Difficult investors. Oh my gosh, there is nothing worse for a syndicator, a fund manager, or a business that’s raised capital through syndication than a difficult investor. Dealing with difficult investors is really challenging. It’s emotionally challenging and strategically challenging, trying to figure out the best mechanism to deal with them.
This video is a blast from the past. A few years ago, I had a group of people who were top of their game in the real estate field – the best developers, the best real estate professionals. They came to me wanting specific training on how to make the transition from being at that high level in real estate to being a real estate syndicator. This is a video I put together for them to help them understand this difficult topic of dealing with difficult investors. I know you’re going to find it useful.
When we decided to add this video, it really came out of a need to make sure that we have a tool and a mechanism to deal with some types of investors who are a little bit more challenging than others. There’s always this balancing act between the need to fill up our investments and the need to work with people that we just like a lot. So we need to find that balance. There are going to be times that you have investors that are a little bit more difficult to work with than others.
I think it’s important to start off this discussion with one basic tool or thought. That thought comes from Stephen Covey’s book “Seven Habits of Highly Effective People.” It’s the idea of “seek first to understand and then to be understood.” When we approach things with that idea, we can come from a point of being able to really have an empathetic kind of ear and understand where the investor is coming from, helping find that difficulty rather than just having trouble with them and not having such a good relationship.
A lot of this material comes from a great book by Brinkman and Kirschner called “Dealing with People You Can’t Stand.” We don’t want to admit that we can’t stand a few of our investors, but the reality is there are some investors you’re going to have that are just that way. What can we do?
Brinkman and Kirschner identified 10 different types of people. I present this to you because it gives you a framework. Once you can identify what kind of person this fits into, it might give you better tools for working with them to try and understand where they’re coming from, and the best way to deal with them.
The first and probably one of the most frequent are called Bulldogs (they call them tanks). I prefer Bulldogs because they’re loud. They bark a lot. They’re very aggressive. Ultimately, they don’t hurt you, but they’re very loud and they bark a lot. They’re constantly charging.
The second and probably one of the most frustrating are who they call snipers. These are the types of people who are always giving you a sarcastic remark or a rude comment. They just come in at that moment and give you some nastiness just to make your day not as pleasant.
Third, in this industry it’s pretty common to meet the know-it-all. These can be people who actually do know quite a bit and know their stuff, but they like to show it around that they do know it all. This is certainly very common amongst lawyers, accountants, or engineers. I’m certainly not saying that everybody who’s a lawyer or an accountant or an engineer is one of these people, but a lot of times they find themselves in that kind of profession.
The fourth category are the grenades. These are people where many times the best resolution is to just sort of nod your head, say okay, and know it’s not going anywhere. I wouldn’t just automatically know that somebody is a grenade. But when you’ve seen it over and over again, you recognize that’s what they are. Grenades come into a situation, go on a rant, and then there’s nothing meaningful out of that rant. There’s nothing even about what they’re talking about as part of that rant. They’re just upset.
Then there are the “think they know it all” people. These are the people who are overly cocky, think they know everything about real estate, but really know nothing at all. I’ve certainly had my experiences with these people as investors, and we’ll go to what I find to be the best resolution for it in a little bit.
Another is the “yes” people. These people are difficult in terms of making your day bad. They’re the ones who always say yes to you, but then at the end of the day, nothing really happens. They just seem to want to please you. You have them on the phone, you’re explaining the investment, and they say, “Yeah, that’s great. I can’t wait to sign up,” and then you can never get them to sign up. It’s not that these people are trying to lie to you. They’re “yes” people, they’re trying to please you, they don’t like conflict and they’re running away from it.
Then there are the “maybe” people. I’m sure we’ve all had our fair share of these people. This isn’t even that they necessarily say maybe, but it’s the people who procrastinate, who always put making that decision off time and time again, until maybe it will resolve itself. Ultimately, it waits until it gets festered into a bad situation before you can get these people to act.
The eighth category are the blank walls. I have no idea how to deal with these people. If they want to engage in a conversation, I have no idea. They’re the people you’re talking to and they just kind of blankly stare at you. I don’t know what to say with those people. If you have any ideas, please let me know.
Nine is the “no” people. These are your doom and gloom, the world is coming to an end people. And then ten are your whiners. These people just want to complain.
We give you these categories of people out of their book, mostly as a framework so that you can see whether there are these kinds of people. I think it helps to categorize people and kind of understand where they’re coming from before you try to solve the problem. Again, Covey’s words: seek first to understand and then to be understood. If you can understand where they’re coming from and how that emotion is coming at you, it’s easier to get to the rationality of what’s actually taking place.
So what are the tools to actually do that? Well, there are really nine steps to dealing with difficult investors.
First, listen and ask yourself: Are they more concerned about a fact or a person-type problem? What I mean by this is a lot of times people will feel like they’ve been slighted and become more emotional because they haven’t been included, for example. That happens frequently. So if you’ve got a situation where you need to make a decision for your investment and for your investors, and your investors don’t feel included in that, even if you’ve got the voting rights where that’s not an issue, your investors still want to feel like they’re included sometimes. Ask yourself, is this because of some personality thing? Where I have the ability to make a decision, I made a decision, it was a reasonable decision? Or is it that they feel like they have a problem on some more emotional or personal level?
