Raising capital is an exciting journey for some dealmakers, for others, a series of awkward encounters.
“Ultimately, the amount of capital you need to raise is a function of how quickly you want to grow,” says Kyle Nakatsuji, president and CEO of Clearcover. “We're still very much in a growth phase and so we're happy to continue raising capital to fund that growth. We try to maintain relationships with investors along the way so they know what we’ve been up to and our progress doesn't come as a surprise.”
Clearcover is an insurance company that has shunned the traditional marketing campaign as part of its growth strategy. Instead, it uses technology to reach customers in real time as they research auto insurance options.
“Focus your energy and marketing dollars on places where they’re going to care,” Nakatsuji says.
The company launched in February 2018 and has already raised nearly $55 million through two rounds of funding.
In this Dealmakers feature, we spoke with Nakatsuji about his approach to raising capital and the importance of having a vision as you look to scale your business.
Keep on pitching
While Clearcover’s marketing approach is to be very targeted in appealing to potential consumers, Nakatsuji’s philosophy on pitching investors is the exact opposite.
“Getting investment is a numbers game,” he says. “You have to get your company in front of as many people as possible, as quickly as possible, when you are trying to raise to ensure that you have the broadest surface area of opportunity. Some people want to pitch six firms at a time, learn from those six experiences and then pitch to another six and learn from them. They have this rolling and elongated process for pitching. We’ve found that you want to talk to as many people as you can in as short a window as you can and maximize that surface area of opportunity while you’re trying to raise capital.”
Most people, including entrepreneurs, tend to view taking investment as a fairly bilateral choice, Nakatsuji says, where the company and the investor agree to work together.
“While that’s true at the end, it’s not actually how it works in practice,” he says. “If I look temporally at the investment decision, it’s actually two unilateral decisions. First, the investor makes a choice that they would like to work with you, and then you make a choice that you would like to work with them. My bias is to say give me as many shots on goal for those people to say yes, and from there, I can make my unilateral decision as to which of them I would like to work with.”
A more targeted approach would certainly save time, Nakatsuji says.
“But my contention as someone who raises money is that word travels fast in the venture community,” he says. “So if you take a focused approach and the six people you choose to pitch decide it’s not a great fit, and the next 18 people you want to pitch hear that, you decrease your odds of success.”
Follow your plan
Entrepreneurs should have a clear vision for the type of company they want to build and the capital that will likely be needed to build it.
“What are your ambitions for scale, and what does all of that mean, both for your ownership in the company, as well as your investors’ and your employees’ ownership in the company,” Nakatsuji says. “It’s very important to have built a mental model around how all of those things come together and how you should set expectations both for yourself and others. The worst thing an entrepreneur can do is blindly listen to anyone’s advice about what the right decision is with regard to that choice.”
Every company is unique, Nakatsuji says, and it’s a very bad idea to go on Twitter or LinkedIn, listen to an investor tell you how much of your company you should own at any given stage and proceed using that uninformed advice as gospel.
“They have no idea,” he says. “Your satisfaction at the end of building your company is a complex adaptive system that has to do with your personal goals, your company's goals and what you set out to achieve, versus what you actually achieved. There’s no rule or template that will tell you what’s right or what’s wrong.”