- September 28, 2019
- Posted by: Vincent Sarullo
- Category: Direct Lending, Family Office, Fund of Funds, Hedge Funds, Marketing, New Funds, Private Equity / Venture Capital, Raising Capital, Real Estate, SMA, Tax Liens
A family can be defined as a people who are united by relation. The term family is relative to immediate, as well as extended relationships. Have you ever considered how big your “family” actually is? If you have, then have you also considered the likeliness of potential family investors? This can be the best route to go for your fund when raising capital initially and in the long term. Family investments (friends included), are a great way to get the ball rolling on expanding your fund.
New managers come to market with their own capital plus the “friends and family plan” base of investors. All too often, they forget that people in this core group of investors have their own network of friends and family. Expand your circle of influence by leveraging your existing relationships. Maintaining open lines of communication with these investors, especially when you are knocking it out of the park with your returns, will keep them engaged.
People fall into a herd mentality, so use it to your advantage. Make it a point to take these investors out for dinner or lunch and ask them to bring someone who might be interested in what you are doing. It gives you the opportunity not only to catch your investors up with what you are doing or share your views of the market, but it will also reinforce your investor’s commitment to investing by letting them showcase their good decision (to invest with you) to their friends and colleagues. This may also get your current investor thinking about making additional allocations to you, especially if their friends sign up.
These meetings are a great way to hone your pitch skills. Friends and family investors are a bit more forgiving when it comes to limiting your time to specific areas of concern, and they will give you the freedom to go “off script.” Even though these initial investors come in with smaller investment amounts than larger institutional investors, this doesn’t mean they don’t have access to significant sources of capital. Tapping into doctors, lawyers and other professionals can open doors into their industry associations, which can lead to great opportunities.
There are even groups online that may lead you to investors, such as the doctors’ group “White Coat Investors.” Many of these doctors sit on hospital boards that have large endowment funds looking for investment opportunities. Don’t overlook these potential investors.
Bringing on friends and family as investors demonstrates to potential investors that you are grounded in a supportive network. Although this network is a personal one, be sure to be upfront and outline the probable risks and document your plans for their investments and the rules that come with it.
Watch this video on Raising Capital After Your Launch: