Mortgages & Creative Financing

Simple Rules for Raising Capital, Part 2 (Now It Gets More Complicated)

5 Articles Written

In my last blog, “Simple Rules for Raising Capital”, I hit some very basic high points that I think you must follow to become a world class capital raiser. This blog gets into more detail on that subject.

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What follows is what I call “The Four As of Capital Raising”

1 – Accredited

This one is pretty simple. Your investors must all be accredited as defined by the SEC. You do not want non-accredited investors. Trust me on this. I’m not going to get into why. Just trust me. Your investors must be big boys and girls and know that they could lose it all. You will not be investing someone’s retirement or college fund.

2 – Advisers

You MUST have the absolute best security attorneys and CPAs you can attract (‘not knowing I couldn't do that' is not a free pass the SEC or IRS will give you — I mean, people go to jail for this stuff). You also need at least one very good mentor (not a ‘guru' that you pay for but someone who likes you personally and has actually made many many people very very rich just by sitting with them a few times a year … what if you had 5 minutes with Warren Buffet every six months for example?). One way to develop this is to create an Advisory Board. You will not only be able to raise (and protect!) capital, you will be able to have a better operation that will most likely yield higher returns on that capital because you're not wasting the operations' money on bad advice.

3 – Affinity

As I wrote about in my last blog, the relationship first concept is absolutely critical. I won’t repeat it here again except to say that if you don’t see capital raising as a relationship development exercise FIRST (before a capital raising exercise) you will not succeed long-term. Period.

4 – Authentic

You must be authentic, your investors must be authentic with you about their concerns, desires, financial profile, etc, and (this one seems obvious but it's as important as #3), YOUR OPPORTUNITY MUST BE AUTHENTIC (i.e. must be "real", must be grounded in reality … you must be able to concisely answer the question: why should I invest in this opportunity quantatively and common sensically?). Do NOT waste your investors' time on half-baked ideas, etc. Get it dialed in. Think the opportunity all the way through. Do you REALLY think you can hit your projections? What if you can't? Can you live with yourself if you lose all your friends' money? TAKE YOUR TIME. NEVER LET ANYONE RUSH YOU THROUGH DUE DILIGENCE! If you had $2M of your and your family's hard earned money to invest, would you throw a couple hundred grand at the opportunity personally? If you can't AUTHENTICALLY answer a resounding "yes!" then you need to pass and come back when you can. You are a fidicuiary and you must act like one. Invite that mentor, get those trusted advisors, and some of your closest investor friends to poke holes in the opportunity. Let them ‘bang on it’ a bit.  If it still stands up, you probably have an authentic opportunity that most accredited investors should get in line for.

    Adam Stern
    Replied over 11 years ago
    Hi all, Very true article. I was ‘blind’ to the truth until I hired a company to ‘coach’ me in the best way to raise capital. I had my disagreements with this particular team, especially because I am quite older than the principals of the company and because I have raised capital before. However, in light of these times these guys totally shot down the traditional perspectives on raising capital. Paul Azous and Sammy Goldberg (the latter is an investment banking genius, and the former (Azous) is by far the most logical person I have ever met in business, were able to guide me through the myriad paths and pitfalls that lay ahead of me in this process. Surely, as this article states, being upfront and honest with investors is still the best bet.
    Michael N. Brette,J.D.
    Replied over 11 years ago
    When raising capital the best defense is disclosure, disclosure, and more disclosure in your PPM.