On our last visit, we talked about some of the money myths associated with raising capital, the biggest being that it takes money to make money. The reality is that it doesn’t, but it does take OPM (or Other People’s Money).
If you can show people how you can safely make them money and if you have a vehicle in which to do it, you’ll most likely make money too. It also never hurts to have a purpose that’s bigger than yourself when you’re out there raising capital.
We also covered some of the mistakes you can make when raising capital, such as having the wrong players on your team and raising money the wrong way. Many of these things you just figure out through trial and error. For example, we tried all different types of minimum investment amounts, tiered rates for things like preferred returns, or various investment terms to maturity.
But to be quite honest, the best strategies for raising capital are the simplest.
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Simpler is Always Better
So why do I say that “simpler is always better,” and what do I mean by this?
For one, if you give an investor too many choices, you’ll just make them dizzy and confused. It’s always better to make them feel more secure.
Whether it’s by showing them financials, having a track record or introducing them to your team players, the better you can build trust with your investors and show them that you know what you’re doing, the more comfortable you’ll make them feel.
One of my best investors said to me one time, “I want you to make a killing with my money because I know that that will ensure that you can always pay me.”
His attitude really shows how a positive partnership can develop when the investor buys in to your business model, knows that the investment isn’t just a pipe dream and understands how it can make them money.
But if you’re too much of a cowboy, and you’re giving away the ranch (or paying an unrealistic preferred return), people will be skeptical and think your deal is too good to be true.
When we were starting out raising capital, a close mentor of mine told me, “If you want to raise more money, lower your rates.”
Now, at the time we didn’t have a track record yet, and maybe we hadn’t earned the right to lower our rates yet. But he was right. I can vouch for that since I’ve raised capital over the years with preferred returns ranging between 8% and 21%.
Besides helping them to understand the investment, there are also additional things you can do to help an investor feel more comfortable. This involves making Investor Relations a priority.
If you’re currently raising capital, what are you doing now? Do you even have an investor relations department?
Sometimes it’s the little things that matter most. One thing that’s critical to investor relations when raising capital is communication.
Have you ever made an investment and then never heard from the management team after that? I’ve had that happen to me, and during that time things weren’t going so well for them.
I can’t stress enough the importance of staying in communication with the investors before, during, and after the fundraising stage, as well as demonstrating that you’re doing your best, which means that you’re doing everything you can to protect their capital.
Customer for Life Program
Communication is really the main staple of any customer for life program.
For example, many realtors sell someone a house, and then the buyer never hears from them again. But top agents usually stay in touch with all of their past clients, and they usually bring in more clients through referrals.
So how can you stay in the forefront for both your current and past investors?
3 Tips for Acquiring Longterm Investors
1. No news is better than no contact
Although it’s best to provide your investors with updates on how the investment is going, if there’s nothing new to report, that doesn’t mean you can’t stay in touch. Maybe try to call each investor once a month just to check in.
2. Provide them with value, not spam
Keep the marketing to a minimum. These are individuals who have chosen to invest with you, so take the time to think of them. When you reach out, provide value or resources that will either resonate with them or be useful for them.
3. Give them something different
What are you doing differently than all the other fund managers out there? What are you doing to take care of their money, and how are you going to take care of them over time? Maybe you’ll have an interactive and convenient platform in place where they can login and view their investments and statements. Or you could get even more creative.
For example, we deliver thank you treats upon investing, and we send out a weekly e-zine as a way to stay in touch regularly. We also hold investor Q&A sessions, which we also stream online. We hold educational webinars, live events and speaking engagements, as well as MeetUp groups nationwide.
But it can also be little things, such as providing convenient ACH payments or allowing investors the ability to redeem shares to purchase notes with preferred access to re-performing notes.
Although we have all of this in place, we understand that there’s room for improvement. We’re continually looking for new ways to assist our investors.
I’ve learned that if you treat your investors like family, the way you would want to be treated, you too can earn the right to lower your future cost of capital, as well as earn a high rate of investor retention. If you treat your investor’s capital like it’s your own money (because after all it’s often someone’s hard-earned money or retirement funds), you will earn the right to utilize their capital for years to come.
So, let me ask you, what are you doing for investor relations and customer retention?
For my next article in this raising capital series, I’ll go into more detail about the advantages of the private placement and some of the best ways to raise capital. Talk soon!
Let us know your opinions in the comment section below!