I would like to share a very interesting matter which I discussed with my good friend Michael when I was in London recently.
Raising Equity is a Business in itself
by Michael G Ehlert
Raising
equity is a business in itself which requires preparation, patience and well
timed action steps based on systems, processes and procedures.
The
lack of equity is the most often faced issue amongst real estate investment
managers. More or less every investment manager - small or big - comes to this
point in his portfolio building journey, when he reaches the end of his
available equity and needs to search elsewhere to continue growing the
investment portfolio. It’s a discussion without an end whether having first the
equity is more important than having first a deal to invest. Most real estate
investment managers start finding deals and look for equity to finance it
thereafter.
As a
professional capital seeker my approach is the other way around and I strongly
recommend making a conscious decision and ranking raising equity at least
equal to deal sourcing. In the following paragraphs I want to share a number of
key points about raising equity, in no particular order.
1. Raising equity requires intense investor
communication
Being
able to scale your investor communication efforts is essential and requires a
professional mindset and a set up similar to a small contact centre. Depending
on the amount of equity and the targeted investors, you will need to get (and
stay) in touch with hundreds of potential investors - often multiple times on
the phone, via email or in meetings. Therefore raising equity means very much
running an investor communication business. The means of communication itself
can change and include traditional as well as interactive and social media
tools, implemented in formal or informal settings.
Raising
equity also requires strong marketing skills. Loads of content needs to be
developed and (re)structured, especially at the beginning of each campaign.
Your marketing skills will require a clear strategy on how to get in touch with
investors and how to enable them to get in touch with you.
Time and preparation are the crucial success
factors here.
The
more sophisticated investors are, the more investment opportunities they have.
Getting through to the top of their stack of opportunities will need to be
earned. A clear defined accelerating communication model will be a crucial part
of your investor communication. Also producing a state of the art investor
information package will set you apart from most of the competitors and help
you speed up your communication cycle. I’ve done this numerous times myself and
it costs a lot of resources - but the effort pays off. I usually get through to
decision makers fairly quickly and so can you.
Jamestown
US Real Estate
I’m comfortable
managing my investments independently. However I wouldn’t do this for
investments in the Americas because I don’t live or travel there. My
travel zone is between Europe and Asia. If I was seeking investments in
24/7 US-metropolis core office buildings, I would gladly hand over my
capital to Jamestown, a specialised real estate investment manager based
in the US and Germany.
Jamestown provides
great investor communication, both in terms of completeness and on time
delivery. The company understands keeping in touch with investors in good
and bad times. As an example, only one day after the terror attacks of
9/11 they provided a statement to their investors that none of their
buildings in New York had been affected.
Ask yourself: How can
you update your investors not only on their direct investment but also the
general investment environment? Be a thoughtful communicator. Three, four
updates a year are enough. Investors value communication.
|
2. You don’t need to have a specific
personality
I
get this question quite often: “Will I be able to raise equity?” I can assure
you that there is not only a single, specific personality that succeeds. Your
dominant nature can be a thinker, a relator, an introverted or an extroverted
person. All capital seekers are different and so are investors. But you will
need clarity on what you can contribute to the process. Based on your strengths
and weaknesses you can chose your preferred roles and seek complementation
through collaboration with others - either employees or business partners.
Raising equity is a team effort.
More
important than your personality is your motivation. Raising equity requires a
person that takes the lead and pushes through to the (successful) end (or quits
early enough). If you want to take the lead you will need the drive and a
lasting inner motivation. If that motivation is not just around the result -
the equity - but about the journey with the people you meet, you have good
qualifications for the job. Raising equity means dealing with many people and
building lasting relationships. Being visible, approachable, transparent and
communicative is the key to this.
You
need to understand how you prefer to interact, how others prefer to interact,
how you would like to sell and how others would like to buy. How you would like
to sell might not necessarily match with how others want to buy. Your key to
success will not be how well you understand how others want to buy but how
quickly you are able to adopt and serve their (real or imaginary) needs.
Listening and reading others behaviours is key - develop the skill for that.
It
is also worth keeping in mind that not all capital seekers appeal to all
investors and reverse. The chemistry needs to be right. Despite all
psychological sales techniques, humans still very much trust a face. Modern
sales techniques are less than 100 years old, but we’ve relied on face
impressions over thousands of years. You enter the room and the other person
makes a decision within a few seconds whether he can trust and wants to work
with you.
Know
your limits and aim at the right people. Don’t try to persuade everyone. Trust
your guts on whom you can talk to naturally. The chemistry is more important
than the money – hopefully to you as well.
