10 things I learned from raising $1M in two weeks

10 things I learned from raising $1M in two weeks

Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes

1) Partner w/ Experts (Credibility) - Partnering with someone that has a track record helps a ton.  My credibility as a person yes but had I said this was my first project, I'm sure my success would not have been so swift.

2) My Learning & Development  - I became an expert on the market, project and team by talking w/investors, reviewing everything on the deal deck, going to the property (3hrs away), talking w/the current property manager, going into the units and reviewing the property, surrounding neighborhood and validating what I knew about it already.  I got better the more I discussed it by researching and answering their questions.  More confidence led to more closings w/investors.

3) Great project is key:  The market, deal and team was so compelling I did not have to feel like I was selling something.  It was more discussing logically in these 3 key areas why the deal makes a ton of sense.  Do not sell that's a turn off for about everyone.  Be confident, logical and ask.

4) Contact list established in advance - My contacts list had 150 folks that I felt had the means, might have an interest that took about 3 months of accumulations.  I did not know if they all were accredited but that would not stop me from having a high level conversation to gauge interest, then could ask that question before more details needed to be shared.  Network and grow this list continually.  It's dynamic, folks are dropping out and I'm adding more as I learn about them.

5) Relationships are key.  I had 3 main buckets (former work contacts, friends and family; local MF group; and BP network).  By far, the best source were people that had a longer relationship w/me in some capacity.  BP ironically was not the best source for me.  Building relationships and trust take time and physically seeing the person I think helps.

6) Raise 20% to 30% more than you need.  Life happens between someone saying yes and 30 days later when they have to wire funds.  Be honest with people when you are taking backups. You cannot guarantee they can get in but remain hopeful w/them.  If you have a big investor who is putting up say 30 to 40% of the money, keep them very warm and raise 50% more money just in case.  It just takes one sneeze to put you back in hustle mode w/a big investor de-commit.

7) First Come, First Serve - I made sure that in my communications they understood that this was an exclusive opportunity, only for them, confidential (after I knew that they were accredited) and most importantly, a First come, First serve opportunity.  This helped them come to conclusions and take action sooner.  Incidentally, once they knew I had raised $1M, my closure rate and investment amounts were higher.  I believe psychologically that folks felt they may be missing out.

8) Referrals - It's a good idea to ask for a referral especially after someone commits.  I had a couple friends in my neighborhood and the lady told me during the meeting had just got her yearly bonus.  When I heard that and only after they gave me a verbal commitment did I ask if she had another doctor friend that might have an interest.  I have a meeting w/her referral on Monday. 

9) Timing is everything.  I have a lot of great folks in my network that are accredited and have the means, but something was happening in their life or w/their money (unwinding an investment that would take time; just invested in something else; job change, etc).  Even if you know that, I would try to get some time w/them so they knew what I was doing and get them interested enough to put them on my warm list for the next deal when timing is better.  It will be easier after every deal IMO.

10) Total Focus / Family support - This was one of the most intense experiences of my life for this long of time. For two solid weeks I ate, slept and thought about how I was going to get there. I actually lost weight and got very little quality sleep. You must have a great family team unit and situation around you so you can totally focus on money raising. If you have not raised money before, make sure when you start the clock your family unit knows what to expect. Do not try to raise money w/distractions. It's total focus, communications, scheduling coffee meetups, phone calls, email followups. Verbal commits need to know the next steps, communicate and keep them warm as they need to review and sign the PPM, wire money and in some instances you may need to advise on where they can setup a self-directed IRA. Help them get to the finish line. Make it easy.

This is not exhaustive, but was curious for those who have gone down this path what else you may have learned so we can continue the education process for others.  Just thought of a 11th one, networking never stops.  Like a radar, I'm seeking out opportunities to put myself into harms way and share w/other what I'm doing so they may be a future investor.

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Investor/Syndicator · Downers Grove, IL · Member since 2014 · 80 posts · 78 votes
10y

Great post @David Thompson ,  and congratulations on your successful capital raise!

