| When I first started raising private money, I had no | | | | 1. Approach them the right way - approaching your |
| idea that securities laws and offering documents | | | | investors from the standpoint of providing an |
| were part of the process. It was one of those "live | | | | investment opportunity will likely calm any worries |
| and learn" things that happen - where you suddenly | | | | they might have about the legal documents you |
| realize that you need to do something yesterday. | | | | must provide. If you mislead the investor or are |
| As a real estate investor, you're focus when raising | | | | vague with them at the beginning then you can |
| private money is on marketing your opportunity, | | | | expect them to be leery. So, instead of: "hey Mr. |
| preparing your presentation for investors, meeting | | | | Investor, I'd like to show you a little about my |
| with investors and, of course running your business | | | | business"; Try: "Mr. Investor, my company is currently |
| so that you can find deals that will be profitable for | | | | accepting new investors at this time and I would like |
| you and your investors. It's easy to relegate the | | | | to show you the opportunity." |
| paperwork part of raising private money to the 'back | | | | 2. Lay the groundwork ahead of time - in your initial |
| burner' - or, worse - completely ignore it. | | | | discussion with the investor(s), be sure to mention |
| It's just a simple fact that there are rules that | | | | that you do everything the right way in your |
| govern what you can and cannot do when it comes | | | | business. And, the right way to raise money from |
| to raising private money. These rules are | | | | outside investors involves some legal paperwork. |
| calledsecurities laws. And, frankly, it's no different | | | | Often, simply mentioning that there will be some |
| than the other rules that govern real estate (such as | | | | paperwork for them to review is enough to alleviate |
| real estate law) or other parts of the broader | | | | any concerns they may have. Typically, people that |
| business world (think OSHA, EPA, etc). | | | | will invest money with you have invested money |
| What About the Legalese? | | | | before, so they will expect some paperwork to be |
| The very first time I looked at a prospectus I | | | | involved - it shouldn't be daunting to them. |
| thought I was being subjected to Chinese water | | | | 3. Compare and contrast - this is the best approach |
| torture. The document was long, spoke about risks | | | | of all. Do yourself a favor and download a mutual |
| and gave a bunch of information that I wasn't even | | | | fund prospectus from a large financial company, like |
| sure meant anything to anybody. Eventually, as I | | | | Fidelity or T. Rowe Price. Mutual funds are a popular |
| learned more, I started to see why the prospectus | | | | investment choice for the general investing public |
| was written in the format it was. Also, I learned | | | | and, most likely, your private investors have heard of |
| more about why real estate investors and others | | | | them and invested in them. If you read one of these |
| raising capital must provide these documents to their | | | | prospectuses, you'll quickly see that your private |
| private investors - it was for the investors | | | | money securities offering documents compare |
| protection. To try and prevent the Bernie Madoff's | | | | favorably in terms of the volume of material and |
| of the world from getting their money. | | | | language. Most of the time these mutual funds |
| As you begin raising private money, you might think | | | | offerings are very complicated in how they are |
| that your private investors will be scared off if you | | | | structured, how fees are paid and what you can |
| give them a questionnaire, PPM or prospectus. You | | | | expect as an investor. If you simply compare and |
| might think they will put their checkbooks away, lock | | | | contrast your offering in a conversation with your |
| up their cash and head for the hills. "Won't they be | | | | investor, you can show them how your documents |
| scared off from all the legalese?" you wonder to | | | | are simpler and easier to understand. |
| yourself. Absolutely not. | | | | A proactive approach always works best when |
| Here are some techniques you can use to keep your | | | | raising private money - especially with the securities |
| investors close and ready to place funds as you give | | | | offering documents. |
| them your securities offering documents: | | | | |