Providing Liquidity To Your Investors

There have been several topics lately related to providing liquidity to investors after you have invested the money in your projects.  Whether you are using debt, equity, or some combination of the two the issue is similar.  You need to invest the money for some period of time that potentially greater than the time horizon of the investor.  This is likely due to unforseen circumstances on the part of the investor.  

One of the main things an investor can do to insulate this "call risk" is to only deal with investors that are rather wealthy.  Wealthy folks tend to organize their affairs properly and have spare capital in the event some unforeseen circumstance arises.  Dealing with accredited investors really helps here.  

Life can foil even the best-made plans though.  If the investor needs the money back prematurely there are really two main ways to get them their money back early:  

1.  To pay them back out of your cash reserves as a bridge to recapitalizing later on.  This option necessitates having the capital or access to capital to pay them back  

2.  Facilitating a "dutch auction" and comparing the bids you receive for their investment to those the investor is able to get on their own  

This issue is one that comes up frequently prior to an investor investing in a private placement where they are purchasing equity.  However, the problem is common to private debt financing as well.  Debt can be refinanced, but there is generally a reason why private financing was used in the first place.  This could be because it is non-conforming, the investor's bullets have been used for FNMA financing, ratios are frothy, etc.  

Hopefull this post will prove helpful for someone looking to raise private capital for their business.  Thanks for reading.