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Raising capital for any business venture can be extremely difficult. A capital raiser (CRs) must be prepared by having the mindset and knowledge necessary to talk about money, which quite often entails having difficult conversations. More so, capital raisers often have deep networks, however, let’s not be naive and think that they’ve nurtured those relationships overnight. The hard work of educating oneself, reaching out to potential investors constantly, and having perseverance after hearing “no” countless times are what many capital raisers often have gone through before reaching success. The good news is, like most things in life, the risk someone takes often pays off given they’ve stuck with their plan long enough. For the people reading this blog post who like hip hop/rap, Nipsey Hussle best summarized the mindset of the CR/entrepreneur when he said, “It sounds simple telling people to work hard and never quit, but to really execute and demonstrate those principles takes discipline and faith. Those are the two factors that I believe separate the good from the great, the successes from the failures.”
Everything I’ve written in this post thus far has been to set the stage for what it means to raise capital. We’ve mentioned several necessary principles for raising money; knowledge, perseverance, and communication skills. The fundamentals I just listed may be obvious, as they’re commonly talked about in the world of business, as well as today’s (hustle) culture where it has now become the cool thing to have a business. Going a step further, I believe the one fundamental to raising capital that is least talked about is simplicity. What I mean when I mention “simplicity” is the way that information about a project/deal is communicated. One important thing to note is that it certainly helps when raising capital if the deal being presented has a simple cash flow waterfall/return structure and business plan. Chances are that if you’ve raised money for a complicated deal or are currently in the process of doing so, this post will be a refresher more than anything.
As our team has raised money from private investors over time, we’ve learned that breaking down the multifamily syndication process into digestible steps has been extremely beneficial not only for the potential investor, but for the CR themselves. Just recently, we raised over $500K for a property, only to be outbid last second and ultimately put in a place where we didn’t think the risk/reward of the deal was beneficial enough to offer any amount higher. I mention these series of events because they are what sparked this blog post. Nevertheless, let’s not make this post too long and dive into the reasons why keeping things simple when raising capital for a multifamily syndication firm is crucial:
1. Investor Understanding: Simplicity in your investment offering and communication makes it easier for potential investors to understand the opportunity you are presenting. Complex structures or terms can and often do confuse investors and deter them from participating. Something that you must know prior to having an investor meeting is their level of knowledge. If you’re talking to a first-time investor, diving into how you calculated the internal rate of return for the deal is certainly not a good way to go about things. For a first-time investor, you should really start high level and cover some of the basics such as:
- What a multifamily syndication is
- The benefits and drawbacks of investing in a multifamily syndication
- Why the potential investor should trust you (i.e., what makes you qualified to protect their money)
It is a well-researched fact that people tend to shy away from things they cannot wrap their heads around. Typically, you’ll know when you’re going over someone’s head by their body language (they will look away, shift their body away from you, etc.). If you’re talking to an accredited or sophisticated investor, you’ll likely want to focus on communicating things such as:
- The structure of the deal (the legal side of things)
- The story (why you believe this is a good deal)
- The expected returns
The last thing you want to do in an investor meeting is waste time talking about things only you (the CR) care about. Remember, the meeting is about the investor and their goals.
2. Transparency: Simplicity promotes transparency. When you have straightforward investment structures and terms, investors can more easily grasp the risks and rewards associated with the investment. This transparency builds trust and credibility with potential investors. This point is very much intertwined with the first point and doesn’t need much explanation, but is worthy of a separate section to emphasize the point. I’ll quickly note that structures can vary widely, and if it so happens that you’re trying to raise money for a syndication with a complicated structure, either you already know everything in this post or you’re making things harder than they need to be.
3. Scaling and Reputation: Simplicity can facilitate scaling your multifamily syndication firm. As you seek to raise capital from a larger pool of investors or take on multiple projects, a straightforward communication approach can make investor relations more manageable and scalable. With scale comes complexity, and the better you can break down the various nuances and aspects of a given syndication, the higher the chances investors won’t have as many questions down the road. During the process of trying to raise capital from an investor, you should leave the conversation at least having answered all their questions, which hopefully plants a ‘seed’ in their mind. With their questions answered, that ‘seed’ may grow as the knowledge gap you filled could have the person convincing themselves to invest with you. At the minimum, a good CR will have many meetings, continuously plan seeds, and later follow up with those investors to gauge their level of comfort when it comes to investing.
Over time, you will build a reputation for simplicity and transparency which can attract more investors over time. Word-of-mouth recommendations and positive experiences from previous investors can lead to a stronger investor network. The combination of perseverance and having persuasive conversations with investors will create a positive feedback loop that will build you a strong reputation, which will, in turn, fuel your growth.
Conclusion
In summary, communicating in a simple and easy-to-understand way when capital raising for a multifamily syndication firm fosters investor trust, facilitates transparency, and paves the way for scaling. The beauty behind this post is that simplicity when it comes to communication is applicable in all industries. At the end of the day, why make life more complicated than it already is? If you remember one thing from this post, let it be the acronym K.I.S.S., which stands for ‘keep it simple, stupid’.
If you have any questions regarding the terms and concepts in this post or previous ones, please reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain further. If you’re interested in investing with us at JP Acquisitions, you can contact us via email (contact@jpacq.com), LinkedIn, Instagram (jpacquisitions), or our investor portal to set up a meeting.
As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!
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About the Author
Tedi Nati is the Managing Partner of JP Acquisitions. In his role he is responsible for broker outreach, establishing deal flow, underwriting, marketing, and assisting in the closing process. In addition to his role at JP Acquisitions, he is an Assistant Equity Underwriter at Cinnaire, a non-profit Community Development Financial Institution (CFDI). In his role at Cinnaire, he is responsible for assisting the underwriting team in evaluating and structuring real estate equity investments and assessing the risks and mitigants associated with such. Tedi earned his Bachelor of Science in Finance from DePaul University, where he graduated Summa Cum Laude. In his free time he enjoys reading, looking for multifamily deals, and working out.
Make sure to always do your own research before making any final decisions on buying/investing real estate, stocks, or other securities. I am not a CPA, attorney, insurance, or financial adviser and the information in this blog post shall not be construed as tax, legal, insurance, construction, engineering, health and safety, electrical or financial advice. If stocks or companies are mentioned, I sometimes have an ownership interest in them – DO NOT make buying or selling decisions based on my posts alone. If you need such advice, please contact a qualified CPA, attorney, insurance agent, contractor/electrician/engineer/etc. or financial adviser.
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