My
petite Indian friend
My friend Arjun (*name
changed) doesn’t look like a successful property investor. He’s corpulent,
short, doesn’t really dress smart and usually stands in the second or
third row. You won’t notice him at property events. However he’s
persistent and just great at implementing and following up on his
promises. He’s warm hearted and enjoys making deals with friends (You
can’t avoid becoming his friend over time). He’s grounded and takes all
the glamour away from investing - how relaxing. He has raised over $30m
from private investors in the last 4 years in the Netherlands and the UK.
Ask yourself: What are
you good at? Starting, implementing, completing or finishing the job?
Communicate that actively. Make it a tag line on your business card. There
are many ways to do business and many ways that lead to success. It’s your
way that investors want to find out about.
|
3. You will need capital to raise capital
There
are four main types of resources you need to succeed in life: knowledge,
support, capital and time. For raising equity you will need all of them.
You
will need knowledge to understand the campaign, support to run the campaign,
capital to finance the campaign and time to become investable, particularly if
you haven’t dealt with investors before and you need to build new
relationships.
The
ideal mix of these resources will depend on your background, the market
circumstances and the size of your campaign. The more capital you have, the
more support and knowledge you can acquire and the less time it might take you
to achieve your goal. Conversely the more time you have, the less support and
knowledge you will need to buy and accordingly the less capital you will need.
You can save a lot of effort with detailed preparation and planning.
Unfortunately
I very often see situations where there is not enough capital available to
become investable. Becoming investable means working on your overall setup and
build a state of the art investor information package. So you will need capital
to finance your efforts. It will be hard to raise capital without capital. The
amount of capital you’ll need will depend on at least 8 different factors:
1. The
amount of equity you want to raise
2. The
minimum investment amount per investor
3. The
type of investors you want to raise equity from
4. The
type of investment vehicle you want to use
5. The
number and type of markets you want to raise equity in
6. The
time frame you have in mind to raise the equity
7. Your
personal preferences for the quality of service providers
8. The
knowledge and experience of your sales team
There
are also possibilities to raise capital through JVs and you might need less or
no capital for that at all. But that is a different game which this article is
not about.
Walton
International
If you’re looking for a
prime example of building a continuously growing client base, then look at
Canada based Land Banking investor Walton International. I followed their
market entry in 2 countries, long before they had today’s CA$3bn assets
under management. Their main asset, in my opinion, is not their returns
but their upfront investment in the education and training of their local
distribution partners and investors. They spend thousands on it and they
do it before they ask for the money.
Ask yourself: What can
I do on a small scale to educate my investors? An investor information
package could comprise not only written, audio and/or video material but
also live sessions. If there is a gap for a local property investment
event, start it. Alternatively, educate them on how to find the right
property investment partner because that’s their main concern. They might
(not only) want to know how to invest in property but how to run a due
diligence on investment managers. These events will take time to grow and
become profitable for you but are worth the investment if you are serious
about it.
|
4. Look overseas if you can afford it
How
likely is it that you will succeed with your campaign? This is a question that
every capital seeker will be reflecting on. Your success will depend on a large
number of factors, from the degree of innovation your product offers, to your
personal history or your track record as an investment manager (which can
either be beneficial or hindering). A very important question is however: Are
you targeting the right investor market? Is the UK the only market to look for
investors?
Capital
seekers in the UK are in the lucky position to have a global playground to
raise equity. Everybody wants to invest in London and for many overseas
investors the UK is the doorstep for (continental) European investments. I once
read that in 2010 nearly 25% of all new apartments in London were bought by
Chinese investors. But there are also many Middle Eastern investors active in
the UK. In January 2013 I met with a Saudi Family Office who are currently
increasing their UK portfolio from £3m to £15m. Name me one African or South
American country leader who has not invested in the UK to secure his assets
(Ok, may be Robert Mugabe!). Different sources state that London’s Westend is
35% owned by non-Europeans. Investors from all continents invest in the UK. Not
even Switzerland has such an international real estate investor base. Great
Britain!
The
downside with international investors however is: They want to be serviced - in
person. They like to see you on a frequent basis and not just once to collect
their equity. Therefore chose your overseas market wisely. Be prepared to go
there a few times throughout the year for as long as the investment is active.
I personally have lived in East and Southeast Asia for many years. It’s a home
to me and I feel very comfortable traveling there on and on again to meet
investors and maintain relationships.
Despite
the attractiveness of overseas investors you need to keep your financials in
focus. For small equity raising campaigns it might not be economical to go
overseas. Don’t let your passion for traveling run your investor market
decision.
Apache
Capital Partners
I’ve known the founding
partners of Apache Capital Partners for many years. I raised €80m for
their previous company. In 2010 we tried to raise capital for 3 different
UK real estate strategies. I was in charge for investors in France,
Germany and the Netherlands. After 10 months we gave continental Europe up
in favour of the Middle East. The continental discussions about the UK
national debt level made it impossible to attract equity for Pound
investments. The middle eastern investors did not have these concerns as
they were in general less affected by the financial crisis.