The one thing I would add is gauging levels of interest from potential investors (all the groundwork) is different than having signed subscription agreements for specific dollar amounts (closing).   To date I have not had an investor back out of a subscription agreement. I typically go from subscription agreement to funding within one week.  That way if there is a shortfall I still have time to reach out to investors and often the investors already in the deal will want to increase their stake.

I wish you continued success. 

Brian

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  • Investor/Syndicator · Downers Grove, IL · Member since 2014 · 80 posts · 78 votes
    10y

    Great post @David Thompson ,  and congratulations on your successful capital raise!

    The one thing I would add is gauging levels of interest from potential investors (all the groundwork) is different than having signed subscription agreements for specific dollar amounts (closing).   To date I have not had an investor back out of a subscription agreement. I typically go from subscription agreement to funding within one week.  That way if there is a shortfall I still have time to reach out to investors and often the investors already in the deal will want to increase their stake.

    I wish you continued success. 

    Brian

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Excellent Brian and thanks for sharing those tips.  You are right, until a signed subscription and wire funds into escrow, it's not real yet.  The other point you make is key.  I don't want to string out my backups (reserve folks) too long.  I plan on first going to my backups because I want more people in my deal.  I would then go back to my original commits and ask if they want to amp it up more (hadn't thought about that but makes sense).  I like you tight schedule between PPM signing and wiring funds which is our plan  That not only commits folks faster but also gives you that time to self -correct shortfalls well before close.

  • Wholesaler · Austin, TX · Member since 2012 · 16 posts · 6 votes
    10y

    Really great job raising so much money so quickly.   I had a similar experience recently, but did not do as well as you did.   I had great partners, great deal and great network, but I was not able to raise as much as I wanted.   We still closed the deal and now, 4 months into renovations and leasing, it looks like it will be a home run.   I expect the next deal will go easier, but I am priming the pump with my investor group, by giving them updates on this first project.   Some others who passed the first time, might be more inclined to invest the next time.  Thank you for sharing your experience. 

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Thanks Michael.  I think your point on priming the pump is essential.  Honestly, I don't recall running across many folks who were not at least interested or curious.  If you use the analogy of flipping a house (tv shows) but this is on a grandeur more sophisticated scale, most folks get that.  Besides the most obvious that folks aren't accredited, most folks that didn't invest w/me the first time had a variety of logical reasons.  Hence, to your point, by maybe creating a brief email sharing things like "Deal is now closed and was appraised for a higher amount" or creating a newsletter (as my coach suggested) that not only educates folks on the benefits of apt investing but could update them on your project successes is important.  This particularly helps in the beginning when many folks did not know that I had left the corporate world recently and that newsletter could also help them envision me in a new field and not having to explain myself.

  • Investor · King of Prussia, PA · Member since 2014 · 1k+ posts · 339 votes
    10y

    @David Thompson Great post!

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Thank you Ayodeji.  I will add my coach also ensures that they have an investor call after a few weeks of capital raising that helps re-assure verbal commits and interests prospective investors, enabling them to ask questions as well.  It's recorded for folks that may have missed.  There is a free service for conf calling for a nationwide audience.  

  • Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    10y
    Originally posted by @David Thompson:

    Thank you Ayodeji.  I will add my coach also ensures that they have an investor call after a few weeks of capital raising that helps re-assure verbal commits and interests prospective investors, enabling them to ask questions as well.  It's recorded for folks that may have missed.  There is a free service for conf calling for a nationwide audience.  

     Great post. Thank you for offering your 10 tips. I am in the process of raising money, but like many people, have to deal with people backing out. Your tips will definitely help me secure stronger commitments. I'd love to hear your recorded call. Can you share the link?

  • Real Estate Agent/Investor · Clarkston, MI · Member since 2013 · 156 posts · 34 votes
    10y

    Wow, great article here @David Thompson! Thanks for all the knowledge. I wish there was more talk on the forums on big deals like this, syndication, raising capital.

