When raising capital, your initial network will only take you so far. To scale your fund, you need to explore additional channels for finding investors. Here are some key sources to consider:
1. Conferences: Are They Worth It?
Conferences can be hit or miss when it comes to connecting with real investors. Many events claim to bring investors and managers together, but in reality, they often attract other capital seekers rather than true LPs. Here’s how to make conferences work for you:
Pros:
- Great for networking with peers and service providers.
- Can help build brand recognition.
- Potential learning opportunities from industry panels and discussions.
Cons:
- Many "investors" at these events are actually looking to raise capital themselves.
- High costs for attendance, travel, and accommodations.
- Unclear ROI unless you do thorough research beforehand.
Best Practices:
- Identify conferences that genuinely attract LPs interested in your sector.
- Decide whether to attend as a general participant or invest in a sponsorship (e.g., speaking slots, booths, branded events).
- Research the attendee list and schedule meetings in advance.
2. IRA Companies: A Unique Opportunity
Individual Retirement Accounts (IRAs) can be a great source of investment capital, but accessing these funds requires strategic partnerships. Many high-net-worth individuals (HNWIs) use self-directed IRAs to invest in alternative assets, including real estate.
How to Leverage IRA Companies:
- Investor Introductions: If an existing investor is using an IRA company, ask for a referral.
- Conferences & Events: IRA companies frequently sponsor investment events where they look to connect managers with investors.
- Cross-Marketing Opportunities: Some IRA companies may promote your fund to their clients in exchange for referrals.
3. RIAs, Wealth Planners, and Private Bankers: A Tough Crowd
While financial advisors and private bankers manage significant assets, they are often reluctant to allocate capital to alternative investments like real estate funds. Here’s why:
Challenges:
- Many wealth managers only promote traditional investments (stocks and bonds).
- They may lack the expertise to conduct due diligence on your fund.
- No CUSIP number? Many advisors won’t even consider your offering.
- Your fund reduces their assets under management (AUM), impacting their fees.
Best Approach:
- Find advisors open to alternative investments.
- Educate them on how your fund can add value to their clients.
- Offer incentives that align with their compensation model.
4. Influencer Groups: The Power of Community
Investor communities led by influencers have become an emerging capital source. These groups range from online networks to in-person investment clubs.
Types of Influencer-Led Groups:
- Investment "Gurus": They have large followings and sometimes offer speaking opportunities for fund managers.
- Educational Networks: Real estate training groups often feature investment managers on webinars and podcasts.
- Angel Groups: These organizations pool funds for investments, though they traditionally focus on startups rather than real estate.
Things to Watch Out For:
- Many groups operate on a "pay-to-play" model—be cautious of those requiring upfront payments.
- Vet the influencer’s credibility before associating with their brand.
5. Institutional Capital: Are You Ready?
Institutional investors—such as pension funds and endowments—represent large pools of capital but come with challenges.
Considerations:
- Typically require extensive track records and large fund sizes.
- Expect strict governance, lower fees, and control rights.
- Lengthy due diligence process.
Unless you have institutional experience and relationships, this may not be the best starting point.
6. Foreign Investors: Long-Term Play
International capital can be an excellent funding source, but building trust takes time.
Best Strategies:
- Leverage existing international connections.
- Develop long-term relationships before seeking investment.
- Consider a Cayman Islands feeder fund for tax-efficient structuring (only if raising substantial capital).
7. Placement Agents: A Costly Option
Placement agents specialize in raising capital for fund managers, but they can be expensive and selective.
Things to Consider:
- Many require six-figure retainers.
- Finding a reputable firm can be challenging.
- Not ideal for new managers due to high costs and difficulty in vetting effectiveness.
8. Crowdfunding: An Alternative Capital Source
Real estate crowdfunding platforms offer exposure to retail investors but come with trade-offs.
Questions to Ask Before Using a Crowdfunding Platform:
- Who maintains the investor relationship post-investment?
- What are the platform’s upfront, ongoing, and per-investor fees?
- Can you market future deals to the investors directly?
- What happens if the platform goes out of business?
Many crowdfunding platforms are backed by venture capital, making their long-term viability uncertain. Due diligence is essential.
Final Thoughts: Diversify Your Capital Raising Strategy
Expanding beyond your initial investor list requires a multi-channel approach. Whether it’s networking at conferences, partnering with IRA companies, or leveraging influencer communities, each strategy has its benefits and drawbacks.
Key Takeaways:
- Conferences can be valuable but require careful selection.
- IRA companies offer access to alternative investment capital.
- RIAs and wealth planners can be tough to convert.
- Influencer groups and crowdfunding provide new investor pools.
- Institutional and foreign capital require long-term relationship building.
- Placement agents and crowdfunding platforms can be costly but effective in the right situations.
By strategically approaching these channels, you can expand your investor base and grow your fund sustainably.
Legal Issues
Whenever you are raising capital, you are selling securities. This implicates various laws and other regulations, and also creates potential liability for you, so you want to make sure that you understand the limits around what you can and cannot say while selling securities, the legal limitations on who you can raise money from, and various other issues that your securities counsel can guide you through. If you aren’t already familiar with these legal issues, you should take some time to discuss them with your attorney.
