaze on the London AIM market, Reifman did the IPO paperwork in record time. He and his colleagues read the British securities law, word for word. They acquired the appropriate template, filled in the blanks, and reduced the accepted time for writing a prospectus from three months to three weeks. Keep in mind, he says, that the junior employees of investment banks who do the ‘grunt work’ often, perhaps usually, know far less than you do. 

Reifman says raising money is a key skill. Like any skill, it can be learned. Problem is, there are no courses.   MBA programs teach the economics of finance, the theory, not the minutiae of practical IPO’s. You have to learn this skill by learning-by-doing, Reifman says. Conquer your fear, tackle it – and you will have a skill that can give you and your company enduring competitive advantage.

Reifman used an effective analogy to drive his point home. Want to learn parenting? He asks. He and his wife did. Before their first child was born, they called a well-known parenting institute. We want to learn how to be good parents, they said. How old is your child? They were asked. Not yet born, they said. Come back in a few years, when you have a child, they were told. Reifman now speaks widely on parenting, based on experience and common sense, partly to those who do not yet have children.  

Want to learn how to raise money? There may be no choice but to overcome your fears and tackle it yourself.  Learn by doing. 

Reifman arrived for his talk on a motorcycle. He is known in his industry as a maverick, and among other things speaks to 3,000 people every week on kabbalah. He says that the set-in-stone maxim – businesses must maximize profit – is false. Not so, he says. And indeed, Emblaze is not profitable. But who cares? It has money to spare, while other startups with brilliant technologies die, because their oxygen supply – money – runs out. 

There is one last rule Reifman urges us to break, a small one. Avoid Powerpoint, he advises. In his ‘road show’ presentations, he did not use slides. Maybe your audience will say, what a jerk, he came unprepared.  So what… they will remember you. By not using 285 slides, you have already differentiated yourself. And, you have forced yourself to prepare, to put the knowledge into your own head instead of onto the slides.

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