Short-term thinking in raising capital is conventional, but it puts you at the mercy of others.
Often a potential client will reveal in the assessment call that they normally access a list of Accredited Investors from their mastermind or mentor group or a ‘money finder’.
While these seem good on the surface and appear to require less energy and effort than building your own of investors, it’s going to cost you – time and time again…. like a toll booth.
Over the last few months, I’ve spoken with few potential clients which solely rely on other groups for investors. Some choose to stay with this method and pay the enormous costs each time they need to raise capital. Others are fed up with the costs, control, and demands by the group owners.
Here’s what I often see:
A mastermind, or mentor group, gives you access to their pool of ‘affluent’ investors, but there are limitations:
- Access will often involve an entry fee plus commissions on any proceeds raised from the group’s investors, which raises the issue of paying commissions to an unlicensed broker.
- These groups may demand equity as the “organizer,” which raises the same licensing issues mentioned above.
- Even if you convince an investor from this group to invest with you, most often, they do NOT become your investor for your next round of raising capital. The ‘group’ demands that you go through them on any additional raises. In other words, they are the toll-booth, no matter how many times you access the same investor. If the investor originated from their group, you would not be able to contact them with any additional opportunities.
- These groups have increasing demands and unless you comply, they will bar you from accessing their lists.
Money finders own and control their investors. They may take a performance-based fee, percentage, or equity-based upon how much money they raise. You must be aware, however, that you will not be allowed to circumvent the money finder for any future deals. Be assured, that this will all be in writing because the money finder wants to make sure that they get to keep churning their list and get compensated every time an investor invests with you.
No loyalty….As I’ve seen, these toll booth operators are hyper sensitive and lack loyalty. They will pick up their toys to play with someone if a better offer than yours comes along.
Where does this leave you? Empty handed.
STOP GOING THROUGH THE TOLL-BOOTH
When you’re prospecting other group’s lists or leads, you’re just renting temp space. Sure, the endorsement seems great, but if you have to go back to the pimp each time you want a date, you’re going to pay for it. It is the same as a toll-booth.
Additionally, these groups can shut you down on a whim.
Paying to access these groups is not cheap and is often requires substantial equity. If you’re watching your profits being skimmed off by these guys, how long will it take before you’ve had enough?
A current client is in this position.
He says, “It was good in the beginning to have ‘partners’ bring capital to each one of my deals. Now, it is just too @#$%@$# expensive. What was I thinking? I’m smarter and watching the numbers closer now, so there’s no way I’m going to let go of that much equity any longer. I’m the one doing all the work and taking all the risks.”
OWN THE BRIDGE AND BUILD A TOLL-BOOTH
To avoid the expensive cost, fees, equity and potential legal pitfalls of prospecting someone else’s list of prospects – not to mention spinning your wheels with beat-up lists – I highly encourage you to OWN the process, so you OWN your list.
Our most successful clients, which are raising capital week after week, are the ones who create and cultivate THEIR OWN list of investors. By using this approach, they OWN the message, they OWN the process, and ultimately, they OWN the investors.
When you own the toll-booth, you control the money.
There’s only a one-time investment to add an investor to your list. That’s it. You don’t have to use a burner phone to call the pimp for another date, and you don’t have to use someone’s bridge and pay the toll-booth continually.
You paid for it.
Now you can go back time and time again to raise capital.
Why is this important?
Because many investors are testing you with their initial investment, if you deliver, they will invest more and more with you. One of my first investors in 1999 invested $60,000, and by year 5, he invested $600,000. If I had to use someone else’s list to raise that additional $540,000, it would have cost me tremendously.
To get your syndication or fund off the ground, think long-term.
Own the toll-booth.
Own your list of investors.
Matt Scott is in constant pursuit of incredible sashimi in each city he visits. He’s an investor, speaker, entrepreneur and proud C-student. He’s started many ventures since 1994 and exited one started on credit cards. Matt raised over $500M from Accredited Investors in the last 20 years for real estate syndications, funds, and private companies in the U.S, Caribbean, Canada, and Dubai in U.A.E.