You’re Raising Capital the Wrong Way

On our last fund, we were struggling a lot to raise money. We had only raised $8 million of our $30 million projected. And one of our mentors who ran a multibillion-dollar fund gave us some advice that took us from an $8 million capital raise to oversubscribing our entire fund at $32 million and gave us plenty of line of sight to continue raising more capital. I broke down his advice into 3 parts. Let's dive into part 1. So the first thing he shared with us was capital moves through networks, not pitch decks. Now, most new fund managers try to raise capital in isolation or automation. They send out cold emails. They hope to have some perfect investment funnel. They pitch strangers. They try to convince people who have no context for who they are. That approach is exhausting because it is— it ignores something fundamental, that capital moves through networks of trust. On our first fund, we had raised $8.5 million from our circle of people who already knew, liked, and trusted us, but we were kind of tapped out. These were existing relationships, people who already had context, history, and some level of built-in confidence in us as first-time fund managers in this strategy. But we were targeting a $30 million close, and the question became, how do we access larger circles of trust? So on our first fund, we had raised roughly $8.5 million from people— if you see my iPad here— that already knew, liked, and trusted us. But again, our goal was to raise a much bigger target of $30 million. And by the way, we had kind of tapped out this entire circle of people that we already knew, liked, and trust. And this amazing multi-billion-dollar mentor gave us some advice. He said, you should start identifying other circles of influence that you could engage to bring people to your offering. And what that looked like was this. There's other groups or circles, even like this guy. He goes, I have a circle of people that know, like, and trust me. If I gave them a recommendation, they'd be much more likely to invest in your fund because by association, obviously, I know, like, and trust you guys. And this makes sense. People with money are generally smart and don't want to just invest with some yahoo that sent them a social media ad. They want to follow, again, networks of people that they know, like, and trust. So he drew this out for us and he said, of the people, for example, my network, we got to figure out ways to engage people in my network that know, like, and trust me. So for example, We could do an organized dinner. We could take them golfing. We could do heliskiing. We could go ride Jeeps in Moab, Utah. There's plenty of things that you can do to engage this audience and start building by association, almost where they triangulate that, hey, I don't know these guys, but my association with— I'm going to say Bob over here— with Bob builds more confidence in this group. Now there's a couple of core questions here because this would be great, but most of the time Bob is going to be pretty darn protective of his circle of people. He's not going to just open up his group to these people. So we had a few questions for our mentor. Well, how do we get someone like Bob to open up their network of their people that know, like, and trust us? So a great question is, what's in it for Bob? Why would Bob introduce you to people that already know, like, and trust him? Well, a couple of things. Number one, you can give Bob Economics, right? Bob can actually participate in the fund, which in some cases bring them on as an advisor or person in your fund. That can work, but that alone still won't tip the scales for Bob. What has to happen is you have to increase the status of Bob by introducing his network to you. Bob's status should go up, not down. A great example of this is imagine Tom Brady, the GOAT, is in town. And Bob knows Tom Brady and says, hey, let's throw a dinner, let's go golfing, because I want to invite all of my wealthy friends to come meet Tom Brady. By Bob having access to Tom Brady, it increases Bob's status because his people that know, like, and trust him go, wow, Bob has access to amazing people like Tom Brady who's in town to play some golf with us for the weekend. And this brings us to section number 2, which is for Bob to do this, you need to be someone worth introducing. And this is what I like to call the baseball card analogy. What makes you compelling? What makes you interesting or someone worth engaging? If Bob introduces us to a serious investor and you don't really know your numbers, your thesis is vague, you're not really well positioned, the opposite happens. Bob's status goes down. That person goes, why are you introducing me to these yayhoos over here? These guys don't know what they're talking about. And Bob is very unlikely, even if he has good economics to ever introduce someone of his network to you again. But if Bob sends a test person over, which by the way, they almost always send a test person over, and you introduce them and you meet this person and you have a defined strategy, a good track record, a clear team, you're well put together, you're sharp, you're someone that they are happy they met, even if they don't invest, you're someone worth meeting. Bob's status goes up because this test individual is going to report back to Bob on how it went. And if the test goes well, Bob is more likely to To send more people that know, like, and trust him to you over time. And this brings us back to the baseball card analogy of what is on your baseball card of why you're worth introducing. I mean, take Tom Brady. He's won X number of Super Bowls. He's the GOAT. Like, of course everyone wants to meet Tom Brady. What is that about you? I met a number of individuals. One guy that was raising capital, he donated a large amount of money to Make-A-Wish Foundation, actually ended up on their board. He did it for a lot of reasons, but a byproduct was anyone like Bob who was introducing him would say, oh, Joe over here is on the board of Make-A-Wish Foundation. It was a baseball card talking point of why someone should meet you. This can be charities, organizations, track record, history, business experience, et cetera. There's a lot of things you can do to create a good baseball card for yourself. And again, be someone worth introducing. Now, if you do this well, if you identify people like Bobs that have great networks, you engage them, maybe even give them economics, make it status building for Bob. They send you a test person and you know your numbers, you're sharp, you're incredibly well put together, and it's a status increase for Bob. Bob may send you more people. You also have a strong baseball card of why he should send you these people. You do things to engage Bob's network like dinner, golf, heliskiing, other cool things that again increase Bob's status. The world is then your oyster. Many people in Bob's network, by association with Bob to you, will also come to know, like, and trust you. And they will triangulate. If they're over here, they'll triangulate you as a good person because of Bob's relationship with you. Furthermore, what happens is they will then want to do the same thing. They have their own circles of people that know, like, and trust them, and