Bacon’s Law: Finding Professional Investors

Degrees of Separation

Professional investors provide more value than the money they invest. So, how do entrepreneurs in the creative industries find them?

The number one reason that most businesses fail is lack of capital.  Some entrepreneurs are fortunate enough to have their own, with no need to ask anyone beyond friends and family.  But, so the Hollywood maxim goes:  the fastest way to become a millionaire, is to start off as a billionaire. 

For everyone else, investors are required.  Ultimately, that’s a good thing.

Raising capital is a decidedly difficult process in every industry that is made all the more traumatic the longer it takes.  But for businesses within the Media & Entertainment industry, a distinct reputation for risk and lack of transparency often leads creative entrepreneurs down windy roads that never seem to end.

The reason may be as much about the investors targeted as the business propositions being presented. 

Media and entertainment entrepreneurs, like all humans, tailor their pitch to the audience.  A highly experienced investor will challenge the entrepreneur to plan better, be better prepared and assemble better teams than any friends and family typically can. 

… a Professional Investor can offer experienced guidance on how to avoid the mistakes and pitfalls that collapse other business ventures.

Whether seeking to source hundreds of thousands of dollars, or multiple millions, the actual process of raising capital typically requires the same amount of time and effort.  An entrepreneur tells the story.  That story outlines a product or a service that consumers want.  The storyteller foreshadows the desired success of the business and what it brings to those involved, before describing the challenges faced and the resources required to achieve that success.  A plan unfolds.  The plan requires money.   And this is where Act One ends, with the story-teller facing the audience with outstretched hand.

For friends and family, this may be all that is needed.  But preparation for a critical exchange and hard negotiation with an experienced investor is exactly what distinguishes investment proposals that consistently commence, and survive, Act Two.

The Second Act

An entrepreneur has told a story.  That story has laid out the what, and the how.  Now the audience replies with, “Why?” 

The more experienced that audience is, the more complete and well thought out the answers must be to hold their attention.  The more valuable the investor, the more that investor will take an active interest in how prepared the entrepreneur is by exploring where the proposition can be improved and challenging the entrepreneur’s assumptions. 

This “due diligence” is a hallmark of the “Professional Investor” and provides an understanding of what assistance, beyond money, may be needed to make the proposed business a success.  The more difficult the questions are, the more likely it is that an entrepreneur who answers them well will receive the capital they need and will be successful at making profitable use of it. 

Ironically, the easier it is to persuade someone to give up their money, the less likely it is to prove a fruitful investment.

Professional Investors

Not all money is created equal, and not everyone with money to invest is a good investor.

Professional Investors make it their business to understand the businesses they invest in.  And while an entrepreneur may be receiving capital for a business, a Professional Investor is buying an asset that, if cultivated, is more likely to generate profits than not.

Although there are always exceptions to the rule, it is precisely this cultivation of an investment as an asset that makes Professional Investors more valuable to entrepreneurs than the capital they contribute.  Once invested, a Professional Investor can offer experienced guidance on how to avoid the mistakes and pitfalls that collapse other business ventures.  They can, and do, push the entrepreneur to set achievable objectives and pursue sound strategies.  Professional Investors often help to expand networks of professional service providers, ensuring that the business is as well-advised as possible.  In addition, Professional Investors provide access to other Professional Investors, and the many companies they invest into, opening potential ecosystems of trade, marketing and collaboration that may otherwise not be available.

Professional Investors come in many types and sizes.  From high net-worth individuals and private family offices, to multi-billion dollar private equity funds and venture capital firms to State-owned investment companies.  They differ in what industries they may focus on, what stage in a company’s life they will invest and how many investments in other companies they can manage at any given time.  Most Professional Investors will exchange their money for equity in a company, while others may offer debt in the form of loans, or a combination of the two.

The Media C-Suite will provide more detailed information about each of these categories of Professional Investors in future articles. 

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What all Professional Investors have in common is people.  From the lone-wolf to the Sovereign Wealth Fund, every possible type of investor relies on people to operate, filter opportunities, negotiate the terms of a deal and to manage that investment once contracts are signed.

For the entrepreneur, gaining access to those people is the key to raising investment capital.

Degrees of Separation

Most social media companies today are evolutionary descendants of a theory expressed by Hungarian creative, Frigyes Karinthy in 1929 in which he posits that every person on Earth is no more than six or fewer social connections, or links, from any other person on Earth.  Our modern, hyper-connected, social networks are enhanced by algorithmic services specifically tailored to provide immediate access to seemingly distant connections.  Applying these tools with the right strategy offers every entrepreneur a path to Professional Investors.

Photo of Frigyes Karinthy
Krigyes Karinthy (1887-1938), popular Hungarian author, playwright, poet and journalist. 1st proponent of the concept for six degrees of separation.