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Thanks Sajju and Brandon.  Sajju, I'm sorry I can't provide the video call for our investors to you.  Essentially though, you should have your top folks from the sponsorship on the call.  The general length is about 30min, take them thru why the market, deal and team makes this a solid investment. Allow questions at the end to be emailed to one of the sponsors.  Everyone is on mute except the sponsors.  Sponsors read questions and answer.  Its best not to have open lines that could pose problems as you can imagine.  We record the call so that those that missed can hear it later at their best time.  Hope that helps.

  • Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    10y

    Definitely helps. Thanks again! 

  • Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    10y

    @David Thompson

    Our underwriting team sent the comments below on your deal.  I'm sorry it took so long, but we're still trying to get organized internally with committees and such.  We'll be in better shape for opportunities like this later this year when things are not as busy and we're better organized.  

    I hope this feedback is helpful.

    • Fairly blue collar area with great access to transportation outlets.
    • While Toyota is coming in, doubtful this property will benefit much from that expansion in my opinion.
    • Very surprised that average HH income in a one mile radius is $92k, Carrollton in generally not known for resounding demographic data, although the area has nice places. Given this area is particularly close to Trinity Mills, there are a number of competitors in this exact same area, so it does have a large pull of renters. Trinity Mills does not boast strong demographics, there are several lower income housing properties just east and a decent amount of crime, although not extreme.
    • Looks like Nitya has experience doing this exact reposition before, but mostly in Houston. Two examples in DFW area with strong success. This seems to be in their wheelhouse.
    • Unit interior upgrades are a bit overblown for the area in my opinion, but agree there is opportunity to increase rent 10-15% easy.
    • Not going to get parking revenue for basic parking stalls, maybe covered or garage.
    • How much money is Nitya putting in? Looks like they will allow other investors to take down the remaining $2.5 million in equity? Given they have a different partner contributing $5mm, what risk will they have in the deal? Looks like they are contributing no capital of their own? If so, that will be a concern for some investors.
    • An 8% return followed by 70/30 split after Nitya earns 2% fee upfront and 2% asset management fee of revenue ongoing will not immediately appeal to some investors. I wonder if this structure is similar to their other deals. If they provided ~20%+ returns on multiple other projects, why wouldn’t investors be lining up to jump into this deal and thus not need us?
    • Are they really going to get 89.1% of purchase price as debt?
    • This will be by far the largest investment project they have pursued. Other examples provided are $5mm to $20mm max.
  • Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    10y

    Apparently this is a different deal than the one David Thompson presented.  Apologies to David for commenting on the wrong deal.  

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Brian,

    I believe you posted this on the wrong site.  Any comments from your lessons learned in raising capital is of course appreciated.  You have a lot of great experiences and others can learn as well.

  • Wholesaler · San Antonio, TX · Member since 2016 · 49 posts · 6 votes
    10y

    Excellent lessons and congratulations on the successful activity..!

  • El Paso , TX · Member since 2016 · 94 posts · 25 votes
    10y

    Great Info!

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Thanks Eyan and Brittany !!  

  • Residential Real Estate Broker · Miami, FL · Member since 2016 · 11 posts · 1 vote
    10y

    Thank you for sharing David, this information is very helpful for us who are looking to venture into the realm of larger multifamily acquisition.

  • Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
    10y

    @Michael Hernandez Great ideal about keeping informed those that did not join. @David Thompson great success story.  Thanks for sharing.

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    For more color around these 10 ideas, I was fortunate to have Kevin Bupp, commercial REI podcast interview me on this topic recently. Any thoughts to share on your own experiences or questions after listening is appreciated so we all continue to grow. Interview is in two parts as we had more fun and things to share.

    http://www.kevinbupp.com/10-lessons-to-raising-cap...

