Edited transcript from the teleseminar “How to Get Family Offices to Invest in Your Real Estate Syndicates” with Richard Wilson of Family Office Club

Originally broadcast in March 2020

 

Listen to the teleseminar

 

Kim Lisa Taylor:

Welcome to Syndication Attorneys, PLLC’s free monthly teleseminar, where we talk about topics of interest to real estate syndicators with opportunity for live Q&A at the end of the call usually. This time, we are doing a pre-recorded call. We did try to do this interview yesterday and we were having bandwidth problems with the internet, probably due to a lot of people being home, trying to work from home. So, this one is just going to go out as a pre-recorded teleseminar, but we will give you contact information at the end of the call on how you can either contact me if you have questions, or Richard if you have questions for him.

So, we apologize that we can’t do the live Q&A today. We really do enjoy that part of our show. I am Attorney Kim Lisa Taylor. Also, joining me on the call is Charlene Standridge, our Law Clerk and Business Development Director.

Before we get started, please note that all of our calls will be recorded and may be used for future promotion posted on our website or broadcast in a podcast available to the public. At any of our calls, more implied to this one, but during any of our calls if you don’t want to have your voice recorded, please schedule a one-on-one consultation instead of asking questions during the live call. You can always schedule a one-on-one consultation with us at our website at syndicationattorneys.com.

Information discussed during this free teleconference is of a general educational nature and should not be construed as legal advice. This is an audio-only conference. Today, our topic is “How to Get Family Offices to Invest in Your Real Estate Syndicates.” Richard Wilson is our guest. Richard, thank you for agreeing to be a guest on our show today. Welcome.

 

Richard Wilson:

Yes. Thanks for having me here. Appreciate it.

 

Kim Lisa Taylor:

Yeah, we’re so excited that you decided to come. So, let me just tell you a little bit about Richard. Richard is the founder and CEO of Family Office Club, a global family office association serving more than 2,000 registered investors since 2007. Family Office Club is well known for its many educational events across the U.S. each year, not even just the U.S., they also have events outside the U.S., which is pretty exciting, and for the extensive resources it offers to members. If you’ve considered approaching family offices to invest in your deals, you definitely want to know Richard and you want to know about the different programs that he offers. He is considered one of the leading experts in this field.

So, Richard, wow, what a ride we’ve been on here in the last few weeks with all this crazy stuff going on with coronavirus, huh?

 

Richard Wilson:

Yeah, definitely a lot of change. I think those that can adapt to it are going to benefit from it, so they’re not getting hurt like most people, but I know some people are in pretty tough situations right now.

 

Kim Lisa Taylor:

Yeah, and certainly, our hearts reach out to all of those people. We will be sending out along with this teleseminar some kind of tips for syndicators on things they should be thinking about right now with properties that they already own and their current investors to try to get through this time. But let’s just kind of dive right into this topic and tell us what is a family office.

 

Richard Wilson:

A family office is really a holistic wealth solution or investment solution for the ultra-wealthy. When you’re worth $5 million, you’ve got larger problems and a little mistake might cost you a moderate amount of money. When you’re worth $10 million, $15 million, $20 million, $50 million, then the mistakes not only are much more expensive, but you’re much more likely to make them. Some of my clients have five homes and three private jets and they have 100 LLCs, and they’re getting all these K-1s in this time of the year.

To bring it back down to Earth, a lot of my clients who are not crazy, several hundred million net worth but are just maybe a doctor that owned a couple dental locations and had a little $12 million exit. Which is not little, it’s still a lot of money, but they have a lot of things going on that need to be managed more holistically. That’s the whole goal of having a family office solution. It has nothing to do with having a home-based office as most of you already know, but that’s commonly confused by people that hear about it for the first time.

 

Kim Lisa Taylor:

So, it’s really just somebody who’s accumulated some wealth, and then needs to manage that like a business, right?

 

Richard Wilson:

Yeah, that’s correct. I think that partly is playing defense. You should get your ROI and having a family office just by having the chaos managed, not having to be in the minutiae of some of the regulations, not making some mistakes on filing something late or getting penalized, because you just have too much going on to keep up with. But then that naturally is going to make you less annoyed, less stressed out, and more focused on what you’re really adding value in in the world as a family, right? You can do that for your client, if you’re helping them do this. They play a better offense because the defense is very strong. They can be more thoughtful and more intentional and more aggressive on moving forward with their investment plans.

 

Kim Lisa Taylor:

How does Family Office Club help these people?

