What is Needed to Attract Passive Investors

Question

After raising over $400 million from private investors over the last 19 years, I am often asked what are the most important assets a syndicator need possess to successfully raise private capital.  Here are my picks, in order of importance

1.  A verifiable track record of success, especially in the type of deal being offered

2.  An above average return with less risk than normal for that return

3.  An attractive property visually and financially

4.  A serious capital contribution by the sponsor

5. A recognized SEC compliant offering or formal exemption, includes professionally prepared PPM, Operating Agreement and Subscription Agreement, and Reg D form filed with SEC

6. Relevant document, such as MAI appraisal, title reports, surveys, historical financial statements, tax returns, projections, line item bids for any improvements to be made, as well as a clear, concise and relevant Investor Proposal Summary.

7.  A road map to reach qualified, interested, potential investors

8.  A portal investors can access for information and for making an investment

9.  A quick response to investor inquires by a knowledgeable human being

10. A website presence that looks like it was created by a professional website designer and not from a template for a free or low cost service provider

A lot of it is already being successful, knowledgeable, and experienced, making it three times as tough to “break in”.  More of a slowly build reputation, Capital, and deal experience.  Reminds me of an old Yiddish proverb my Russian grandfather used to tell me

“With money in his pocket a man is smarter, funnier, and better looking too!”.

Don Konipol · Answer

@Julie Berks

Hi Julie, really good question.  I think that in a public capital raise the sponsor could take one of two roads.  They could do an offering to all size investors with a relatively low minimum, in which case general social media such as Facebook, etc. may be applicable.  Or they could do a more select private offering, to accredited investors only, with say a minimum investment of $50,000 to $100,000, etc.  Most of our syndications have minimum investment size of $50,000, though in a few we have gone as high as $100,000, and in one special case we went to $250,000 minimum.  My experience is that these type investors aren’t interested in uncovering investment opportunities on Facebook or any other investing sites open to the public.  However, there are some fairly exclusive, targeted, investment type specific sites requiring vetted membership to join, where those investors will congregate.

Interestingly, one of our most successful recruitment grounds for finding investors was a networking group we joined with monthly meetings where the cost of membership is $7,500.00 annually.  Our next best recruitment ground is our country club membership where memberships initiation is about $30,000.  A couple of guys with a similar business model to ours joined a very exclusive golf club with an initiation fee of $125,000.00, and have told us they have had great success in raising capital.  In fact we advised them on their start up and in return they have sent us investors who invest with us to diversify their real estate note portfolio.

If you’re trying to raise $1 million or so you can probably do it online with a good deal and a track record.  To raise $20 million or more requires a large investment of cash, in what can liberally be classified as “marketing”.

Account Closed · Answer

2. An above average return with less risk than normal for that returnWhat are you suggesting is "Above average return"?

Bryan Hancock · Answer

Nice list @Don Konipol

Regarding the roadmap I would argue that having a plan you can follow that is measured and tracked properly helps a great deal too so that you're having the right conversations with the right people at the right time.  The right time is generally well in advance of when the capital is needed to help foster the relationship.

Eric James · Answer

Thanks for the great post.

Don Konipol · Answer

@Mike Hern

Yeah, I didn’t state it very well.  I guess I should say above average risk adjusted return

Julie Berks · Answer

@Don Konipol Please allow me to ask a very amateur question, I am just starting my research into the world of private investors. For point #7, what is your experience/ opinion on social media to engage with potential investors?  I am reminded of a concept I was told a long time, that high end products, such as Ferrari, do not spend advertising dollars on public television, because that is not where their clientele are spending their time.  Is social media similar to this concept?

Thank you for this very informative post!

David Avery · Answer

Very well put together.  If I wasn't doing what I was doing,  I would invest with you.