Why ‘Downside Protection’ is Key When Pitching Investors, According to Callum Laing

In a recent LinkedIn post, Callum Laing discusses a crucial, yet often overlooked, aspect of pitching to investors: prioritizing downside protection before highlighting potential upside. Laing uses the analogy of the corporate bond market to illustrate his point, suggesting that understanding where sophisticated investors park their ‘safe’ money is key to crafting a more effective pitch.

Laing begins by referencing the well-known investing principle attributed to Warren Buffett: “Never lose money. Never forget rule #1.” This foundational idea, he argues, underscores a fundamental truth about many investors, who are often more risk-averse than entrepreneurs might assume.

“Most investors have ‘safe’ funds and ‘risky’ funds. It’s useful to understand where they are parking their safe money, because that is always their biggest pool.”

The author then delves into the sheer scale of the global corporate bond market, which he notes has surpassed $44 trillion as of 2026. He breaks down this vast market, explaining that the majority (85-90%) consists of Investment Grade (IG) bonds, typically offering returns around 5% annually. The remaining 10-15% are ‘Junk’ or ‘high yield’ bonds, averaging around 7%. Laing points out that these returns, while steady, are not particularly exciting, especially when factoring in inflation. He highlights that rational investors are willing to lock up capital for extended periods, often 6-9 years, for modest gains above inflation.

Understanding Investor Psychology

Callum Laing argues that this demonstrates a core investor psychology: the need for security and predictability. While entrepreneurs might be tempted to immediately pitch a potential 10x return within a few years, Laing suggests this approach can be counterproductive. Investors, he explains, have a level of trust in established entities like Apple to deliver consistent returns and repay capital, a trust that is not automatically extended to early-stage companies.

“They also know the failure rate of small businesses and startups.”

This understanding of failure rates and the inherent risks associated with startups leads Laing to advocate for a strategic shift in pitching. Instead of leading with aggressive growth projections, he advises entrepreneurs to first address the investors’ primary concern: capital preservation.

Reframing the Pitch

Laing suggests that by understanding that most investors are fundamentally risk-averse, capital raisers can adjust their approach. The focus should shift from solely emphasizing capital appreciation to demonstrating robust capital protection strategies. He likens this to understanding the feeding habits of ‘whales’ in the investment pond – knowing what they are looking for and why.

“When you understand that most investors are actually quite risk adverse, you can rejig your pitch to focus on the capital protection side, more than the capital appreciation side.”

As Callum Laing concludes, understanding the bond market and the psychology behind ‘smart money’ can significantly enhance an entrepreneur’s ability to pitch to sophisticated investors. By addressing the need for security first, pitches are more likely to resonate with investors who prioritize sleeping at night over chasing potentially unattainable, high-risk returns.