Private Capital Raising Advice for small resort

[Jennifer Lund]

Hey there! I'm new to larger-scale private capital raising (did a little bit with first airbnb project) and am looking for advice. We're trying to raise a portion of the funds for a small resort (6 cabins) from private individuals and I'm running into some difficulties: The whole real estate syndication accredited vs/non-accredited investor thing (if I'm understanding it correctly) seems to be a huge hindrance to actually raising money from average (non-wealthy) people that would normally be the kinds of people I'd come into contact with. I've created a very thorough pitch deck explaining the project with pretty decent returns for LPs (20+% cash on cash returns) but seem to have exhausted the normal circles I run in and apparently I can't really expand them without running afoul of the SEC...? How does one actually raise money from individuals with such high limits of accreditation if you don't personally know wealthy people or real estate investors? 

[Chris Seveney]

Quote from @Evan Polaski:

@Jennifer Lund

Most syndicators start with creating a knowledge leadership platform. They launch a podcast, they try to get as many podcast appearances, they post about their deals here and on LinkedIn, or if they have never done a deal, they post about other topics people might find interesting. Attend meetups and REIA groups.

Then you get to what is advertising a deal versus advertising a company.  There are some groups that only have 506(b) offerings and certainly market VERY heavily.  They aren't marketing "invest in this deal", they are marketing their company, their track record, their newsletter, their podcast, etc.  In a 506(b) deal you are allowed to bring in up to 35 sophisticated investors that don't meet the accredited standard, and almost as many as you want accredited investors.  

506(c) you can market offering, and need to take reasonable steps to verify they are indeed accredited.

Reg A(+) you can market and raise from non-accredited, but more regulatory filings.

I think there are a lot more accredited investors than you think.  I know many middle manager types that are accredited.  Almost anyone that owned a house in Southern California for more than 10 years is likely accredited (but they may need to move money around).  

But really, the root of your problem is likely two fold:

First, you had a deal first than assumed people would invest.  It almost never works that way starting out.  You need to prove yourself as a savvy investor first, then have a deal to present.

Second, raising money is really hard right now, even for well established companies with $7 figure marketing budgets.  Everyone is being tighter with their capital.  And many real estate people only have capital when another deal has sold.  In the syndication/commercial space, deal volume is anemic relative to a couple years ago.  As such, a lot of investor's capital is tied up, and not available to redeploy.

 Agree with what Evan said. Raising capital today is very hard. I had four calls today with investors who are accredited and are gun shy because each had over $100k invested in deals gone bad and trying to see what  (if anything) they are getting back.

Some things to consider also:

506c and 506b will cost around $10k to setup. 

A Reg A+ was $100k when I did it a few years ago and today I would say to add atleast $50k because the SEC appears to have hired additional staff and they are not only reviewing new offerings but reviewing existing offerings that were previously qualified and coming back with a lot of comments. Which unfortunately these comments require extensive legal time which equals a lot more money. I have one company we talk with frequently who has gone back and forth over 10x with SEC on comments for an offering that was qualified years ago. I can only imagine that legal bill.... 

Another comment: A year ago I told someone that marketing to raise money would be 10-15% meaning expect to spend $10-15k to raise $100k and anything under 7% was winning if done at scale. I was laughed out of the room and was told it could be done for 1% (yes if you have friends and family - but if you are raising $5M you will spend several hundred thousand today if you do not know people). That person today has spent six figures and has yet to break $1M...