How To Raise Private Capital

Question

I want to learn how to raise private capital with partnerships and JVs. I'd love to hear how how others on BP got started with raising  private capital from investors, not just family and friends.

Do you have any advice for someone starting out?

Dave Van Horn · Answer

Good question @Jess F.

A lot of solid advice above. I actually talked a bit about my story of getting into raising private capital on my BP podcast episode. But when I started out, I began raising money for a charitable cause tied to a real estate investment. Raising money for something bigger than you (and your project) really gives you credibility, builds your network, and helps with the overall capital raise. Then, for me, when it was  the second and third time around for a project of my own, I could go back to those same people.

And you may be wondering how I found such an opportunity, but that actually leads to my next suggestion. I didn't go out searching for partners to raise money for, rather they found me. I started a Real Estate Networking Group with a few close colleagues. Within the group, it was my job to interview potential speakers with viable investment vehicles and that was how I was introduced to the people with this charitable project. With many things, but especially raising capital, I would say it's not just about who you know...but who knows you. I still have investors and friends from this group to this day, and that group was over a decade ago! So networking and being "known" (in a good way) can't be recommended enough.

So those are some strategies that may be helpful. If I were distill the process of raising capital into one word, it would be trust. Doing what you say you're going to do is paramount. Staying in communication with your investors is also pivotal and helps with this. Even if the investment doesn't go as planned, people appreciate being kept in the loop.

Hope this could be of help!

Alexander Felice · Answer

I just raised some private capital for the first time.

What did it take?

-networking, and lots of it. You might meet the right person tomorrow, but partnerships are like marriage, and of all the girls I've dated, I only married ONE. Expect partnerships to be in a similar percentage.

-friendship. as stated above, no one gives (directly) money to people they don't like. Similar to the networking aspect, you need to meet a lot of people but you really need to not only make those people like you but create a genuine trustworthy relationship with them. Being nice for the sake of a loan will work sometimes, but things like that go both ways

-knowing the source material deeply. This was the most important part in my opinion. You need to know your shit, literally like your financial future depends on it (hint: it does). When you really understand your market, economic forces, risks, risk mitigation, projections, financials and everything that encompasses your deals, it will be blatantly apparent to someone. You want people to trust you with their money, they need to trust that you know what the F you're talking about with no doubts.

-experience/track record. Can you buy your first real estate deal with someone else's money? I'm sure someone could. LOL It's one thing to know the math of real estate, it's another to know the feeling of anxiety when you have money on the line. When you go over budget and have to deal with it in a hurry, when things go south, what it's like to sleep at night when everything falls apart and then still pull profitability out of a deal. These things create confidence in your ability and it will show to potential investors.

I'm still new to it, but this has worked well for me and I have been offered much more money for next deals.

Ivan Barratt · Answer

@Jessica Frasier many successful syndicators started with friends, family and their own network. Your personal network is you net worth. Start there. There's more money in your personal network than you realize. Happy hunting.

Joel Owens · Answer

Gary Rappaport: Investing in Retail Properties has a whole book on syndicating and partnerships.

Awesome book about 600 pages.

He is a friend of mine and very,very experienced.

His company manages about 15,000,000 sq ft of retail and he has ownership interests as a sponsor in about 5,000,000 sq ft of properties. To give you an idea a Publix shopping center is about 70,000 to 100,000 sq ft total.

Joel Owens · Answer

First you need to decide on an asset class. Different asset classes for syndicating have nuances with modeling and expected returns for raising capital. There is a difference for example raising capital for an entitlement phase of a development versus the investment round for the actual construction and lease up phase. There is a different structure for value add versus a fully stabilized property. There is a difference between private accredited investor money and institutional capital  partners on a deal.

So there are general books on syndicating as a sponsor and then there are partnership books written by various syndicators based on the asset class itself.

Get laser focused is what I am trying to say.

Ronald Rohde · Answer

Track record, professionalism, strong team, and likable--very few people invest with people they don't like.

Joel Owens · Answer

Dave did you hire on an investment sales specialist to keep track of investors, projects, and capital?

What they make varies by state. In D.C. I heard over six figures.

In other states like GA about 70k to 80k a year. I am possibly looking to hire in the future for such a position.

Ronald Isgate · Answer

Great advice all around.  Absolutely recommend you check out @Matt Faircloth book on raising Private Capital.

John Fortes · Answer

If people trust you your most likely to raise the capital. With that said, start with your inner circle, friends and family. That should be your first step.

Dave Van Horn · Answer

@Joel Owens

Not on the project I listed above.

But in our current business we employ multiple investor relations people that track the capital (alongside our accounting department), manage the investors and their paperwork, etc. But we also have a marketing department, so our Investor Relations staff get warm leads from them. The two departments work in tandem but that's just our model.

I think the pay does vary based on location but also based on their roles and responsibilities. We have a base salary plus commission model currently (that's in the range of your GA example), this compensation is tied to the amount of investors and capital they're dealing with, among other pieces of their job.

How To Raise Private Capital

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