Putting It All Together to Get What You Really Need
There are many ways to obtain the funds you need to finance your business or real estate. In this chapter, let's summarize all these methods for getting money! And here are many smart and unique ways for you, my good friend, to get the cash you need for business and real estate transactions. Your main goal is always to get the money you need to reach the business or real estate income level you set as your goal. Let us make money for you—get started now!
American vs European Private Equity Waterfall
Ever wondered about the difference between an American and European waterfall? Or better yet, which one should you use for your fund? Well, let's dive in and see which is best for you and your fund!
The American private equity waterfall is a method of raising and distributing funds. The American private equity waterfall is a process that starts with the fund managers and the LPA, whereas the European private equity waterfall is much different than its American counterpart. It starts with an investor or company that needs money for an investment or project. They will then go to a financial institution for financing, and then they will go to a venture capital firm for funding. Private equity firms are looking for the best way to structure their investments. While some firms prefer a European waterfall, others are attracted to an American waterfall.
The European Waterfall is like a typical discount store where the customer can get everything at once. It is a more straightforward process with fewer complexities, and it doesn't require any risk management. The American waterfall, on the other hand, is like a department store where customers have to go up and down different floors to find what they want. It's more complicated, but it also provides more opportunities for investors to manage risks and make better decisions about their investments.
Private equity firms in Europe are subject to a clawback provision that allows the firm to take back profits earned on a deal if the company is sold or liquidated. This type of provision is not present in American private equity firms. The European clawback provision is designed to protect investors and prevent private equity managers from earning outsized profits at their expense. The difference between these two types of private equity firms can be summarized as follows: one has a clawback provision and the other does not. That’s why the American private equity waterfall is a more complicated process than the European one.
How to Execute a Capital Call in a Fund
This is all about what a Capital Call is, how to execute it correctly, and what to do for that. Let’s say you have a $100 Million Real Estate fund, but sometimes it’s not just that. When you talk to investors and they agree to put some money into that commitment, that's an amount we can call upon at any time. If you have a deal coming up for, say, $5 million out of your pool of $100 million, you can attract that $5 million from your investor and so on from other investors based on the requirements of their capital commitments into your fund, which is known as a capital call. They all do this by contract, so you will not be held liable for their money; it is far safer to have the money in their bank account because you will not be investing $100 million on Day 1. It's just a matter of time before you do your IRR if you use that predetermined amount.
At times, you should be concerned about your call commitments, as if someone fails to provide the funds, it could affect other investors too, as they will also be sourcing out their funds for that deal of yours. So, if it happens, you should impose a penalty, say 2%. If then, in the next 20 days, the fund is not provided, increase it by another 2%, and if it happens for a longer time, mark them that you would move them out of the fund as it is affecting the other investors, and they would not like to bear the loss because it is so crucial to get money for the deal on time, as if it doesn’t happen, your other investors will be mad at you even if it’s not your fault.
So, one should not sit on 200 grand when they only use 20 of it, and vice versa; you have to stay ahead of deal closings, especially in real estate. You should inform every investor of yours about the capital call and impose a penalty in case they fail to do so because it’s so crucial for you to complete deals and not just miss them for funds. It’s not fair to other investors.
HOW TO BUY & SELL BUSINESSES
Buying and selling businesses is a process that requires hard work, dedication, and patience. It is not an easy task, but with the right tools and information, it can be made a lot easier. The first step to buying and selling businesses is finding the perfect one to buy. Many different factors need to be considered, such as the finances of the business, the industry, location, etc. Once you have found a suitable business, you can start looking for investors or financing options You have to build from scratch when it comes to income, and you know, nobody talks about the concept that you can just go out and buy income. You don’t need all the money to buy the income; you can finance it. You’re somebody who has experience in a particular industry, and that’s valuable. You can bring that to the table. Go out if you have some hustle, find the deal, and bring it to the table. No one ever said selling or buying a business was predictable. However, the truth of the matter is that every sale and purchase is different.
Selling a Company
Even the reasons behind a business owner's decision to sell his or her business vary tremendously. When preparing to sell, it's important to keep an eye on various aspects that may surprise you. If you are prepared for the unexpected, you’ll be mentally ready for the process, which often does not go as planned. Selling a business means you have to expect the unexpected. Even the smoothest and most streamlined sales run into some problems along the way like -
1. Price Considerations
When it comes to the price structure for a potential sale, many business owners have numbers in their minds that do not match reality. As a result, a potential offer could be far less than what they expected, causing conflict and delays. Your stock broker will prepare you with a thorough valuation so you can have a clear idea of the fair market price of your business. Be sure to ask any questions so that you are fully informed about pricing.
2. Confidentiality
Throughout the process, confidentiality must be carefully guarded. Otherwise, this can also stymie sales. Even with the best security measures in place, rumors spread, and the chances of your employees, customers, or suppliers knowing about it are slim. In the case of this incident, it’s important to have a contingency plan in place to stop the rumors.
