By Louis Joseph, M.D. & Denise Joseph, J.D.
Open Sea Institute for Psychiatry, Wellness & Executive Performance Coaching
December 1st , 2023
If you are like many fund managers, you will find fundraising a necessary evil at best and a frankly traumatic experience at worst. In the investment world, fundraising serves a mission critical function. There is no investing without capital to invest. However, in the process of performing the function of fundraising, one is confronted with a simple fact. Most people will say no, again and again and again. At least they will at the beginning, especially for funds of small to medium size.
Rejection is not fun but it is a part of life. Rejection is critical to savvy investing. Investors invest in some funds and reject others. Funds invest in some investments and reject others. Nobody likes to be on the receiving end of a rejection. It takes a uniquely motivated and psychologically adapted individual to persevere through 99 “noes” to reach the one “yes” they need. In fundraising, it is that one “yes” that can make the fund.
In our experience, it is psychological adaptation and perseverance in the face of repeated rejection that serve as critical factors, along with the soundness of the underlying investment thesis, when separating the wheat from the chaff.
It is only the most successful individuals who have risen to the upper ranks of the investment echelon, achieving partner status or starting their own fund, who actually get the opportunity to raise funds and interact with potential investors. These are most often individuals with a track record of success that has been achieved through intelligence and hard work rewarded on a somewhat consistent and predictable interval. We are not implying that such individuals have not had their share of rejections in life. Rather, that the magnitude and repetitive nature of the rejection one faces when fundraising is often unfamiliar to many individuals who rise in the ranks.
If one deconstructs the nature of fundraising, what they will uncover is a sales function, not an investment function. Therefore, it should come as no surprise that most fund managers, essentially investors at heart and mind, do not like performing the sales function. They are used to success and used to winning, most of the time.
At the core of this challenge, one has biology to contend with when it comes to managing perceived rejection from a group. In essence, people evolved to survive in groups. Maintaining a relationship with a group is of utmost Darwinian importance.
Neuroscientific research using paradigms designed to elicit perceived social rejection has convincingly demonstrated that the parts of the brain that social rejection activates are the some of the very same parts of the brain that are activated when one experiences physical pain. Thus, it should come as no surprise that getting rejected actually makes many people feel physical pain or discomfort. Our brains are wired for this association so that we avoid rejection in the future. To complicate matters further, it has been shown that the memories of the pain generated from social rejection are much less likely to fade over time than the memories of physical pain not generated from social rejection. This means that memories of social rejection pain are much more easily reactivated by triggers one faces as they go through life. These are the types of important findings with groundbreaking implications Open Sea Institute is able to utilize when formulating our programming for investment professionals.
With the neuroscience in mind, let us backtrack to the dilemma that fundraising creates in a person. With each subsequent rejection, a mounting avoidance of situations that could lead to further rejection are established within a human. For example, the more noes I experience when trying to raise funds, the more I want to avoid raising funds. This leads the fundraiser to approach fundraising with greater caution, less self-confidence, and increased defensiveness which all increase the likelihood of further rejection. For instance, investors typically do not invest in people who lack confidence.
So what do you do? The smart people reading this may say the answer is simple. You just hire a placement agent to raise the funds and let them worry about it. You could certainly do that but their fees are quite high and you will still likely need to meet with prospective investors and do some persuading.
Another group reading this may say, you could learn to overcome rejection or, “deal with it”. This is easier said than done. Unfortunately, this is not easy work and when done optimally, it involves the navigation of hardwired neurocircuitry and each individual’s unique psyche. Additionally, many individuals who are avoiding fundraising are unconscious of the avoidance.
Open Sea Institute addresses these matters regularly with our clients.
The Peter Principle holds as true for investment fund management as it does for many other industries. People will rise to the level of their incompetence. Do not let yourself fall victim to Peter Principle within the realm of fundraising. We can all grow internally and thereby grow our capital bases.
If you are finding that fundraising is a challenge, visit us at OpenSea.Institute.
We are more economical than a placement agent and we also provide you with lasting internal growth.