1/ How to raise a real estate fund (and, ideally, avoid getting sued)

Have warned everyone it’s better to raise capital deal-by-deal, bc it’s easier to raise & bc it's better for the sponsor. Still, there’s interest in learning how to do a fund… so, here goes.

2/ Don’t think of doing this unless you have a record of successful deals, ideally mostly/all in the same asset class / strategy.

Remember: You will be asking LPs to invest in YOU; they need to feel like you know what you’re doing.
3/ Really helps to have a list of prospective LPs BEFORE you start your raise. The more high-quality leads you have, the more likely you are to succeed. (I built my list via my blog initially; now twitter leads predominate - see my bio.)
4/ Find an experienced attorney. Doesn’t need to be a huge, expensive firm, but you want someone who has done a lot of private offerings before. Don’t agree to a big fee yet… at first, you just want a few hrs of her time for advice.
5/ Find an experienced CPA. Ideally, your existing CPA has worked on a lot of private deals before. If not, get a new one. Prospective LPs need confidence that someone good is overseeing the bookkeeping and doing the tax prep.
6/ Structuring the fund: How much are you raising? Is it a 5% pref or an 8%? Who gets what upside? This is where the experienced attorney & CPA come in… they should be able to tell you what “market” is, where you can push, etc.
7/ Overlooked issue: How much you’re raising. Target is so important - you want to be ambitious, without setting the bar so high that you look like a failure if you miss (our Fund 1 targeted $10MM, got $3.8MM. Whoops!)
8/ Overlooked issue: Closing dates. Want multiple closings: Initial Closing (“IC”), when 1st LPs join & at least one more. It’s hardest to get earliest $, so incentivize it to come in at IC. Want another close bc it’s easier to raise once there is social proof.
9/ Once you have proposed terms, go talk to most likely / largest potential LPs, to make sure they like the strategy and proposed terms. No sense in spending $$$ & time to do the docs if you’re going to get quick “no’s” from your list.
10/ Assuming LPs are on-board, it’s time to hire the lawyer to prepare docs: Operating Agreement governing the fund entity (prob an LLC), Private Placement Memorandum explaining terms, then Subscription Book for people to sign to join.
11/ Now you need a marketing deck. I tried to market Fund 1 w just the PPM - dumb. Even sophisticated investors respond to pics, charts, etc. So hire a good designer. Make sure attorney blesses final product.
12/ Now you’re ready to go. Reach out to the people on your list with a short email and the deck. Remember, you’re not selling an investment yet… right now, you just want a call or meeting to discuss.
13/ For us, getting to a “yes” from an LP typically requires at least one, and sometimes two, hour-long calls, then often some follow-up email exchanges for clarification. Big LPs will want to do more diligence… be willing to be transparent.
14/ At this point, you should have a spreadsheet (or, even better, a CRM) showing all your prospective LPs, where you are in the process with each, and whether they’ve “soft-committed” or “hard-committed”.
15/ A “soft-commit” is verbal or emailed confirmation they’re in, plus an amount. As you get close to the closing date, follow up & ask “soft-commits” to complete the subscription booklet. A completed sub book is a “hard-commit”.
16/ Once you hit your minimum raise (ideally, before scheduled closing date), tell everyone on the fence that the deal is actually happening. You’ll be amazed how many fence-sitters end up coming in, once the fund is real.
17/ Closing is signing the sub books, signing the Operating Agreement, and distributing counter-signed sub books and executed OA to your investors.
18/ Now, the hard part begins… you’ve got to go find good deals to do, or this will be the only fund you’ll ever raise!

More from Economy

It's always been detached, and it's always made the real economy worse.

[THREAD] 1/10


What is profit? It's excess labor.

You and your coworkers make a chair. Your boss sells that chair for more than he pays for the production of that chair and pockets the extra money.

So he pays you less than what he should and calls the unpaid labor he took "profit." 2/10

Well, the stock market adds a layer to that.

So now, when you work, it isn't just your boss that is siphoning off your excess labor but it is also all the shareholders.

There's a whole class of people who now rely on you to produce those chairs without fair compensation. 3/10

And in order to support these people, you and your coworkers need to up your productivity. More hours etc.

But Wall Street demands endless growth in order to keep the game going, so that's not enough.

So as your productivity increases, your relative wages suffer. 4/10

Not because the goods don't have value or because your labor is worth less. Often it's actually worth more because you've had to become incredibly productive in order to keep your job.

No, your wages suffer because there are so many people who need to profit from your work. 5/10

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The YouTube algorithm that I helped build in 2011 still recommends the flat earth theory by the *hundreds of millions*. This investigation by @RawStory shows some of the real-life consequences of this badly designed AI.


This spring at SxSW, @SusanWojcicki promised "Wikipedia snippets" on debated videos. But they didn't put them on flat earth videos, and instead @YouTube is promoting merchandising such as "NASA lies - Never Trust a Snake". 2/


A few example of flat earth videos that were promoted by YouTube #today:
https://t.co/TumQiX2tlj 3/

https://t.co/uAORIJ5BYX 4/

https://t.co/yOGZ0pLfHG 5/