Nov 3, 2023
Every aspect of creating your fund should be a precursor and a build-up to the time when the fund launches and you as the fund manager must go out and raise capital. Fund managers should understand what they are selling, how their fund works, and what the key issues are from an investor and administrative perspective. It’s important to review the offering documents, the structure of that fund, and have a high level of understanding of that structure. Creating and launching a fund is far more than just drafting a PPM and hitting the streets. You should feel fully prepared and confident to raise capital after the fund is created and launched.
When people are considering engaging us to help them set up a fund, we are often asked “Can you guarantee that we can raise capital?” No one who is being honest can tell you that they can guarantee that any particular fund can raise capital, even if structured as thoughtfully as possible. There are many variables including your particular asset strategy, the returns that strategy generates, your ability to sell and persuade, your underwriting capabilities, your historical track record, your character and reputation, your contacts and base of investors from which to draw, whether you have a good and thorough strategy to raise capital, how much time you spend at it, etc. We believe that architecting and structuring your fund properly is a cruicial first step. We have seen funds whose very structure is a huge impediment to raising capital, often times completely unbeknownst to the fund manager.
We understand the stress and anxiety around the uncertainty of being able to raise capital. Our principals and related companies have launched funds in the past and have experienced lots of failures as well as successes. In hindsight, many of those failures in being able to raise capital were due to structural issues. Raising capital is again very much at the forefront of our business right now. We believe the second most important step is having a written strategic capital raising plan. It can help to thoroughly understand the offering, the fund’s investment strategy, it’s overall structure, the reasons behind why the fund is set up a certain way, the most common questions and concerns that investors are going to have and how to answer them, the myriad issues and how they interrelate, how the fund will be governed and administered, and the numbers. We recognize the importance of good governance, proper alignment of interests between the manager and the investors, and other key factors that influence one’s ability to raise capital, which all should be incorporated into the fund. When you create a fund, it is essential to understand every single decision that went into the creation of the fund structure and why those decisions were made, which ultimately provides the confidence you need to speak intelligently, accurately, thoroughly, and with influence to your investors. They can feel the confidence and knowledge or the lack thereof.
This is the very starting point to being able to raise capital effectively. If the structure is fundamentally flawed, usually nothing else you do afterward will make that much of a difference in raising capital, unless you have a gigantic personal network of people with a lot of money who believe wholeheartedly in your character and capacity. Otherwise, you are likely to hit a wall as soon as you have to go out to the broader investment community and must rely on the offering, the documents, the structure, the investment itself, and not your personal relationship or goodwill.
Nothing in this blog is or should be construed as investment advice or an offer or solicitation of offers of investments. Both Real Estate Investments and Securities offerings are speculative and involve substantial risks. Risks include but are not limited to illiquidity, lack of diversification, complete loss of capital, default risk, and capital call risk. Investments may not achieve their objectives. Investors who cannot afford to lose their entire investment should not invest in such offerings. Consult with your legal and investment professionals prior to making any investment decisions.