Ask yourself: Which
countries have traditional bonds with the UK and have experienced steady
economic growth over the past decade? Investors in those countries are
likely to be cash rich. And depending on the stability and security of
their political system, they might be interested in a geographic save
heaven for parts of their wealth.
|
5. Build a dedicated investor hand-out document
Often
when capital seekers give presentations to potential investors or at industry
events, members of the audience will ask for their presentation slide deck
afterwards. If you present to professional investors it’s a must anyhow and you
might have sent your presentation in advance before you meet.
Either
way, this is where 95% of all capital seekers make a substantial mistake: They
send their “Made-for-me-while-I-present” slide deck instead of a
“Made-for-you-when-you-read-it-without-me” document.
You
will need a presentation - only for your own use - that is not self-explanatory
to the audience and just makes sense with your live comments. On the other side
you will need a self-explanatory document that you can send to anyone
interested. This document will contain the same ideas and info graphics but
written text will replace you as the speaker.
If
you send your own slide deck, audience members that heard you speaking before,
might not remember everything you said and audience members that haven’t heard
you speaking before might not understand your ideas and thoughts - unless you
have a lot of text on it. Then however it’s no longer a presentation but a
“slidument” - a combination of a slide deck and a document. Use limited written
text on your slide deck. The audience in your live speech will otherwise be in
permanent conflict between listening to you and reading the text on the slides.
The
rule is: Not more than 7 bullet points per slide and not more than 7 words per bullet
point.
Whether
you have created investor information packages before or not - I strongly
advise to hire a professional communication agency / visual communicator to
help you with your marketing documents. There is too much stake at risk and you
won’t get a second chance for a first impression.
Look
for a dedicated real estate marketing agency
There are pros and cons
when working with a marketing agency that serves multiple industries and
sectors. I personally prefer to work with dedicated agencies for the real
estate sector. They are rare but have in depths knowledge of real estate
processes and terminology.
Ask yourself: What was
the last product over £1,000 you bought that was accompanied by an
inspiring and outstanding hand-out? How much did that hand-out contribute
to your understanding and excitement?
|
6. Define a clear investor target group
Having
a clear defined investor segment is very important, especially for small
investment management teams with limited resources. To identify your target
investor segment I strongly recommend to list all (1) demographic and (2)
psychographic criteria, of which you think they would need to have in common in
order to (1) invest in your area and (2) invest with you. This might take you a
while. Do the exercise with a sparring partner.
Once
you are clear about this, you will be able to stop seeing a potential investor
in every person you meet. Big relief! The people you meet might still be
investors, but not investors who want to invest with you or who you want as a
client. I know this is a very complex exercise, but there is no way around it.
Also: If I, as an experienced investor, don’t see that I’m part of your target
group, I won’t see a reason to invest specifically with you.
Don’t
be afraid to scare some investors off.
UCITS
fund of funds
In 2006 I raised €30m
for Belgravia Asset Management’s open end European real estate fund. The
fund’s structure was well suited for Germany based regulated fund of fund
structures under the European UCITS directive. The decision makers were
progressive fund pickers, willing to invest beyond the common. I could
easily identify their needs and pain points and create the gain they were
looking for.
Ask yourself: What pain
does my investor segment have and what gain can my product deliver. The
bigger the problem of your investor segment the easier you will be able to
close the deal. Search the web for the “Value Proposition Designer” PDF
document. It can help you define customer pains/gains and pain
relievers/gain creators for your products. It’s applicable for any industry,
not just property.
|
7. Organise small equity raising campaigns in
groups
If
you work in a small team or are the sole responsible for raising equity, I
strongly recommend teaming up with other capital seekers. Individuals easily
get stuck in their thinking and actions and a dozen minds know more. In
addition don’t forget that everybody needs accountability.
Organising
equity raising in groups can save you finances, emotions, stress and effort. It
can boost your confidence; you can share resources, share the workload, co-hire
experts, exchange experience and accelerate the learning curve in general.
Whether you need emotional, development, promotional or material support, being
in a group will most likely be beneficial to you. However make sure you have
something in common with the other group members to increase potential
synergies.
Search
a sector specific group
There are a few
property Mastermind Groups around. However their main idea is to educate
about investing in property and not how to raise equity. Form a small group
of 6-10 capital seekers who want to raise equity for the same sector. The
same sector is very important as it will guarantee you’ll benefit from
others experience beyond the initial get-to-know phase. Equity raising for
a developer works different from equity raising for the traditional single
buy-to-let sector or the HMO sector. Make sure you’re operating in
different geographic regions so you feel free to share your success
stories and secrets. If you need help with setting up and running such a
group feel free to get in touch.
|
If you have any questions please feel free to
get in touch via michael@michaelgehlert.com or go to www.michaelgehlert.com.
