Whether tapping traditional funding sources or conducting online crowdfunding rounds, founders face a huge challenge when raising capital. Even highly active growth investors are hard to reach and harder to close.
Since startup investors are typically inundated with investment options to choose from, they can afford to be picky, fickle or both. That’s why it’s critical for entrepreneurs to showcase their capital raises in a manner designed to convert potential investors into actual shareholders. Modeling a growth-capital raise in the mold of commercial real-estate financing is one way to do that.
Raising capital in the commercial real estate (CRE) world is a different game than early-stage fundraising. Whereas an entrepreneur can pursue his or her company’s funding needs in tiered phases (seed, series A, bridge rounds) over the course of the business lifecycle, a real-estate developer typically needs to secure all of the debt and/or equity capital for a project up front, in full, before ever breaking ground.
For many investors, the appeal of commercial real estate lies in consistent, predictable cash flow. Knowing that earning "mailbox money" from CRE investments is a primary investor motivator, sponsors craft their offering materials to clearly showcase projected income, time horizons and returns.
To avoid being pinned down to investor expectations, entrepreneurs are often more hesitant to make authentic return projections in capital-raise materials. Ultimately though, numbers are king. A defined exit strategy is crucial to ensuring investors understand exactly how they’ll earn money from a growth investment.
Building or renovating a property requires a wealth of effort, coordination and oversight. Without specific project plans, sponsors would have no chance of getting the approvals, permits, loans or investment dollars they need. In their deal documents, sponsors lay out project timelines and detail clear, long-term intentions for the property.
Entrepreneurs rarely lay out their business plans with as much clarity, especially in the earliest stages of fundraising. Having firm action plans on paper, however, helps lend credibility to a capital raise -- ultimately helping close investors.