Sending an investment summary to investors will be considered the first step in making an offer, so if you are doing a Regulation D, Rule 506(b) offering, you should only send it to people with whom you have established a pre-existing relationship.
Planning Your Message
– Understand the Purpose of Your Investment Summary
The purpose of the Investment Summary for a blind pool Private Placement Offering is to explain to potential investors, in your own words, what your company plans to do with their money and how investing in your company will benefit them. The goal of your Investment Summary is to get your potential investors interested enough that they ask to review your complete Private Placement Offering package.
– Tailor It To What Your Investors Want
You might want to poll your prospective investors to see what they are looking for, and then seek out opportunities that meet their investment goals. Those that are interested in the property type and returns you are offering should be the target audience for your Private Placement Offering.
– Use It to Showcase Your Experience
Your Investment Summary should instill confidence in investors that you know what you are doing. If you don’t have extensive prior experience with the type of property you plan to acquire, you should establish a track record with a few specified offerings (raising money to acquire a specific property) before attempting a blind pool. If you don’t want to wait, find someone with prior experience to become a member of your management team.
– Use It As An Advance-Marketing Tool
Your Investment Summary will become the advance-marketing piece that you will send to prospective investors to see if they are interested in investing with you. Let them get excited about your opportunity before you send them 120 pages of legal documents.
– Keep it Focused and Simple
Your business model should not be too broad. Investors generally want to know there are strict guidelines you will follow when dealing with their money, so don’t try to mix property types or give yourself the ability to do too many things with their money or they won’t invest.
Your Investment Summary should be brief—4 to 10 pages—yet it must convey sufficient information to adequately describe your proposed business model, your team members and why the property you plan to acquire is a viable investment. A simple business structure is the easiest to sell. If your model is too complex, it will be hard to explain; a confused mind says “No.”
– Use Plain Language
Your Investment Summary should be written in plain language, in your own words, in a way that is easy to read and understand. Don’t use industry jargon. Assume your prospective investors don’t know anything about investing in real estate. Ask your spouse or a friend to read your Investment Summary and fill in any gaps they identify. Your writing style should include short, clear sentences. The text should be divided into multiple sections of one to three paragraphs with descriptive, one- to five-word headings. Use subheadings if your sections get too long.
Organizing Your Message
– Start With An Outline
Your outline should include the elements described below, but tailored to your business model. Feel free to add additional headings or subheadings as necessary to tell your story.
– Cover Page
Your business plan should include a cover page with your logo. It should look professionally typeset. Consider using a “brochure” format, such as an 11×17-inch four-page layout. If you don’t have the ability to do this on your own, hire someone to help you.
– Caveats and Disclaimers
Don’t clutter your Investment Summary with caveats and disclaimers, as those will all be provided in the Private Placement Memorandum, which is the disclosure document for your offering. Leave the description of risks and conflicts to the attorneys. However, you can (and probably should) put a disclaimer on the front page (or inside cover) that reads something like this:
This overview document is neither an offer to sell nor a solicitation of an offer to buy any security, which can be made only by a Private Placement Memorandum. All potential investors must attest that they meet applicable suitability standards, subject to verification by the manager. This overview document should be read in conjunction with the Private Placement Memorandum in order to fully understand all of the implications and risks of this offering. Although members of the Manager may have experience with similar investments, past performance is no guarantee of future results.
This section should consist of one or two paragraphs that describe your business model in the broadest terms. The introduction should describe the company, the offering amount, investor qualifications and minimum investment amounts, anticipated returns, the type of property to be acquired and geographic location, the duration of the investment and who will manage the investment. Write your business plan first and then select the highlights for your Introduction.
– Property Information
Next, you should talk about the type of property you plan to acquire, the target geographic area and why you believe this property type offers a viable investment opportunity. You may want to include photographs of example properties. You should discuss your acquisition strategies (how you will find the properties) and your acquisition criteria (i.e., the characteristics a property must have before you will buy it), such as size, location, cap rate, cash-on-cash return, etc. You will need to explain what you plan to do with the properties to generate a profit or create equity, and your anticipated exit strategies.