  • Property Manager · London, England · Member since 2016 · 19 posts · 12 votes
    10y

    This a really helpful thread thanks David. One question i did have for anyone who might know, aside my inner circle of contacts how do you go about getting in front of accredited investors. Is there a source for leads or is meetings/conferences the best method? Whilst staying within the financial regulations etc..

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Hi Matthew, good question.  Part of this is not only identifying who is an accredited investor but also the regs go a step further and are wanting a relationship w/that investor to be established and some determination of suitability.  So, any blanket marketing attempts to identify accredited investors is something we don't do.  

    At our MF group meetups as one example, when we introduce ourselves (more networking type forums), I simply state what I do, syndicate large apartments and looking for passive investors to partner with us. May mention some of our recent deals we have closed on, but I don't talk about my current deals. Prior to or after the meetings I will meet a few investors who are interested in what I'm doing and we talk a bit high level on our model, I do ask them if they are accredited as that is a prerequisite for our program, then I will schedule a coffee meetup. Purpose of meetup is to get to know them better, what is their background, REI experiences, objectives to determine some level of suitability and interest in what we are doing. This forms a relationship then I'm free to get into our latest project and share investment / marketing materials.

    If you are following different regs and your investment allows some non-accredited investors then your marketing strategy IMO could be broader and could include webinars as I've seen others do this approach.  The encouraging thing that Kevin shared in his experiences and this makes sense is that your previous investors and their referrals become a much larger part of your business over time to a point where you have more folks in your network wanting in than deals you have.  I'm moving in that direction w/5 repeat investors from our last deal and starting to get a few referrals.  I'm looking forward to that day.  On a typical $1M raise w/$50K being our minimum, I might have 15 to 20 investors.  Do 5 deals and you are looking at 75 investors (excluding recurring ones).  I think w/a 100 investor base, w/25% recurring investors each deal, I should not have to look for too many new investors for each deal.

  • Rental Property Investor · Philadelphia, PA · Member since 2014 · 130 posts · 77 votes
    10y

    Congrats @David Thompson on the successful capital raise. Very impressive in only 2 weeks!  I listened to the Kevin Bupp podcast and you said there were a few investors who were about to invest but they had to drop out when they learned that being accredited doesn't include home equity as part of net worth. 

    Can you talk a little bit more about the vetting of the accredited investors, please? How did you initially broach the subject with people about their income and net worth? Did you spell out what the income/net worth requirements are for accredited investors when you spoke to people initially or did you assume they would meet the criteria based on their occupation? Did you have them fill out an investor questionnaire? 

  • Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Hi Elena,

    I prefer to be direct once someone has shown interest in what I'm doing.  I just tell them that the way we are organized and run our strategy is that we are essentially dealing w/a security and as such are regulated by the SEC.  We only can have accredited investors as our partners at this time.  A lot of investors have heard the term "accredited" but are not quite clear on what that means or need a refresher.  Yes, I essentially explain it to them or they can just google it.  Keep in mind just because someone is not accredited should not preclude you from explaining your business and even sharing your track record and past deals.  They just can't be shown current deals that you are working on and accepting investors for.  Many folks I talk to are on their way and should be kept on a list of unaccredited investors and you can touch base w/them from time to time to keep building that relationship. 

    It's also a great idea IMO (I've seen others do this) is put them on your newsletter. Your newsletter can be a one page, once a month email distribution that shares education on MF investing, your past deals progress, etc.  You can't invite them to look at or discuss new deals but this keeps them warm and when the time is right, they are ready or they may refer you to family, friend or business contact that would like what you are doing.

  • Commercial Real Estate Broker/Principal · Miami, FL · Member since 2016 · 2 posts · 1 vote
    10y

    Great post David, congrats on raising the capital!  

  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    Wonderful post, David.  It is so important for those new at raising capital to know this: Interest, and even eagerness in early calls/meetings... and often even a verbal Yes... do not equal money in the bank.  There is often a wide gulf between significant interest and a wire transfer.  Great job on raising so much so quickly.  

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