 

Richard Wilson:

Family Office Club really helps people set up family offices. We also help them access direct investments. When somebody has a liquidity event or they first hear about a family office, they often want one. They don’t know which way is up, they need to hire the right service providers. We put together a dashboard to find their values, put in place governance and ethical best practices, figure out what their strike zone should be for direct investments. The short guide, if an investor is listening to this, is that you should probably not have the same brain overseeing your public market wealth management work as you do all of your real estate assets directly, as you do your own operating businesses where you made all your wealth.

So, figuring out that right infrastructure is what we help people with. We used to charge some consulting fees to do that, put them on retainer. Nowadays, we give away all that advice and all that help. Even though I’ve been doing that for 13 years, we give it away. We only charge a profit share on investments that the investors source through us. So, many people see us as a source of capital who might be a sponsor or a real estate firm, but the truth is, we don’t work for them. We work for our investors. Our investors are giving us a profit share on the deals they allocate to through us. In that way only if the deal makes them money do we get paid anything at all. And then we’re helpful to people who are raising capital who attend our workshops.

We’ve got familyofficedatabases.com and pitchdecks.com for getting the other materials. We’ll put together a lot of investor mandate interviews. So, every single day, we interview an investor. Just got off the phone with a private investor we interviewed and we’re uploading that to our membership portal. We put their advice out publicly, but we hide their last name and their firm name, contact details, so that only people on the member portal can really be figuring out how to get in touch with that investor. So, long-winded answer, but most of my competitors are just consultants or just a conference company. We’re serving the investors but also being helpful to those raising capital.

 

Kim Lisa Taylor:

Wow, that’s really a great niche. I’ve been to many of your events and I see that in the audience. Half of the people are people that have money that are trying to figure out how best to deploy it and protect it. The other half of the people seem to be people that would like to raise money, and they’re learning the best practices on how to do that, and also interacting directly with the other attendees that have the money. So, it’s really a very nice mix at your groups.

 

Richard Wilson:

Thank you. Thank you. It’s important to know that most people don’t take the time to actually view the HD recorded investor mandates and events, and now, nobody’s allowed to host an event. So, if you’re listening to this in kind of real time or the next couple of weeks, it’s a good time to be digging into the 450 investors that we have recordings with or some of your past recordings. Maybe some people are behind on listening to some of your monthly webinars. Now’s a great time to get on top of that, figure out your regulatory approach, and get their funds structured like we were talking about yesterday. So, if you wait until it’s a great time to raise capital, well, now it’s going to take you 60 to 80 days to maybe get your docs together and get your strategy honed in.

 

Kim Lisa Taylor:

Right, right. Yeah, and we do post all of these teleseminars on our website. So, if anybody wants to access this one or the past ones, then you can always go to syndicationattorneys.com to our library, and you’ll see them recorded there. So, we started talking yesterday. For those that keep hearing the references to “yesterday,” that was kind of our failed attempt to do the same call. So, we’re just kind of going over the same topics and maybe even a little bit more in-depth today.

You’ve talked about family offices that are looking to find other sponsors that they can invest with. I think that’s a topic of great interest to our audience, because many of our audience members are syndicators or want to be syndicators. They want to know how they could structure a deal that would include a family office. So, tell me about some of the structures that you’ve seen.

 

Richard Wilson:

Sure. There’s many different types to consider. There’s a debt approach, where you would offer an investor … many times, this would be a $30 million net worth or lower investor that really desires, this but some more wealthy could, too … a debt structure where maybe you’re paying them out 7% to 10% on a cash flowing asset over a five- or seven-year term, and then once that debt note is paid off, you own the assets as the GP because you brought in a set of these investors under a preferred income or a note structure of some type.

Another type of structure would just be a performance-only fee structure. Whereas we have an acquisition fee, a financing fee or construction fee, a management fee, et cetera, and then carry on the back end. It might only be a performance fee. It’s hard to do that. I know some of you might hear that and say, “Well, that’s impossible. We have to live, in the meantime,” but it’s also why investors like it, because they know like, “Wow, do you really believe you’re going to make money on this deal?” Because otherwise you’re losing money, not just breaking even because you’re investing money.

 

Kim Lisa Taylor:

Let me just ask you a question about that. So, when you say a performance-only fee structure, are you saying something like, you’re not going to get any of your customer, you’re not going to get an acquisition fee, an asset management fee, construction management fee any of that stuff. You’re just going to get a split of profits or some kind of fees at the back end? Is that true?

