I went to a convention that is geared toward putting the people with access to money (Broker/Dealers) with the people looking to raise money (sponsors).
It turns out that the measly $4,000,000 that I have raised in the past isn't even enough to warrant a conversation with anyone here. The smallest deal that I heard talked about was a $15,000,000 capital raise. People are talking about small $50M raises or $200M in 3 weeks!
There are other people like me here but they are trying to break into the business of private or public offerings. They are trying to determine how to get out onto the "platform" where the broker/dealers will be able to sell your deal to investors.
It turns out that there are a lot of challenges and a lot of big bucks need to be paid. My estimation is that you will need to shell out $200 to 500K or so to set yourself up. That will only get you part way into the "good ol' boy" network.
For starters, you will need years of audited financials (very pricey) on your self and business. This will be scrutinized by a third party "due diligence" representative that you will need to pay for. You will also need to pay for the dd for the deal that you want to put on the table. Once this is done, you will need to schmooze the companies with dinners (I have done this, steak and lobster for 30 people. Don't forget the drinks!)
You will also need to have a track record to show along with a product that will set you apart from the others.
The regulatory group that oversees this process holds a lot of power. They regulate the **** out of every part of the process which adds a lot of cost and time.
There are salespeople called wholesalers that will work as your reps to sell the product. You will need marketing materials along with a dog and pony show.
I had an "in" with a small broker dealer. It took a lot of work to get that. They went belly-up in 2010.
This looks like it could be a lot of fun!
Working in the $30k - $40k world, I cannot even imagine the $4m world.
@Steve Olafson Hi Steve. I an an accredited investor and participate in private placements relatively regularly. I can talk to a few points from this side of the equation. I also sold my company in 08 and dealt with that first hand.
Regarding the costs of auditing, I tell anyone interested in a placement/IPO that the number one priority from day one is process. Process protects you from auditing issues, change management, and forecast growth(I know, obvious).
Regarding the money that needs to be raised I would think of it in terms of who would take the risk on your REIT. I mostly look for high growth software/SaaS companies and I must see a large potential float. A small float means high volatility risk and fast downside moves. Assuming you have $100MM raised and use an IPO as an investor exit, I would want to understand how you will be able to shows me an ability to actively acquire new properties and what systematic process you have to buy, manage, and exit. With an REIT I would need a high immediate dividend and a double digit price appreciation plan.
Two thoughts, have you talked to an introducing broker(was this what the show was?) and have you spoken to anyone at Nasdaq CM or Amex?
Originally posted by @Sean Troy:
Thanks for the feedback.
I have done a few deals with investor money and most have worked out exceptionally. In fact on average the returns to the investors has been greater than 25% annually. A few small deals have gotten the investors over 100% annually.
What is keeping the brakes on for me right now is the state of the market. The apartment market seems to be a bit overcooked in my area. I like to buy when the sentiment is to sell which is not the case right now. Too much construction and extremely low cap rates means too much risk and/or not enough returns. Even the value add deals are selling on unrealistic proformas.
I am also not sure that I want to go through the brain damage associated with building this business. It looks like a novel idea but I am having enough success on a smaller scale right now.
I posted this because the process seems very interesting. There are some big players out there that are doing some grand things. They cannot be as nimble as us smaller players though.
@Steve Olafson agree on the small and nimble! I actually have something that may be useful and am looking for it. When I find it I will PM it to you.
@Steve Olafson This is really interesting. If you don't mind me asking, what was the event?
Getting access and seeing these people's stories is so motivating. It really opens your mind to what is possible and what is going on everyday that you never even knew before. I was just at an event where the combined transactions from everyone in the room had to have been way over $1 billion....maybe even closer to $2 billion.
I agree, when you are around these kind of people you put yourself in a completely different world. I would argue, a much better world :)
The event was in San Diego last March and put on by REISA. It looks like they have changed their name based on their website.
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