Here's What Investors Really Look for In Your Pitch, According to Marc McMorris The Co-CEO & Investment Committee Co-Chair of Carrick Capital Partners breaks down what investors are hoping to see and hear from entrepreneurs.
By Dan Bova
Marc McMorris is Co-CEO & Investment Committee Co-Chair of Carrick Capital Partners where he is directly involved in the identification, selection and post-investment growth guidance of the firm's portfolio companies. In a recent conversation, he broke down his career path, his work, and how entrepreneurs can set themselves up to succeed in their next pitch meeting.
How did you get started in investing?
I graduated from the Wharton School of Business with a degree in finance and initially went into investment banking at Morgan Stanley and then at Goldman Sachs. My career in investing actually started when I had an opportunity to join General Atlantic, which today is a very large private equity firm. Back then it was pretty small, but it was quite well-known within tech. I was ultimately asked to go run the Palo Alto office for General Atlantic and after that left to co-found Carrick Capital.
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What's the most rewarding part of investing for you?
I began to realize that for me, the interesting part of the deals happened after the transaction — How do you integrate? How do you scale a company? How do you build up its operations? And, you know, when people think about finance, they think about Excel spreadsheets and the like, but in reality, it's about people. It's about developing relationships and managing relationships. I jokingly say — but there's truth in this sometimes — when you're working with your portfolio CEOs, sometimes you're a colleague, sometimes you are a psychiatrist, sometimes you are a principal, sometimes you are a friend. I actually find that type of interaction really interesting and rewarding.
For entrepreneurs reading this, what are some things that you are looking for when you hear a pitch?
There's a long list of things I'm thinking about, but there are three specific things I'm always looking for. One is an understanding of the addressable market opportunity or TAM. The second thing I'm looking for is what I'll call improving metrics. Is the company getting better at its product development, its sales, and marketing efficiency? Is there a trend where I can see improvement and I can then extrapolate from there? And the third thing is understanding an entrepreneur's view on exit. What do they want to happen? Are they convinced that they're going to be the next hottest IPO? Because in order to achieve that, that's a certain risk curve. Are they planning to sell the company in the next five years and then retire? Those are the big three things that help an investor figure out whether or not an opportunity matches their investment criteria.
What are some things that you wish entrepreneurs understood about the investment process that many don't?
A lot of entrepreneurs have a narrative of their business and how successful their business can be. But they often don't tie the narrative to actual data. And when that happens, that means we have to dig in and figure that out and that puts the entrepreneur in a position where they are "explaining." Another point: when a company is being sold outright, one thing you'll often see is that the entrepreneur or management team has been underinvesting over the past couple of years to improve their profit margins. Any experienced investor knows that, right? It's not a facade that works. I'm often surprised that people will still pursue that type of strategy.
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What would you advise entrepreneurs frustrated with investors telling them no thanks?
There's an analogy here to baseball. A great baseball player hits .300. They don't hit .800. That is the world that an entrepreneur actually has to deal with. You can't get too discouraged by a "no" because there are lots of reasons you might get that no. It's not just about the entrepreneur's business, but it's also about how that business ties into the investment strategy of Firm XYZ. There can be companies that I look at and decide we're not going to invest — and it's not because I actually don't think it's a good opportunity. It may be that the risk is different than what we are willing to sign up for. I'd advise that you go online and look at the website of an investor. Look at the portfolio and see what's interesting to this group. The other thing I would also say is that when you hear no, you've got to look in the mirror. Am I hearing no, because they don't buy the market opportunity? Because they don't believe the business model works? Or is it me? You're not going to improve your batting average necessarily, but you need to know what components of your business are unlikeable. I am very honest with my feedback, so my advice is to not get defensive, but take in any negative feedback as data to build upon.
How does an entrepreneur with no connections get in front of investors like you?
The first part is that you've got to do your homework. You can waste a lot of time if you take a shotgun approach to investors. So really trying to figure out which investors are the right bucket for you to target is very important. The second part is a bit difficult because the candid truth is that investing is like most other businesses, it's very relationship oriented. So it is very hard to send a cold email to a partner in a private equity firm who you don't know. I'd suggest finding someone from that firm on LinkedIn and trying to build a connection there.
Related: The Secret Behind the Pitch That Landed a $200,000 Investment
When you do back something that goes well, can you describe that sense of satisfaction? Obviously, there are financial rewards, but is there anything more to it than that?
There's actually a lot more to it. When you get past the numbers, as I mentioned before, they're people on the other end. So when we're investing, we're typically investing for years. And you develop relationships. Not just with the CEO, but with a lot of the senior team members. So it is extraordinarily rewarding when that team wins. It can be life-changing financially for some, so it is a great feeling to know you were part of that win.
