Cost Of Capital - What Are Investor Relationships Worth?

Cost Of Capital - What Are Investor Relationships Worth?

Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes

We're working on some marketing features for our crowdfunding platform and I was hoping some of the syndicators and deal sponsors could help out a bit.  

Sourcing investors costs money in the real world.  There are two primary ways to do this painting with a very large brush:

1.  Do digital ads and more traditional local networking/meetings to find investors

2.  Hire a professional to raise money for your projects that is licensed

Item 2 is really more suitable for "bursty" capital supply needs when your existing investors can't or won't fund your project.  

Questions:

-How much of a premium would you pay for controlling your investor relationships such that they can be used for future deals?  For instance, if you would pay a broker-dealer or RIA to source equity for 3% would you be willing to pay 5% to control the investor leads yourself?

-How much is the lifetime value of the investor relationships worth to you?

-How would you work investor leads as they come in when you're busy working deal flow?  

Thanks for any insight you can provide.  I have my own opinions, but socializing this with BP should help us build better products to help out more.  

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  • Investor · Houston, TX · Member since 2013 · 195 posts · 102 votes
    9y

    Working with equity brokers can be a pain sometimes. They promise you the world and yes typically they take around 3%. The issue comes with the terms. Anyone can get equity if the terms are too good for any investors. The first time we reached out to these brokers was when we exceeded our funding limit and were doing projects where our regular investors couldn't really help close the capital stack. We got three term sheets back and all them asking for an arm and a leg.

    Keep in mind, any investor these brokers bring it pretty much have an agreement in place that if you use them again they get another 3% or whatever was initially decided. The relationships with your regular investors are everything. They are the ones that can fund you quickly. Whereas the brokers go through pages of due diligence and then give you an answer that you may not always like even if it is a yes.

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