A few weekends ago, I participated in a panel discussion on how to raise capital for real estate related investments. On stage with me were two other seasoned capital raisers; one who owns a successful syndication company that in a very short amount of time landed his company on Inc.’s 500 list and the other who’s a local hard money lender utilizing pooled mortgage funds and a warehouse line of credit as leverage to fund a large volume of loans annually and has successfully scaled into multiple states over the past decade or two.
While I was the “small fish” in the pond at that moment, I felt very secure in my position as a homegrown private money matchmaker who has achieved a reasonable amount of success in her own right. And, thankfully, the feedback from participants after the event reinforced my own beliefs.
You see, in reality, being “small and mighty” has served us well not just through our differentiated and creative financing compared to those backed by institutional capital, but also garnered attention and loyalty with a high caliber of passive investors who see and feel our Flynn Family difference and want to become capital partners with us for the long run.
Our conscious decision to remain small(ish) and our conscientious approach to private money placement allows us to provide white glove service to our clients with a personalized approach that keeps us reliable and enjoyable to do business with year after year. As a private lender who specializes in whole trust deed investments, establishing loyalty with our clients is a more difficult task since our clients’ investments aren’t bound by lengthy contractual terms associated with syndications and private mortgage funds. However, we have enjoyed the benefits of organic growth fueled by raving fans of our business model and our extremely personal approach to investment management.
Whether you choose to stay small or have goals to grow 10x in the years to come, taking a more relationship-based approach to your capital raising can yield some solid results. Here are some of our not-so-secret tips to raising capital while you grow your private lending practice. Hint: If you’re looking for hard skills and tactics to raising capital, this isn’t the article for you.
Display Compassion and Empathy
One of my favorite leadership coaches and authors is Ken Blanchard who is often quoted as saying, “People don’t care about what you know until they know you care.” This couldn’t be more true when raising capital. After all, how much business do you want to do with people you can’t stand? If this isn’t your authentic self, you may find greater success in raising capital through hedge funds and venture capitalists rather than high net worth individuals.
Those who lead in immediately about their accomplishments before trying to understand WHY the prospect came to them in the first place is an capital raising faux pas, in my opinion. This is especially true to those just starting out. Without a long-standing track record of success, your ability to raise capital hinges on your success in establishing trust with those who want to be your early adopters. Getting the privilege to earn someone’s trust when you are first starting out depends on how well you can establish genuine connections.
Lead with Charm, Follow with Character
Sure you can make the case for needing to establish credibility first but I have found people want to know who I am before they want to know what I’ve done. Nothing grates on my nerves more than participating in a business meeting where someone who I barely knows immediately starts his rehearsed pitch deck on me.
In my company, where my husband and I are co-founders, we often refer to ourselves as the business version of a mullet. I’m the business in front – the one who has all the facts, extremely detail-oriented and will provide reassurance throughout your investment tenure with us. Conversely, my husband is the “party in the back”, the guy whose charm and affable nature immediately disarms people and breaks the ice.
If you know you’re only half that equation, you may want to consider partnering with someone who can be the ying to your yang. These types of powerhouse relationships are palpable with prospects who desire both authenticity and credibility but want to sincerely like the people they’re doing business with.
Create Brand Ambassadors One Client at a Time
One of the best ways to grow your business organically is to take care of your clients and allow your good work to spread through word of mouth. Referrals are such a strong way to evangelize your successes without you sounding like a braggadocious, self-congratulatory salesperson. We don’t even have to ask for these referrals, our clients love what we do and simply tell their friends and families about us because they like working with US as much as they like the great financial results. If you want to be more proactive about these types of referrals, be sure to ask your clients for reviews and testimonials for you to share out with others so you can put them on your website or have them on your social media and Google Business reviews.
The Whole Truth and Nothing but the Truth
Full transparency helps establish trust right out of the gate. Be honest with your experience, your success (and failures) to date, and your goals for the future. You need to be upfront about the risks associated with the rewards of investing with you and your company. Our investors appreciate that we get together in person or over Zoom and discuss all the “what-if” scenarios so they can choose to proceed with us, eyes wide open. All investment strategies inherently come with risk and my job is to ensure they understand those risks, not to sell them on the decision to invest with us.
When I’m on the other side of the introduction table learning about potential investment opportunities, I listen very carefully how my tough questions are answered. Those who make every answer rose-colored or circle the drain with roundabout responses are not often given a second chance with me. After all, integrity shines through in difficult times. Anyone can look and feel great during success. Just as with my personal relationships, I’m searching for vulnerability and transparency to ensure my relationships run deep and will stand the test of time and tribulations.
On that note, most of our investors appreciate the objectivity we provide when discussing how our business model fits in to the overall spectrum of passive income strategies through real estate. Being able to articulate (with experience) the benefits and shortcomings of each strategy, whether it be investing in syndications, owning rentals, participating in pooled mortgage funds, or another passive investment strategy, we try and be as open as possible so our investors have the power of choice. These investors will remain loyal with us for the long term when we’re forthright about where our investments can fall short by comparison.
Build It and They Will Come
At the end of the day, if you build a business around adding value to your clients each and every day, they will naturally gravitate towards you. Most investment companies can provide reasonable returns and testimonials to support their success. The differentiation between all these outfits is in how these results are achieved. So what can you provide through your company that adds immediate value to your investors? We ensure our clients feel part of a team, almost a club-like environment essentially, we take the necessary time to let them get to know us and educate them on how we do business and our industry, as a whole. Yes, this takes up a lot of time. And yes, this can be exhausting. But if you build your business based on being value-additive with a service orientation, not only will they come, but they will stay with you as well.
Published on Bigger Pockets – Getting Up Close and Personal Raising Capital as a Private Lender (biggerpockets.com)