In the first installment of the Fund Manager Chronicles, I explored the lessons learned by the Fund Managers I spoke with since starting their Funds. This week I will focus on effective strategies for raising capital, one of the biggest challenges in managing a Fund.
Relationships are crucial
In this day and age, with our lives so intertwined with technology, I found it interesting that when asked about the most effective strategies for raising capital no one mentioned technology. Rather, the overwhelming theme was raising capital when there is a relationship based on trust.
Trust is based on more than a marketing deck – it includes knowing the person you are investing with and seeing their performance over time. Fund Managers who don’t sugarcoat or hide information build trust; honesty and transparency are key to building successful relationships with investors.
This trust needs to go both ways; the Fund Managers I spoke with discussed the need to get to know investors before accepting their money and watching out for signs that the relationship could be problematic. Such signs include investors who are argumentative about the terms of the investment but decide to invest anyway, complain about past investment managers, or drain resources with constant questions and complaints.
All four Managers started with a grassroots approach that included making their first investments with all or a combination of friends, family, and business acquaintances. The Managers were able to expand their investor base by taking care of their initial investors, who told people in their circle about the experiences they’d had with the Manager. If investors are happy with what you’re doing they will let others know. Conversely if they aren’t happy with their investment they will spread that information as well.
Through existing investor referrals, one Manager is pursuing the Registered Investment Advisor (RIA) channel. As RIA’s are bombarded by investment opportunities, it helps if there is an introduction by a mutual investor and if you have a variety of offerings.
Although conferences were not high on the overall list, one Manager shared how lucky he felt to be part of the Small Balance Real Estate (SBRE) community. The SBRE Summits he presented at enabled him to connect with many investors with whom he established deep relationships that continued long after these events.
Another Manager has had some success raising money from attending conferences, although it required an incredible amount of follow-up in addition to the costs just to attend. Another Manager viewed so called “investor conferences” as a poor use of time and money.
Only one of the Managers shared that he was able to raise sizable capital from investors with whom he did not have a pre-existing relationship with from crowdfunding platforms. Another Manager raised small amounts from crowdfunding platforms, although he did not think that the amount raised was worth the associated reporting burden.
Success has also been found in internet marketing focused on producing educational material to help investors learn how the alternative investment world works so that they can make better investing decisions. Having a website that people can dig into is valuable because people don’t like to be sold, but like to be able to easily access information and look at it on their own.
Regardless of the strategy, effectively and successfully raising capital changes your life by opening your network in a way you never imagined. It connects you with successful people who have the ability to invest significant capital with you and, in some cases, also provide valuable business advice.
Stay tuned for the next installment of the Fund Manager Chronicles, focusing on investor relations.
This installment was again based on my discussions with the following four Fund Managers who have successfully raised capital in the fund format:
Drew Buccino, CMB
Principal and COO
Matthew W. Burk
Fairway America, LLC
Erica England, C.P.A
Redwood’s Chief Accounting Officer Erica England C.P.A. has 10+ years of experience working in the private equity industry and is always happy to discuss how Redwood could help you with your fund administration needs. Reach out to Erica at email@example.com to learn more.