The Difference Between Investors & Allocators

What's up guys? Today we're gonna be talking about the differences between raising big money and small money. So, you know, if you're trying to go raise a couple hundred million dollars versus a few million dollars, you know, there's some big differences in the way that you actually bring that product to market and you go about, you know, introducing yourself and the processes and approach that you have when fundraising. So we're gonna kind of break down some of those differences psychologically and what you need to do to be prepared for both situations. You know, in other videos we've broken things down, you know, from like accredited investors Qualified clients, and yeah, that's great from like a regulatory perspective. But more importantly today, I think I'm going to break it down a little more simple. We're going to break it down to investors and allocators. So the difference is investors are investing their own money. So like you know, if I invest in any sort of deal or opportunity, your friends, you're investing your own dollars. Allocators, on the other hand, are investing other people's money. So actually, like if you're pitching a fund, like a fund manager, they're allocators for the most part, right? They're allocating other people's money. This applies to family offices. Offices, pensions, any institutional-grade investor is going to be more— fall into more of that allocator position. So to break these investors and allocators down a little more, inherently investors, they have shorter time horizons, right? If you're thinking about allocating to a private equity fund, it's a 10-year lockup period, right? 10 years is a lot for you. That's, you know, your 30s to your 40s, your 40s to your 50s, your 50s to your 60s. Like, that's a whole decade of your life. Whereas allocators, on the other hand, they have longer-term investment horizons. And they're more okay with these longer-term investments. When you're pitching investors, they're more concerned about cash flow, concerned about capital growth. Your typical investor is for the most part gonna do less due diligence actually. You know, where allocators, they're gonna be doing scrutinous due diligence on your deal. They're gonna have a whole team, a committee. There's gonna be several people involved in the investment-making decision from an allocator's perspective. Where as an investor, it's really just yourself, right? Like you may consult a spouse, you may consult a friend or a financial advisor, But investors are kind of standalone decisions and allocators, you're gonna have to be selling a group, right? So there's different ways that you're gonna be pitching them. You know, maybe one last thing to kind of differentiate investors and allocators is investors, it's gonna be more of an emotional sale, right? They're very emotional driven. They like the benefits, whereas an allocator, it's gonna be more of a logical sale. So to break that down, I wanna break that down a little further. There's 3 core elements of a good pitch. Bridger and I, we listen to hundreds of pitches a month. We see them all day, every day. And we've kind of narrowed it down to 3 main things that we feel like you need to communicate in a sale. You need to sell me on your asset, you need to sell me on your strategy, and you need to sell me on the sponsor. So the asset is like your asset class, right? If we're investing in commercial real estate, I need to know why commercial real estate is the greatest. Or if it's crypto, or let's say you're doing fintech, right? I need to know why fintech is the greatest, or I need to know why your trading strategy is the greatest. Like, I need to be sold on the asset. The strategy is your approach, Right? Your kind of investment thesis, your approach at capitalizing on the opportunity within that asset class. And then your sponsor is just your management, your experience, you know, like what makes you the right people to do it. So when you're going to pitch investors and allocators, you actually need to focus on one of these more than the other. So when you're pitching investors, it's actually way more important that you talk about the asset instead of the strategy. Why? You're competing against like bank accounts and savings and their financial advisor money. They're not looking at 20 different real estate deals a day and deciding to go with your real estate deal. It's like, no, this real estate deal came across my desk. Like, should I be exposed to real estate? Do I want to invest in real estate? And as such, the majority of your pitch should be making sure that they are really sold on the asset, because if they're sold on the asset, they probably don't have a bunch of other contacts that they're going to go call up and say, hey, I actually want to invest in your real estate fund. It's like, no, you're right here. Yeah. Yeah, let's invest in real estate together, right? It's a very emotional decision. Investors typically care, they care about trust, they care about legitimacy. It's very much a relationship and a trust factor when they're investing with you. Again, lead with the benefit. Investors are very benefit-driven. Now don't say, hey, I run a real estate fund. Say, I help people generate lifetime cash