Finding Investors for Raising Money
Once you understand the steps in the process and how best to attract investors, you will feel less uncomfortable and less like a small furry animal running on a treadmill. That's a hard hit for most people. Try sending lots of Nelly's business plans to investors you don't know. Maybe one of them would like to chat. Unfortunately, the more common response from investors is to return the envelope and decline the application. Consider the fact that every investor in a business plan is given so much "opportunity" that everyone is banging their heads on their desks.
In this chapter, we will talk about how to find investors without holding a Harvard degree. The main concern is raising money, and connecting with the experts and fund managers. We will follow 3 simple steps to find investors for collecting a lot of money say in tons. Numerous people outside the world own tons of wealth but do not show it on social platforms like a few of them owning Ferraris, or private jets. I can give an example of my mentor who grew up running a fund of tons of money and kept driving a Ford car with a dent and in just love for it, he drove it for the next 10 years and upgraded to a barely better one when his colleagues insisted him as they used to meet the clients to raise millions of Dollars. So, first thing first - Bring it out of your mind that there are tons of people with Millions of Dollars, there are even Billions of Dollars.
My friends and other Mentors when I started said, that the first thing you need is a great deal of raising money. Believe that if you need 50 Grands you can raise it from one or two people, even if a hundred or two hundred you can do so, even a thousand if needed, all you need is 5-6 people who believe in you, find investor friends, family anybody and say we can spill 75:25, who’s not gonna do that deal, it’s a fantastic deal. The first thing is you need to believe in yourself when you’re starting a fund don't think about the dollar signs. A lot to you isn't, a lot to them and all they're looking at investors is an ROI - Return on Investment.
If they can see that they're gonna give you a hundred grand, and you can turn it into five hundred grand, and it’s pretty guaranteed, do the deal. Right, when starting a fund, the first thing to do is go out and find the deal. Real estate people find the perfect property first. Let's say you're doing multifamily and you find a 30-unit apartment complex. It's beautiful, you have a good price off-market, you can prove the value of that property, and you can pitch investors to raise money. If you can articulate that plan to the investor, it’s easy to get money. So that is Step Number One: Make a Great Investment.
Point number two is to start being where the investors are. Many of us grow up in ordinary neighborhoods and are not exposed to this wealthy group and crowd. Going to networking events and parties and meeting new people, they ask what they do or what we do, so you can say I run a fund, I do real estate, investing, lending, and so on. And they are like, "Yeah, I was looking for some investment in real estate." This is when we return to square one, i.e., point one, where my mentor and his partner were laying the groundwork for raising funds by purchasing big jazz box seats and interacting with the assistants, if not the CEO's or Directors. They used to book jazz box seats, have pre-dinner talks of 4-5 hours, and then they started lining up investors, and that’s how they scaled up from $13 million to $596 million and then to $15 billion. The way was to pass through the gatekeeper—those assistants. Lesson number two is where investors go to network at parties. Start talking to people and start sharing what you’re doing and your work.
Lesson number three is the most important: when structuring your fund, you have got to structure it to incentivize investors. To create a win-win situation for investors, if the fund managers directly ask for 2% as a management fee, it means that even if investors put in millions of dollars, about 2% will go directly to the fund managers' account. Say the first 7-8% preference will directly go to you on whatever the returns are, and after that, you will take on the 8%. Some funds can be structured as 80/20, i.e., 80% will go to the investor and the remaining 20% is carried by you.So, if in case you make a 15% return the first 7% is for investors, and the remaining 8% will be divided in an 80:20 ratio that’s called carried interest mostly like investment funds where managers make money on fees though.
Those first 5–10 initial investors of yours all start talking to each other. They all have friends, and they love to brag about their investments and how you are giving them huge returns, doing real estate, stocks, and lending whatever it is, and suddenly putting them on a good track. And this is how you will start getting investors for your fund business, or, say, real estate business.
WHAT INVESTORS LOOK FOR WHEN INVESTING
Investors have a lot of factors to consider when deciding which investment opportunity to invest in. They need to understand the economy of the country, the risk level, and their criteria for investing. When you first start investing, it’s easy to feel like there are a million things you don’t know. But in reality, there are probably only a few hundred things you need to know to get started. Once you get past the basics, it can be much more challenging to find information on what factors potential investors look for when deciding whether or not to invest. I would like to go over some of the insider tips I’ve learned from working with successful investors like Dan Caffee at Vendendo Capital, who have made successful investments time and time again. These tips aren’t a secret; they’re just not very well known. So, if you want your company to be more investable, keep reading!