Then respond back and validate their concerns. You can certainly say, “Well, I could certainly see why you would feel that way. If I were in your position, I’d feel that way, too.” That’s a pretty safe statement. People tend to be fairly, not completely irrational. So you should be able to reiterate that back and validate that concern, at least let them feel like they’re validated. Don’t lie to them, but let them feel like you really do understand.
Listen, and then validate, and then probe for reasons why they feel that way. Again, if this was the issue of not having their voice heard in a situation where you had to make a decision, I would probe for reasons. Say, “Well, you understand that under the operating agreement, normally this is a decision that the asset manager gets to make. And that’s why we made that. Does that make sense? So why, in this particular circumstance, is this especially important to you? Did you just want an opportunity to be heard on it?” That way, you’re engaging in a real conversation.
Summarize it back to them. And I think it’s been somewhat underlying what I’ve been saying is, assume the positive. I believe to my bone that nearly everybody is a good person, that 99.99999% of people are good people. And people want to do the right thing. I also believe that 100% of people believe that they’re doing a good thing. Now, there are truly evil people out there, but I think the evil people out there are people who just believe that they’re doing a good thing, for some messed up reason. So go into that and assume the positive. Assume that what they’re saying is for the benefit of everybody.
The next step is stay calm. I really like what William Ury says in “Getting Past No,” this idea of going to the balcony. There are sometimes when you’re having a conversation with a difficult investor where you kind of need to have a little break. So the idea there is to take a real step back, take a break, everybody separates for a little while. One way to do this, and typically this comes up in phone calls, is to say, “You know, you’ve brought up some really interesting things here. Let me do some research on a couple of issues that I have. Can I call you back in an hour?” That way you now get to go to the balcony, you get to take a break and you can really evaluate and level your emotions as well.
Number seven, now state your positive intent. You are trying to do the best thing possible for your investors. If you’re in this program and you’re watching this video, you’ve already committed that you are a morally good person and that you are the kind of person that wants to make your investors money. And you know that the more money you make your investors, ultimately, the much, much more money you’re gonna make yourself. So make it clear that you have that positive intention. This is an investor, this is somebody who trusted you with their money, and somebody who you want to make money for. That’s why you’re here. That’s why you are a syndicator. So state that intention so that they understand that you want the very, very best for them and all the other investors.
Number eight, use “I” statements. This is a two-parter. We do “I” statements because it’s less attacking than a “you” statement, because “you” is kind of accusatory. “I” statements like “I feel,” “I know,” “I think” – those things give a barrier and a buffer in order to not feel accusatory.
And if you can make a decision and give your basis, and if necessary, in step number nine, repeat steps one to five. You may need to come back to six through nine again, but most of the time, it should be able to be resolved by then.
Now I alluded to these people who are the “think they know it alls.” Sometimes the best solution, and know that this is in your back pocket (it may not be always in your back pocket, but it’s always an option, you just may have to figure out how you could make it happen, and they obviously would have to agree), but I’ll write it down because it’s important: the best solution is to buy them out. You may have to make a decision that it would be much easier, your life would be much easier, the investment would run smoother, your business would run smoother, if you could just buy them out. If you’re telling yourself, “I wish this person would just go away forever, and I’d never hear from them again,” the solution may be trying to see if you could find a way to resolve this with them – to buy them out.
My wish for you is to never have to deal with a difficult investor, for you to have hundreds and hundreds and hundreds of very happy investors, and all of them easy. Unfortunately, that’s probably not going to happen. The more investors you have, the more likely it is you’re going to end up with a difficult one or two. It’s just inevitable. It’s gonna happen as you keep going down this game. Now, does that mean we freak out and don’t do it? Absolutely not. Because it’s still worth it at the end of the day, we just need to make sure that we maintain control to keep difficult investors from becoming difficult, and then if they do become difficult, ways to manage that difficulty that we’re having with them.
Investors, at the end of the day, are entitled to get what you told them you were going to give them. So they’re entitled to your very best work, and you should definitely give that to them. They’re entitled to communication, and you should be giving that to them as well. They need to know what’s going on. When I’m talking about difficult investors, I’m not talking about people who are just getting what they’re entitled to properly. They’re the people who take it to the next step, who are people who are just over-asking, over-annoying, criticizing – things like that. You will end up with one unfortunately, it is a fact of life. But hopefully this video will help give you some guidance in order to make it a little less painful.
Now my name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group. How do I know so much about difficult investors? Because I’ve had a few. I do a lot of deals for myself in addition to helping my clients put together their own deals, syndications, funds, raise capital for their businesses. Sometimes it happens when they have a difficult investor and I counsel them on the best ways forward with that too.
Now if I can help you put your syndication together, your fund together, raise money for your business, under Regulation D rule 506(b) or rule 506(c), please give us a call. I’d be happy to talk with you and hopefully help keep you away from having to deal with difficult investors yourself.