Popularly coined in the 1990 play by John Guare, entitled, Six Degrees of Separation, Karinthy’s social network theory was already in use by mathematicians, who expressed their own relationships in terms of collaborative distance between Dr. Paul Erdős and any other published author.  A low Erdős Number corresponded to a closer co-author relationship to Professor Erdős, and thus greater publication prestige.

These social networking rules spawned the popular parlour game, Six Degrees of Kevin Bacon, or Bacon’s Law, which challenges players to link any actor in the Hollywood film industry to Kevin Bacon through six or fewer film roles.  Any entrepreneur who is adept at this game already has the tools required to connect to any Professional Investor.

A photo of Kevin Bacon
Kevin Bacon. Prolific Hollywood actor and Founder of Six Degrees, a charity dedicated to making positive use Bacon’s Law. Image: courtesy of sixdegrees.org.

By applying targeted search strings on internet search engines, such as Google Search, the identity of individual people with direct relationships to a Professional Investor can be produced.

Here is a suggested search string for Google Search to identify the names of private equity fund managers:

"private equity" "fund managers" site:*.com intitle:"list"

This search string looks for pages on websites that contain the words “private equity” and “fund managers,” and have the word “list” in the page title.  Restricting the search to the “.com” domain, helps filter out irrelevant pages.  

Here is a suggested search string for Google Search to identify Angel Investors and Investment Clubs:

"angel investors" OR "angel investor" OR "investor club" OR "investment club" site:*.com intitle:"list"

Next, an entrepreneur might conduct a targeted search for the names of decision-makers within these organisations.

Here is a suggested search string for Google Search to identify names within investment firms generally:

"investment firm name" intitle:"board of directors" OR "senior officers" OR "management team" OR "executive team" OR "leadership team"

This search string looks for pages on websites that contain the investment firm name and the phrases “board of directors,” “senior officers,” “management team,” “executive team,” or “leadership team” in the page title.  Job titles can be included in the search string if desired. 

Replacing “investment firm name” with the name of a specific investment firm offers more targeted results.

In addition, Professional Investors, and those with immediate access to them, often use the social media platform LinkedIn and affiliate with professional LinkedIn Groups to maintain connections.  In essence, they are reaching out in the network direction of the entrepreneur. 

Here’s a suggested approach to identifying LinkedIn Groups dedicated to angel investors:

  • Log in to LinkedIn and navigate to the search bar at the top of the page.
  • Type in “angel investors” and click enter.
  • Click on the “Groups” tab to see a list of LinkedIn Groups related to angel investors.

This search can be refined using the search filters on the right-hand side of the page, with filters by location, industry, language, and more to find the groups that best match query targets.

Once a group of interest is identified, click on the group name to view its page.  From there, a request to join the group can be made and networking with those within the circles of angel investors can commence.

LinkedIn’s search algorithm is designed to personalise search results, so results may vary based on profile, connections, and search history.

The Strategy of Bacon’s Law

Bacon’s Law would assign the Professional Investor, whether a firm or a senior exec within that firm, with the prime designation; 0.  Dr. Erdős’ Erdős Number was 0.  Kevin Bacon’s Bacon Number is 0.  Every person with a direct connection to the “Prime”, is +1.  Two connections away, is a +2.  And so on. 

Once a name of a person with a direct connection to a Professional Investor is identified, similar work can identify people that stand in between.  These intermediaries are the pathways between the entrepreneur and the Professional Investor.

Some of these intermediaries will be professional introducers who make their living connecting entrepreneurs with Professional Investors.  They would tend to maintain a +1 or +2 designation, being within one or two degrees of separation from multiple Professional Investors.  Identifying these introducers, often called Brokers, Placement Agents or Private Equity Consultants, may offer additional value in that they maintain their close connections by channelling only quality investment proposals to Professional Investors that are actively seeking them.  Not only can they assist in perfecting an investment proposition, they can knowingly avoid Professional Investors that will prove difficult or impossible to strike a deal with based on experience. 

A Diagram Showing Six Degrees of Separation
Connecting to as many people within 3 degrees of a Professional Investor maximises a capital raising network. Image credit: the Media C-Suite.

Statistically, those people with a +3 designation, being connected to a +2 who is connected to a +1 are, of course, far more numerous than direct connections.  To maintain six degrees of separation, which isn’t technically necessary, an entrepreneur need only find a common +3 connection.  Being introduced to a +3 places the entrepreneur within four degrees of separation from a Professional Investor.  Direct contact is then only a matter of two introductions.  A strategy of finding, connecting to and maintaining rapport with as many people within three degrees of Professional Investors offers entrepreneurs the maximum value within a social network designed for raising capital.

Even if strictly limited only to those people with a +3 designation, which no one really is, the vast number of possible connections between any one Professional Investor and any one entrepreneur is staggering.  Creating a capital raising network using Bacon’s Law is literally within every entrepreneur’s reach, if not at their fingertips. 

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