All Forum Posts by: Bryan Hancock

My partners and I are launching a new private equity fund, Real Advisers Opportunity Fund, next week.  We're raising capital for east Austin real estate projects with an experienced team who has done about 60 projects of this type.  The fund will offer 8% preferred returns and a 70/30 split (LP/GP) to investors and I expect for the projects to yield between 20% and 30% margins.

We're in the process of generating marketing packages, but based on demand I expect the fund to fill in the first few months of marketing.  Please contact me at the address in my signature if you're interested in learning more.  The fund is for accredited investors only.

The first step is to learn how to raise and organize money, which you're doing.  Identify potential investors and try to get soft commitments with a marketing package.  Adjust based on feedback.

The second step is to organize yourself legally with an operating agreement, offering circular, and subscription agreement.  A competent securities attorney can help you with this and you'll want someone to help you organize the deal from a deal/marketing standpoint so the lawyer doesn't design it to be unsalable.  

Minimums have tradeoffs and marketing features.  With Reg. D, Rule 506(c) you can have thousands of investors now, but do you want to organize all of that on your own?  Having software helps and having a marketing system designed alongside the software allows you to attract investors and manage them through to a close.  It also helps with managing the deal after you have it underway along with your investor relations function.  Partnering with a RIA firm also helps.

Regarding what you offer there are many, many ways to do it.  Doing a preferred return and some split is common, sometimes with a match on the split.  The overall cost of equity capital will be driven by the product type and the track record of the sponsor.  Access to capital, the cost of capital, and your control of your deals will all get better as your track record matures.  

There are no "secrets" and every scheme has been tried and tried again.  Fortunately the rules have been "modernized," which is kind of a rich NLP technique if you ask me.  In any event you can see what the SEC thinks of modernization here:

https://www.sec.gov/news/press...

I have read of late that small family offices can pool non-accredited investor money to qualify that entity as an accredited investor.  You can also seek projects through licensed Portals that are using Title III and can accept money from non-accredited investors.  Some of those may even be competent and know how to underwrite deals and sponsors.  Our firm is planning on starting a Portal (legal term) next year on our roadmap because with $5M as the new threshold this really can move the needle for certain projects and sponsors.  

Keep in mind that the sponsors with the longer track records and deeper bench of investors are unlikely to use some of the newer exemptions.  From their point of view they're seeking three primary things:

1. Access to capital
2. Control of their deal
3. Cost of capital

They likely have a lot of the first two so the only motivation they'd have to accept your money into their deal is either the third bullet.  The more junior sponsors are seeking more of the first two bullets; but fortunately you're also yield-seeking as a non-accredited investor so there is alignment.  

To me this is not a business process discussion or even a legal discussion because it cannot be debated in the abstract.  What matters are the precise details and fact pattern of the transaction.  The devil is in the details, but generally if you take money from others who have little or no control you have a securities offering....period.  Hard stop.  And yes....there are situations where there are exemptions and those can each be discussed with the benefit of all of the detailed information.  

From the standpoint of the sponsor this is really a RISK discussion.  Do you buy insurance on your house in case it burns down?  If yes....why?  Should you buy insurance on your deal and arm yourself with the proper defenses if things don't go as expected while demonstrating you're a good steward to prospective or existing investors?  That is your call, but both from a marketing point of view and a liability point of view the costs are well-worth the upside in almost all cases.  If your deal can't afford the legal overhead try to find a single investor or someone you know and trust and have a competent attorney (these are rarer than you think) draft the agreement properly outlining the risks and benefits.  

Austin is absolutely booming.  I sat out development for about 4 years navigating a post-divorce and have been driving the east side recently.  It amazes me how many cranes there are and the growth that has happened in the last 10 years.  

There are a handful of other BP threads on this topic.  I would try searching those to get the experience from others.  Try to figure out who may be a shill for the company and who is legitimate.  If you do a good job you can probably organize meetings with a lot of their former students to get good, first-hand experience.  

You know how you locate investors?  The same way you locate any source of leads in today's age.  You do digital marketing and run the leads through a process you design to qualify them.  Once they're qualified you engage with them and work on convincing them that your value proposition fits with their investment goals.  What is it that you have to offer them?  If you're starting out it is most likely a higher return on their capital than they'd get with more seasoned sponsors, but can you convince them that you're a safe enough risk-adjusted bet to take the plunge?  

In addition to knowing good marketing techniques you'll also need a technology team to assist with setting things up properly, a legal team to help organize your securities offering, and it really helps to have a RIA help with investor relations after you initially use your sponsor exemption to sell your securities.  If you choose the right RIA relationship you can also get assistance from seasoned investors to coach you through selling investors, in deal document preparation, and designing your funnel.  You can also get coached through how investments can be limited until you have a provable marketing model and then you can scale up campaigns once what you're doing is proven to work effectively.  

You know the best part though?  If you design your securities offering properly you can share these costs with the investors in your deals or spread them over a handful of deals.  Your marketing costs for investor acquisition should drop in successive raises because you can harvest your existing relationships and a lot of the readiness items will be done and atomized for use in later campaigns.  

Happy to chat about how this all works.  I've spent the last 6-7 years cultivating all of this after experiencing a lot of the same challenges you did during our ascent as sponsors and the lack of alignment with crowdfunding marketplaces.  Raising and organizing capital is hard enough already, but with good consulting and support it can be a lot easier.  At the very least you can learn a lot as you do instead of reading a bunch of books that, while educational, don't really give you the practical tools to execute.  

Set up a new LLC per project. Lawsuits can spring up years after the sale and you will be thankful you made the small investment.

Not really.

What would be a red flag to me is an inexperienced sponsor or deal documents that have disclosures of conflicts of interest, cross-dealing, etc.  

A lot of great sponsors are still stuck in 1980, but are really good at delivering value for investors.  

@ben l