– Company Information
Next, you need to describe the company. How is it structured? What are your investors buying? Are you offering promissory notes and trust deeds, interests in a limited liability company, or shares of a corporation? Where is the company formed? Have you hired experienced legal counsel to help you structure the company and generate the appropriate legal documents? If there is a unique aspect to your business model, this is a great place to explain it. Is there something that sets your company apart from others doing similar things?
– Investment Information
You will need to describe how and when investors can expect to receive a return on their investment, and what has to happen before they will get their initial investment back (i.e., sale or refinance of a property). You will also need to describe how you will be compensated for your time and efforts organizing the company and acquiring, overseeing management, refinance and ultimate disposition of the properties.
You should discuss when the company will be dissolved and whether there will be any opportunities for an investor to withdraw his or her investment prior to dissolution of the company.
– Projections: Do’s and Don’ts
Although you can talk in general terms about what kind of returns you expect to generate on the money invested (e.g., 10-15% annualized returns), don’t show projections based on what you think the money you raise will generate, because such projections would be pure speculation. You can provide a track record of previous deals of the same type that you or your team members have managed and what kinds of returns they generated. Alternatively, you can show the expected return on a typical deal meeting your acquisition criteria and what that would mean for investors, and you can explain that the blind pool concept will allow you to do this multiple times. Don’t make any “guarantees” or promises of “secured” investments, or any misleading statements.
– Call to Action
Finally, you should end with a call to action, and don’t forget to create a sense of urgency. Here is an example:
This Investment Summary is provided as an exhibit to the Private Placement Memorandum under which this investment opportunity will be offered to qualified investors. This is a limited time offer. Investors will be accepted into this offering on a first-come, first-served basis. Investors who wish to explore this investment opportunity after reviewing this Investment Summary should contact the Manager at (999) 999-9999, or email firstname.lastname@example.org to request the complete Private Placement Memorandum.
– Your Qualifications
In this section, you can talk about your management company (i.e., “the Manager”) and its business model and philosophies, prior experience with similar properties and the other investments your team members own or control. This is your opportunity to discuss the type of training/coaching you’ve received, and who your mentors are.
Add photographs of key team members next to their individual biographies (one to two paragraphs each) to add a human element to your Investment Summary. It might help investors remember you if you met them some time ago.
How To Effectively Convey Your Message
– Get Your Attorney’s Approval
Don’t send out your Investment Summary to investors until you’ve had it reviewed by the attorneys who will be drafting your Private Placement Offering documents, as they may suggest changes to make it more marketable and/or to remove any potentially misleading statements. When you first send it to investors, consider calling it a “Preliminary Investment Summary” so you will have the ability to modify it later, based on investor or attorney feedback, without losing face. Explain that the final Investment Summary will be attached to the Private Placement Memorandum your attorney is drafting, but you are offering a “preview” to a select group of investors.
– Lay the Groundwork Before Hitting “Send”
Before sending your Investment Summary, you should start with a phone call to each investor asking permission to send it. Don’t send it out en masse, as that could be construed as a prohibited solicitation if you are doing a Regulation D, Rule 506(b) offering (even if you have a pre-existing relationship with everyone you send it to). You will have more flexibility if you do a Rule 506(c) offering. Instead, send your Investment Summary to investors one at a time along with a personalized message to each one. Follow up with a phone call in a couple of days to see if the recipient has had a chance to review it and if there are any questions. This is also your opportunity to poll your investors to see if this opportunity meets their investment goals or if there is some common objection that could cause you to modify your business model.
– Make Sure Your Investors Know Who You Are
Investors are interested in you first, and they only look at the deal if they like and know you, so stay in touch with your prospects via periodic, live human contact. Drafting your legal documents may take two to four weeks from when you submit your draft Investment Summary to your attorneys, so keep the investors informed of the progress of your offering and encourage them to have their funds ready to go when the legal documents are ready.
NOTE: The discussion herein is of a general nature only and is not to be construed as specific legal advice, which requires the establishment of an attorney-client relationship and fee agreement. An issuer represented by securities counsel should rely on his or her own attorney’s advice with respect to the matters discussed in this article. The investment summary described herein could be used in a “blind pool” or a “semi-specified” securities offering, but could also apply to any real estate investment company.