“I have tried raising money by asking for it, and by not asking for it. I always got more by asking for it” — Millard Fuller
And while I see the value in this statement … but I also see the flaws.
Most of us have trouble with the ask. Understandably as it can be hard to be turned down or told no or to feel like we are begging.
However, it wasn’t until I realized I was asking the wrong questions that I found the solution to raising tons of capital.
Instead of asking for money, I turned this statement around and found a way to help others with what I had to offer. When I did this I found not only did my offerings become that much more valuable but the essence of what I was saying truly felt right.
The five step process for raising money.
This is the most important step.
Have you ever been on a date or at a meeting or in a room where the person speaking only talked about themself? That’s what the majority of us do when we are looking to raise capital.
“Well, how can I raise money if I’m not telling them what I am doing?”
The short answer is “You aren’t raising money” because you are going to most likely hear the word ‘No” more than you would like.
The basic primal response is, ‘will what is in front of me help me eat, sleep or survive?’ and if it won’t we are programmed to shut off.
So your very first step is to ask what the other person needs. “How can you help them?” This will also save you a lot of time talking as you can quickly rule out who your opportunity will not be right for… because it won’t be right for everyone no matter how great you think it is.
We raise money to syndicate large apartment communities. When I speak to investors I want to know what their interest in investing is.
They may be looking for cash flow, portfolio diversification, tax advantages or even depreciation but I won’t know until they ask.
Our investments are generally long-term, five or more years and the investments are passive. If I hear that an investor is looking to be active and wants to have their money to work for less than twelve months then I can quickly conclude these investments are not right for her at this time.
At this time is the key word.
Always build your database and continue to follow up as people’s needs and wants change.
Also a key question at the end of every talk whether the person invests or not is “Do you know anyone else who this opportunity may be right for?”
Now that we understand who our investor is, we can now present our track record. This doesn’t have to be extensively long but you do want to make the case that you have a proven track record getting things accomplished.
Note I didn’t say excelling in the space you are pitching.
In the beginning you may not have a track record in the space you are raising money so what you have done in other capacities is ultimately what you can rely on.
During our first syndication I relied on my experience in building and growing other businesses to harness the capacity to show investors that I am someone who stands behind what I say and do and will be all-in on this new project.
I have a coaching client who has opened two successful restaurants in New York City. He was wary of speaking to investors because he felt his lack of experience in multifamily would leave investors to think he was incapable of running a syndication. But when we broke down what he has accomplished, successfully navigating two restaurants in one of the toughest markets in the country, employed dozens of people who rely on him for their livelihood and grew both establishments year over year, it was clear he had a tremendous track record to talk about.
Creating a thought leadership platform around your space is also key to creating sustainability. We established a local multifamily meetup that now has over 2,000 members and started a podcast talking about investing in apartment buildings. This allowed us not only to grow our social image but also connected us with many other like-minded investors who have either partnered with us or became investors on our projects.
Now that you understand your investor and they are clear on what you have done, it’s time to talk about the space for which your investment falls.
Since we work in the multifamily asset class, we explain to investors why we like the space against other investment types.
Multifamily, for example, offers cash flow, appreciation, depreciation, debt paydown and tax advantages. Most other investments do not offer such a wide array of potential benefits. The investment is asset-backed unlike a stock. You can use leverage to accelerate your returns and multifamily itself stands up very well against other lagging real estate spaces like office and retail.
We also focus on the markets we like to invest in and why. We will talk about job growth, population growth, job diversity and other key factors we deem important for our space.
My goal here is to not overwhelm the investor with details. Too much data leads to a “No”. I provide enough to generate questions from the investor and dive in on any areas that she may want to hear more about. Ultimately this step is used to separate your investment space from the masses.
I speak directly to the investor about the opportunity.
Now here is the most important thing I will write throughout this entire story.
I do all of these steps before I actually have a property to pitch.
‘What???’ You ask.
I do all of this before I ever have a property under contract.
People know they are being pitched and when we need the money it’s hard to not show some form of desperation. Also when you are raising money and need the money now it will be tough to think about helping the investor as you will be thinking more along the lines of “I need this $50,000 or this deal is going to blow up.”
Trying to learn about the investor, then talk about you, then why the space you are operating in is prime for disruption and then finally the deal will put the investor on max overload and signal a fight or flight response. Which in turn will dramatically limit your success rate for getting an investment in your project or deal.
‘So how do you do this without a deal to pitch?’
Before we had an apartment building to buy we created a mock investment sheet of the kind of apartment building we were looking for. The size and location of the property, the type of deal structure we would use and how the return on investment would work for the investors.
Creating this step proved massively successfully.
No longer did we have to feel as if we were begging for money. Instead we were providing a clear approach for investors to fully understand what we were looking to do and how our investment could be beneficial to them.
From a real estate perspective this also help tremendously. Once you have a property under contract things can move quickly. Between doing the due diligence on the property, creating the syndication and working on all the necessary closing items - like fulfilling the loan requirements on the property -is a full time job. Trying to start a money raise cold at this time is why I have seen many syndications fall short.
At the end of this step we leave the investor with our one-page mock deal and ask, “When we find an opportunity like this would you be interested?”
If the answer is no we leave the meeting open ended as times change in the future and always ask “Do you know anyone else who this opportunity may be right for?”
If they do like the investment we get a soft commitment on how much they would be looking to invest. This-is-a-very-important-step. Getting this number allows us to mentally track how much money we have raised. This is key. As we start to add up our conversations we can become comfortable with what kind of value of a property we may be able to raise money for.
If we want to buy a $5 million dollar property with leverage, we may need to raise $1.6 Million to account for down payment, fees, reserves and capital expenditures. Having these conversations up front allows me to know how close I am to that number.
The more of these conversations I have, the better I will get at knowing how many conversations I need to get a commitment. Say it takes me three conversations to get a $100,000 commitment on average. Well if I need to raise $1.6 Million I can position my mind to know I need to have around 48 conversations to get to this raise amount.
Once I leave the meeting I routinely follow up with the investors usually through a newsletter to let them know about how we are continuing our process to find that next great property.
Secure a deal, present it to the investors you have spoken to and secure your commitments.
This is a short step as you have already done the work in the initial 4 steps.
What it also becomes is a stress-free step.
Doing these 5 steps in this order is how we successfully garner over a 95% commitment rate on our offerings and have raised capital on the majority of our deals once under contract in less than a week and sometimes in less than a day.
Just change the thought from needing money to helping investors meet their needs and the world opens.
Let’s do this!