flow. I help people generate passive income through exposure to real estate. Or I help people gain financial freedom, right? Like that's why you see on all these TikToks and and memes and like everything. It's all about financial freedom because they're talking to retail investors. It's emotional. You know, what do they care about? Now, on the other hand, allocators—they already know that they want exposure to real estate. They've probably already predetermined that they want you know 25% of their portfolio to be exposed to a certain type of real estate. Maybe that's commercial. Maybe that's multifamily. Maybe that's self storage. But they've already thought through that, right? Like maybe. Maybe you need to sell them why they should have more exposure or less exposure to a certain asset class. But for the most part, they already know that they want to invest in asset class. So when you're pitching allocators, any bigger money, family offices or above, these guys are looking at deals every day. So you need to actually lean into your strategy way more. You need to sell them on why your approach is better than everyone else's. Another way of saying your strategy or investment thesis is your edge. What makes you different, better, or special than everyone else? Else out there. Again, assume that they just had 10 meetings today with everyone pitching the same type of fund you have, and you need to focus on what makes you different, better, or special. That's kind of a key, you know, takeaway from, you know, today's video. If you're ever pitching big money, communicate your edge. Like, what is an edge? It can really be on anything. So your edge can be around your team. Maybe you've got the greatest experience than anyone else. So we just had a guy come on our, our show, you know, a few weeks ago, and he runs an Opportunity Zone fund, and he basically On his team, he has the guys who wrote the legislation for opportunity zones funds, right? Like, how can you get closer to that? So, you know, by leveraging your industry experts that you have at your disposal, maybe it's board members or investment committee or internally, maybe you've done this 100 times, right? But your experience could be your edge. Another edge could be your deal flow, right? Maybe you've got proprietary deal flow. Everyone says that. So if you do, you better actually have it. But you've got, maybe you've got great relationships with local vendors, or, you know, there's different ways that you can have You know, discounts. So another one is fees. Maybe your edge is around fee structure that you can generate alpha, right? Maybe it's alpha itself, right? Maybe that everyone in real estate or I'm doing too much real estate, maybe in private equity, they're all coming in at high teens returns. But because of your approach, you're able to generate, you know, low 20s or, you know, whatever it is. But you need to have an edge and you need to be able to communicate that effectively to your investors. Now, before we wrap up, you know, this discussion on investors and allocators and raising big money versus small money, some of you You might be thinking, well, I don't even have an edge in any way, shape, or form. So how am I gonna be able to communicate that? Well, as we talk about, there's 3 main ways that you can get anything in business, right? You can either buy it, you can build it, or you can partner with it, right? So you can always pay someone. You can hire the best. You could pay quarter million dollar salaries and bring a great team together of experts to, you know, help you accomplish your mission. If you don't have hundreds of thousands of dollars that you can invest in this, great. You, you know, look at the other 2. You can build it. You could become an edge, right? Maybe you need to educate yourself. You need to go find it. You need to develop those relationships. And if you don't want to build, you don't want to take the time, and you still want to go quickly, you can always partner with it, right? And by that, you got to be willing to share the pie. We get a lot of people that, you know, want to move with speed and want to be different, better, or special. And, you know, they don't have the funds to create it. And so they just sit there and they're like, well, I don't want to give up equity. Like, you know, if you become generous and you can get enough people that are motivated behind a single cause, Like smaller piece of a bigger pie is oftentimes going to be a lot quicker than just trying to build it yourself. So there's pros and cons with everything, right? Again, recap on today: when you go and talk to your neighbor versus you go and talk to private equity fund— full disclosure, I just, I just pitched one of the biggest private equity funds in the world a few weeks ago. It was great, but it's very different. I also spoke with a sovereign wealth fund a few weeks ago. Talking to those grade of investors is radically different than talking to your neighbor or your buddy or your mom about, you know, investing in your opportunity. So be sure that you understand them, that you know how to pitch them, and that hopefully these tips and tricks will help you guys be more successful in fundraising, you know, for you guys' opportunities. Hope you have a good one.