One of the most challenging and frustrating times in the role of a syndicator or fund manager comes when you’ve already put the deal together, assembled the documents, and are shopping in front of investors. Now you’re trying to get the investors to “latch on” to the investment – to give you their money and sign the subscription agreement, so that you can close the fund you’re raising money for.
I am an active syndicator myself. Not only am I a syndication attorney, but I’m also actively syndicating deals. So I know exactly what it’s like to feel that pressure of needing your investors to latch on to get their money to make this deal go forward. I know that frustration and challenge. So I have a six-part system that I hope you’ll find helpful. Let’s go through it.
The first step is to provide the necessary documents after your investors have already given you the “Okay, that sounds interesting, I’d probably be interested in something like that.” That is the time when you provide those necessary documents. Here we’re talking about the private placement memorandum, subscription agreement, operating agreement, and I like to provide a questionnaire as I find it helpful. You want to also include anything else that would be useful: financial projections, marketing material, whatever it is. Put it all in a nice cohesive, good-looking package. Well-put-together presentations and required documents packages get you funded, where messes do not. An investor is going to see a mess and run away scared. So make sure everything looks as nice, cohesive, and clean as possible.
Step number two: address any questions and concerns they have. Make sure that you’re getting those questions and provide good answers. That’s one of the necessary things that takes place in a Regulation D syndication; you have a duty to provide those kinds of answers for any question they have. That’s one of the things that is absolutely required under the regulation. So get those answers to them, help them out, help them come to the decision. And hopefully, that decision is they want to invest with you.
Now, it’s okay when they give you a call and ask you a question, if you don’t know the answer to it, you can say “I don’t know. Let me get back to you” and make sure that you get back to them quickly and promptly to give them a full, nice, well-rounded answer. As a syndication attorney, I like to help my clients with this. When those questions come in, my syndicators give me a call and say “I’m getting these sets of questions. Can you help me craft them?” And I am always happy to help them come up with good answers that are not only thorough, complete, and accurate, but also push the deal forward and make it more likely for people to invest. Sometimes the answer is “no, we’re not willing to do that” or whatever, but the question always needs to be answered respectfully and completely.
Step number three is to obtain soft commitments. In a perfect world, you’re getting written soft commitments, because when a person writes it down, whether it’s by email or on a piece of paper or a letter, they’re much more likely to follow through and invest in your deal. So obtain soft commitments, ideally written. You need this kind of information anyway. If you’re raising $10 million for whatever purpose, you need to know where you’re at on the deal. You need to have a list of all the potential investors that you’ve been speaking with, and you need to line it up with how much money people are likely to invest so that you can hit your targeted raise amount. People who have soft committed to you are more likely to subscribe than those who haven’t committed at all.
Step number four is to continue to provide social proof. That can be something that tips the scale. Social proof can either be just generally being on social media or wherever, providing testimonials, case studies, reviews, whatever it is. If it’s a 506(c), that’s not an issue at all. If it’s a 506(b), it can be an issue. Sometimes what I will do in my own raises, if I know Person A is interested in investing and they know Person B who has already invested, I’ll probably invite both of them out for a drink or to hit some balls at the driving range. This builds the relationship further and also provides that social proof, because now Person B is going to be saying, “Oh, this is a great investment, you really should come into this,” providing that pressure and social proof for Person A to invest.
Step number five: offer a sense of urgency. Urgency is a great motivator; people have a great fear of missing out. If they’re feeling a fear of missing out, that’s a good thing – they’re more likely to commit to you. So you want to be telling them, “Look, I’ve got this investment going on, I’ve raised all but $500,000, or whatever makes sense. I’ve got a lot of commits that are very interested. I know you want in on this deal, I want to make sure that you can get in because I want you to invest and I like you. I also know you’re going to really like this investment. I’m in this for the long haul with you, so I’d really like you to be able to come into it. But I’ve got to take the first money that comes in, and it’s probably going to be oversubscribed within three days or five days.” That’s using urgency in a nice, powerful way where you’re a powerful syndicator.
What you do not ever want to do is become a forceful syndicator, where you’re pressuring people like a used car salesman to come into the investment. Even used car salesmen turned syndicators calling people and saying, “Look, you’ve only got 24 hours left, you got to get in now” – that’s not going to work. Not only does it deteriorate trust, but it isn’t even legal. We need to allow people to make their own decisions without forcefully pushing our security. So create the sense of urgency, but do it the right way.
Step number six, and probably the most important other than providing the documents, is to follow up regularly. You can’t let this one die. You can’t let it go where you have 10 people who you need to follow up with, and you’re not calling any of them because you’re working on the next person who may call in. If somebody’s expressed some interest, you’ve got to stay in touch with them and help them make their decision. You don’t need to force them – go back to sense of urgency – but you do need to make sure that they’re aware. It gives the idea that you are persistent and professional and can make the case for them to come into your investment. You don’t want to become a pest or bother them too much, but you should be following up in a regular, consistent manner.
So let’s look at our key takeaways. Here are the six steps:
Number one: Provide the necessary documents. Create a comprehensive investor package that contains all the necessary documents for those investors to make their decision. It includes the private placement memorandum, subscription agreement, operating agreement, business plans, financial projections, pictures, whatever it is – just make it good, make it look good. Give them wiring instructions as well, so that it’s all there for an investor when they’re ready to make it happen as quickly as possible.
Step number two: Address those concerns and questions. An open line of communication where investors can voice their questions and concerns about your investment is not only a good idea, it is necessary to comply with the rules. You need to be ready to address any of those questions with complete transparency and patience. If you don’t know the answer, say you don’t know the answer, find the answer, and then get back to them. This step builds trust and reassures investors that their investment is in good hands.
Step number three: Obtain soft commitments. Soft commitments are their expression that they would like to invest, and it’s not legally binding. Do not assume that it is legally binding, do not pretend it’s legally binding, do not do anything where you’re putting that kind of pressure that they’ve entered into a legally binding thing – all you’ll do is hurt yourself. But it is in their mind. It may not be legally binding, but people are kind of honor-bound; they’re going to be more likely to follow through if they’ve given you a written soft commitment. So try to convert those soft commitments into firm commitments by giving that reassurance and investment opportunity and get the paperwork done so that they can commit as quickly as possible.
Number four: Provide that social proof. Success stories of your past syndications or testimonials from satisfied investors. Find ways to continue to get brand marketing or social marketing into your investors’ heads so that they’re more likely to invest.
Number five: Offer a sense of urgency. It’s essential that you provide a clear timeline for investment. Make sure that those potential investors know that the round is going to close, how many slots are left. Make them have that fear of missing out, just don’t push them into making a decision without them committing to it themselves. They’re the ones that have to come up with that answer.
And step number six: Follow up regularly. Don’t let potential investors forget about this opportunity. Follow up with them regularly, keep them engaged, informed about the progress that you’re making. However, just be mindful, don’t be overly aggressive or pushy. You’re striving for a balance between persistence and respecting their own decision-making process.
This is Tilden Moschetti, Syndication attorney for the Moschetti Syndication Law Group. Those were the six steps that I use in order to latch investors to investments when I’m doing my own syndications or raising money for my funds.