I was at a breakfast round-table discussion with a bunch of bigwig private equity fund managers and the conversation centered largely on the challenges of raising capital.
While I don’t know much about the institutional fundraising process, I’m intimately familiar with syndicating real estate deals to a group of HNW investors. It’s an extremely cumbersome and inefficient process that includes countless emails, phone calls, meetings, and administrative tasks eating up time that should be spent focusing on due diligence and cultivating a business plan.
Having deep-pocketed investors who blindly trust you is great, but the ability to grow comes from expanding your investor-base. Here are a few of the things we do to facilitate the capital raising process:
Create a Compelling Investor Memo: A good investor memo not only sells the upside in a deal, but also runs through all the downside scenarios. One of the main challenges is that you’re writing to a large audience of both non-real estate and real estate professionals alike. You need to provide detailed information while not being overly esoteric. Easier said than done.
Provide Regular Due Diligence Updates: As we go through the due diligence process we provide potential investors with weekly updates of our findings. This keeps investors engaged and is often enough to get interested investors over the hump.
Utilize Technology: Existing technology platforms can streamline the capital raising process from contributing capital online to online document signing.
Create a Personalized Pitch: Guys invest in private real estate deals first and foremast because of the relationship they have with the sponsor. When raising capital we aim to meet as many investors in person as possible. However, investors are often spread out throughout the country. In order to replicate the personalized face-to-face meetings, sponsors can create video pitches for investors.
Provide a Detailed FAQ Page: Throughout the capital raising process we receive and answer a ton of good questions about the deal. Add those questions to a running Google Doc and share it with interested investors. It often exposes positives in the deal that weren’t clearly conveyed in the initial memo and creates a deeper level of trust.
Have A Simplified Summary of the Operating Agreement: Many new investors want to know what happens in the event of a capital call or if they need to exit their investment. Rather than sending the overly-jargoned operating agreement, provide a layman-term version of your operating agreement so perspective investors get a sense of the structure. They’ll run the doc by their attorney prior to investing anyway.
As real estate companies continue to grow their investor base it becomes harder to have direct personal relationships with all of them. Here are some ideas that can enable companies to scale those relationships a bit more efficiently:
- Host events in major cities. Many of our investors reside in Boston, NYC, DC, San Francisco, and Miami. Host dinners, golf outings, and connect investors for professional networking purposes.
- Write hand-written thank-you cards. When investors put money into a deal, they’re taking a chance with the sponsor. This is an unregulated business so there is an inherent level of trust investors must have. Let investors know that you appreciate that trust.
- Create content. Establish yourself as a thought-leader in the industry by publishing quarterly or annual investor letters. Investors want the comfort of knowing their money is being managed by smart real estate professionals.
What do you think?