How to OUTSOURCE Capital Raising for Real Estate Funds – Natu Myers of Raises.com
So can you outsource the entire capital raising process? Is it possible for somebody who hasn’t set up a large private equity fund to acquire real estate? Is it possible to completely forget about having to do any of the equity sales and still have control over your deal? It is, but you really have to remember. But that you have to maintain control over your deal. So we had somebody know new person who joined raises dot com who is working on raising $100 million to acquire gas stations. So with this particular person, the real concern was for the person to understand not only how to create the private equity fund for their real estate attached to some of these assets, but it was also to make sure that it was really hands off. This was somebody who had like who was really busy and he needed he had he needed to have everything hands off. So the quick answer is, yeah, it is possible to have a capital raising team work for you on your behalf to sell the deals into the sell your deal. The only problem and concern is that when many people depend on people to do done for you capital raising, what really happens a lot is that people always lose control over the their deal because what typically happens is, you know, people would work with something called an investment bank, which is a company that is employed to raise capital for people, you know, and mainly investment banks. They usually sell the either their two ways, sometimes they sell private equity deals, deals that don’t go public or sometimes they sell deals that later on go public. (outsource vs insource)
And that’s how a lot of investment banks make their money. So what a lot of people see and what a lot of people do is they give control over to these investment banks. A few emails are sent out and then nothing happens. And when that takes place, there’s really nobody to blame but yourself. Because if you give somebody all your power to raise capital for you and you don’t have any insight in control into the capital raising process yourself, that’s what can happen. So that’s one way of getting people to raise capital for you. And I guess the reason why investment banks are sometimes like this and sometimes they reach out to a few people and you have no idea what’s happening. The reason why this happens is because they’re supposed to they try to get their commission and that’s normal. So they’re incentivized to get their commission like a percentage of the money raised. But and they also charge, you know, quite often between between ten and 30,000 to begin working with you as a retainer. So, you know what? I guess the problem with this and the problem with with what a lot of people see is that as people are raising capital, they are incentivized to make money for you by getting a percentage of the deal. But then you’re also incentivized to hide information from you because they’re not like a platform or something. (outsource vs insource)
Because if somebody gets access to that investor and they don’t have a good investor relationship, why wouldn’t the company, why don’t the investment just go around the investment bank and go directly to the company? This is the number one problem that many investment banks face. So as a result, they have to hide the investor contact information from you, because if they do, then you know you’re not going to be able to know who did what so that if the deal closes, they will be like the the middleman so that you can get they can get the commission. It’s the same thing as honesty. It’s really the same thing as being a broker. And with that, you know, an alternative way of doing it is to make sure that instead of getting a registered investment bank to raise capital for you, or when you work with investment banks, another way to do it is to make sure that the investment banks don’t have an exclusive relationship with you. One thing that kills deals is if the relationship is exclusive, number one. Number two, everywhere, I guess let me elaborate. So if in a relationship is exclusive, that means that you’re not allowed to work with any other investment bank except for the one that you’re talking to and you’re not allowed to talk to any of the investors, that person who spoke to you would have to do something called a carve outs where all the people that you’ve spoken to, you could just speak to other people. (outsource vs insource)
So that’s one way of doing it. The second way of doing it is making sure that the people that you reach out to. That’s you work with investment banks, but he also work on you don’t get too excited. Kind of like how Usain Bolt’s back when he broke one of the he was about to break one of the records. He celebrated too early and he lost. He didn’t run as fast as he could have. And he did this multiple times celebrating too early and thinking that the deal is close before it’s close can ruin you. So instead of celebrating too early and thinking that the deal is close before it has closed, you know, instead of doing that, what you want to do, you want to assume that nothing will work and work hard and continue to work with as many investment banks as you can and raise capital directly yourself. Which leads me to my third point. Make sure that you raise capital yourself. You know, and when I say buy yourself, I don’t mean employing an external investment bank to raise capital for you all the time. I also mean like actually selling the deal yourself and getting sales people underneath your company to sell the equity. Because if you do that, then you actually don’t need an investment bank to raise money for you. In many cases, sometimes based on the exemptions in the rules, sometimes you do, but in most cases you really don’t. As long as you’re following the rules. (outsource vs insource)
And in America, for example, if you’re raising via something called a regulation RD, you’re just reaching out to, you know, accredited investors and you’re only allowing them to invest in your deal. And, you know, instead of just working with all kinds of random people, you know, to do things for you, if you just build your own sales team underneath you to sell your your investments, you know, and then they’re there fully parts of your team because many people get in trouble all around the world in the Financial Conduct Authority, in the UK, you know, throughout Canada, in United States, if the person who is raising capital for you, if they’re not actually licensed to raise the capital for you and they’re working on multiple deals at the same time, because if they’re doing that, then that would mean that, you know, they’re breaking securities law. But in if they’re fully part of your team, usually they don’t need to be registered because they’re fully committed to your team. Therefore, the solution is to get a trained salesperson underneath your company, within the regulation that you you have to set up and get them to raise capital as a team member, full time team member for your company without any other projects that they’re raising capital for. So the way to do it is and the way that we help people do this is really there are many levels to this. One level is just to have somebody do some emails and some small administrative marketing, obviously through whatever laws that there are. (outsource vs insource)
The second way of doing it is to have somebody do voice calls and in-person meetings, and this is more of the advanced sales person. So, you know, these are the two things that we see people do. And then when people get these sales people underneath the company, ideally it’s good for the principal, the founder of the company, unless he has a really big problem of time to do it himself, but or herself. But if they don’t and they really don’t have time, then yeah, you can get the salespeople underneath you to sell and just have a hiring process for the top 1% of salespeople to make sure that they can actually get the job done. And so with this, I hope that brings some clarity into the, you know what? If you can actually outsource capital raising. The quick answer is you can, but 80% of the time is probably a bad idea. I want to make sure that you keep these strategies in-house and IT tactics are outsourced. So you have to have all of the scripts, all of the processes, all of the documentation on the year sales process in your company, and you have to be leading from the front and be trained on how to lead from the front. And as a result, you know, you don’t want and also you don’t want to depend too much on investment banks if you have an exclusive relationship with them because they’re incentivized to win when you win, but then they’re also incentivized to hide information from you. (outsource vs insource)
So you want to be careful that you don’t over depend and celebrate too early before the finish line so that you get too excited and think that they’re your deus ex machina. Really, they can fail. And many people and many senior executives have seen them fail because when people get too excited, but at one investment banker, one investor will come through. They stop working on getting more investor appointments or they don’t continue to go on investor appointments. So until they’re done, the deal is done and the money has been wired, nothing happened. And you want to make sure that you keep on going and you keep on working until you actually get the results that you’re looking for. And finally, you want to get some trained salespeople that are full time underneath your company to follow out, to carry out the actual scripts and processes in your company to raise capital. And you need to do this and they have to follow you to a tee. So with that, you make sure that you control your own capital raising process. And it could test and it could save you a lot of time if you’re a CEO of multiple projects going on. So with this, if you can implement it, get it done and executes, and if you need help with implementation and building all of this stuff, including the paperwork on the team to set the raises dot com and make it happen. (outsource vs insource)