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CRE Insights Blog

Three Great Ways to Guarantee Failure in Capital Raising

On a recent trip to India to speak at a couple of Family Office conferences, Richard recorded this video on some sure fire ways to fail at your capital raising endeavors. Hello. This is Richard Wilson, CEO of The Family Office Club. And I just wanted to come to you today from a Mumbai, India here, while I’m speaking at a couple of Family Office Conferences, and talk to you about setting up your investment fund and capital raising process for success. We had a lot of people at our Capital Con event, just a few weeks ago in Times Square. And one thing that came out during some live onstage coaching sessions, was just that a lot of people set themselves up for failure. If you look at the Wright brothers, and how they got an airplane to fly, they started with a glider, essentially. They got a glider to glide, and got the aerodynamics right, and then they figured out how to put a small engine, a larger engine, and then start actually flying multiple people in an airplane. And what I see is that a lot of investment fund managers have an innovative idea, or approach, or a team, yet they’re worried about having 50 passengers on their jet or their airplane before it’s even gliding. And I think a lot of people that just shoot themselves in the foot because there’s so many things can go wrong in capital raising and when you set it up wrong, you set up the game wrong, you’re almost guaranteeing your failure. If you have a quarter million or half a million dollar minimum, and you’re going after high net worth investors, it’s going to be very challenging if you haven’t raised capital before consistently. If you’re going to have expensive fees, 2 and 20 or industry standard fees, it’s going to be hard to attract investors potentially, if they’re informed on what other funds charge that have a big track record behind them, a big team, a long history of performing great as an investment. Also, I see that a lot of people have a size of fund, which hurts them. For example, they’ll have a fun size of $50 million for their first fund, and I’ll ask them why, and they said, “Well, the attorney said I should do that.” Or, “My competitors said I wouldn’t be taken seriously unless I’d done a $50 million fund.” And what I’ve found, is that it’s always better to be oversubscribed and then move on to the next fund, rather than never make it to your initial goal. Far more funds and never make it to their first goal, and crash and burn, or never get off the ground. They just really burn and go under. I find that it’s much healthier to have a let’s say three million dollar or seven million dollar raise. Get oversubscribed, and be a 10 million. Say, “Oh, we tried to raise seven, we rose 10 on accident.” And then the next time you raise capital, you’ll be able to say, “We were oversubscribed last time, so our hard close for this raise is going to be February 1st, so you have to commit by then if you want in on this round.”. That is way more credibility, and social proof, and confidence, and conviction, and just assures your investors that they’re with the right group, and that you’re going to get this raise done. Rather than saying, “We’re going for 50 million. Yeah, sorry, it’s taken us two and a half years to raise this amount. We still think the market’s good.” And now, you don’t even know those people that you thought you had hard circled before, are actually going to come in towards that 50 million. It’s better to go for one million, get it close, and go for five, and then go for 12, and then go for 20, and just oversubscribed. And if you have to be constantly capital raising, then so be it. That’s better than raising 50 million over three years. To go over, real quick, the three things that you have to really worry about not getting wrong, getting right, is there the structure of the fund, in terms of fees?

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Richard Wilson