that they will start doing the same thing. They will send you a test person. You'll engage. You have a strong baseball card and starts to build Your web and sphere of influence, and people that are even if they don't know you by triangulation will build that you are someone who is credible, someone worth getting to know, someone that they can also know, like, and trust. This gets people in your sphere of influence, gets people knocking on the door. But if you want to close them, let's go to section number three. This is where some managers, including ourselves previously, got this wrong. Most people raise capital in a loose, open-ended way. They say we're raising right now. Let us. Let us know if you're interested. There's no timeline, no structure, no defined step or deadline. Serious funds don't operate like this. Instead, they engineer momentum. Now, again, our multibillion-dollar fund manager mentor told us this: great funds do a couple of key things when they're closing investors. Number one, make sure your fund has momentum. You're adding partners, you're closing on deals, you're lining up deals. Whatever you're doing, have momentum. With that momentum, you can then start to build Some urgency and scarcity in your fund. To be frank, you are creating this out of nothing. You have to create urgency and scarcity of why someone should give you a check now. Yeah, Bridger's a nice guy. We know him. He's— he took us skiing, to dinner. Great, great, great. He's— oh man, he's got some momentum, but still, I'm not writing a check yet. There has to be a reason to act now. And this is what our mentor taught us. Couple of things. Number one, Set key deadlines for certain mark points. Number one was data room. Have a date when the data room is going live. This is when all your materials are put together. Hey, data room is open. It might already be open now. Set the next date. Great. We are accepting back letters of intent, LOIs, of your interest level in the fund. Now, these are one page. These are non-binding LOIs. We just want to see how much interest you have, a dollar amount of what you're hoping to get allocation in the fund. Because our fund is gonna fill up fast, there's a chance we have to turn away capital. And so what we're gonna do is we're collecting all of these LOIs in by again a deadline, and we will see how much of your allotted amount we can allow in the fund. Now this was a beautiful point. If you see what we did there, we've now engineered that we're the pretty girl at the dance. We have a lot of people asking us to dance. We got a lot of money coming in. We need you to submit a non-binding LOI of how much capital you would like in, and we will let you know if we can fill that allocation. For example, in one of our, in our We had a person put down $5 million was their interest, and we actually ended up only taking about $3.5 million from this family office because we'd like to have a lot of investors in this fund. It's gonna fill up quick. We're gonna oversubscribe. And that was the story we put with a deadline. So LOIs are due at the end of the month. LOIs come in. Great. We then respond back to investors and say, hey, we've allocated your entire LOI amount, or maybe it's 80% of your LOI amount, whatever it is. Then we engineer another deadline. Great. Subscription docs are going out. Here are the Subscription docs, they are then due 3 weeks from now. Please let us know if your lawyers or team have any questions. Subscription docs go out. 3 weeks later, we get those subscription docs in. And again, we're adding all the money together. We're calling people. Hey, the deadline is here. Money comes in. We hold a what's called a closing. You can hold your first closing, second closing, fifth closing. Hopefully though, if you do this well, you maybe only have to hold 1 or 2 closings. Money comes in. You do a held a closing. You then issue a capital call. And you'll call a proportion of the capital. Maybe you call down 10% of the capital, and then you actually go and buy a deal. And I'm using an example of deal buying, but let's call it real estate or private equity. You actually, again, pending your docs are fulfilled where you've called enough capital, you start investing. Which brings us back to the beginning here of building momentum. Let's say you didn't raise your whole fund. So you held a closing. In our case, I think we were at $8.6 million. We did this. Our next grouping, I think, got us to $22 million. We then held a closing, started investing capital. We told everybody, hey, we just held a close of— we were at $8.6, we just held a close of $22. We are pretty close to $30 million. We are going to oversubscribe this. And by the way, we're already investing into assets. Again, data room is already live. We're accepting LOIs. We have another deadline, which is, you know, we We set a deadline, we get the LOIs in, we do an end of month. We got subscriptions. We did this whole process again. We held a closing, we held a final close. Our goal was $30 million. We oversubscribed to about, I think it was $30, just around $32 million oversubscribed. And by the way, we told everybody that this was oversubscribed. Even right now, I'm telling you, it was oversubscribed. We had more interest than we could allocate. And actually, we actually did turn away some LOI money, the full amount, because we couldn't fit them in the spots. What this does is allows you to create urgency scarcity around your fund. What is happening for us right now is while we're looking to raise subsequent products, all these investors remember this, these guys have momentum, they were oversubscribed. And so when we open a fund 2 or a subsequent product, these investors are trained to put money in usually on the first closing because it's gonna fill up. If you want your full allocation amount, you better come in early. As you get bigger, there was Blackstone, for example, They raised their entire fund. It was a— I think it was a deca-billion-dollar fund, over $10 billion. They raised the entire fund in 12 hours. You do that by running this process multiple times and training investors that, hey, when we open a fund, it goes fast. We're the pretty girl at the dance, and this is how it gets things done. So again, he taught us a few key lessons. Raising capital is not about hype. It's not about convincing strangers to believe in you. It's about accessing trusted networks, being someone worth introducing, and structuring the raise with clarity and momentum. Now, this all comes back to the core of having a very good product. It's much easier to do this when you have a great investment product. But today we talked about just the capital raising factors. When you align those things together, capital doesn't feel impossible. It feels structured, it feels predictable. And when raising capital starts to feel structured instead of chaotic, that's usually the point where you stop operating like a deal sponsor and start operating like a seasoned fund manager. If this was useful, share this with your partners and friends who are raising capital. Comment down below of other videos we should double-click on on making this. Please like and subscribe this video so we know you liked it and we can make more content like this video. See y'all later. Bye-bye.