 

Richard Wilson:

Right, right. Yeah, that’s correct. One way to do that to make it a little more realistic for people listening, is that you might, in some cases, do the asset management work, but maybe the property management has already been handled by someone else. So, yes, of course, the property management fee is just being charged to the pool of investors, but it’s not you, taking that fee. You’re just working as the asset manager on the strategy, et cetera. That’s one way that people do it. The other way they do it is say, “Well, we’re just going to track the exact expenses with the exact receipts and have those all in Dropbox. We only charge back the exact expenses that came into us. In that way, you know for sure, we’re not making $1 of margin on that, we’re only making money on the back end.”

The reason you’d ever want to do that is 1) raise capital faster; 2) be different than the competitors and have something unique to talk about to grab someone’s attention to get them to actually have a meeting with you. The third reason is that you can actually charge more in the back end if you’re doing that. If you really believe your project’s going to be highly successful, then you could set up something like that, just gives you maybe a 33% or 40% over some larger hurdle, even a 50% profit share. Some investors will balk at that. You might have to negotiate down at a 50% level, but maybe you can earn that 33% or 40% share more so when you don’t have the management fees in place.

 

Kim Lisa Taylor:

I just want to flesh out this one a little bit more. So, I actually I would call this a no-fee structure where you’re really just splitting profits. Are you thinking in this kind of scenario that you’ve seen, would there be a profit split both from cash flow and from equity on resale? Or does the manager’s cut only come when you actually sell the property?

 

Richard Wilson:

We’ve done both on the cash flow and at the exit. It’s how it’s been typically done. But we’ve had a couple investors negotiate that, well, we don’t offer “We’re going to hold this asset for 15 years or 21 years.” So, they’re only comfortable with 5 years on the cash flow, profit share, and then on the back end, be sharing that percentage. So, a percentage of investors, maybe 1 out of 5 might push back and want some 5- or 7-year cap on the cash flow sharing, in my experience.

 

Kim Lisa Taylor:

Very interesting. So, yeah, I will have to say that we haven’t had any clients that have asked to do this kind of model. But I think it’s a really interesting thing to explore, especially when if the prices stay steady and who knows what’s going to happen in the near future. But if the prices stay steady, where they’re kind of high, if you take your manager’s fees out of the equation, where all of a sudden, it’s a split of profits, that you’re exactly right. It might be a lot easier to achieve a 33% or so split, and still give those investors the kind of return they’re looking for.

 

Richard Wilson:

Right, right. Yeah, because the thieves aren’t weighing that down. We’ll talk about deal flow at some of our workshops, we’ve got five different workshops on investor relations and raising capital. Sometimes we’ll talk about really dialing in your deal folks. If you have an amazing deal, you’ll get referrals from investors who haven’t even invested yet, and they’ll refer people to you. If that’s not happening now, then maybe your deal needs to be that much more excellent, and unique, and amazing. But what’s interesting, when I bring that up to people and talk about deal flow, they always say the common responses like “Oh, yeah, well, I’ve got great deals,” like “I’ve got all the deals you could see, I just need the money. I got plenty of deals.” It’s like, yeah, everybody in the world does.

There’s way more people chasing money, and they’ll be available capital, because a lot of those deals are horrible. You should only be doing 1 deal out of 700 that you look at, so, of course, you have more deals than you have money. But the whole point is if you’re looking at 700 deals versus 170, then the anomaly is going to be a completely different definition. Just like if the golf club investor looks at 4 deals a year, how good is that top deal versus if somebody has seen 700 deals and they’re bringing that golf club investor their number 1 deal out of 700. The reason I bring that up is that people oftentimes dismiss anything that’s not giving them an investor. “Give me a friend that’s an investor, I need an investor lead.”

But my experience having an amazing deal flow, a great structure, good branding and positioning, all that together helps you get good investors coming toward you. Another structure related to your question is I just joined the board of a $250-million real estate development firm yesterday. They didn’t know what a family office was three or four years ago. They heard about them in our New York Investor Summit. They started trying to raise capital going after ultra-wealthy and this is not a typical case study. But they’re at $250 million in assets with just three investors now. So, each investor has been big, most people start out raising $25,000 to $50,000 per check or $100,000 per check.

An interesting story from them, besides that note is that on one of their deals, they were going to give the investor a normal type of hurdle with a 33% profit share, carry on the back end, something like a 7% pref with maybe a 33% on the back end. The investor is like, “I don’t know. I’m not sure because I like this deal a lot, but you’re a younger sponsor.” That sponsor is so confident in the deal. They did something I’ve never heard anyone has done. I’m sure people have because I think you’ve put together like 300 plus structures. What she did is she put together a structure where she offered the investor a 30% preferred return, and then 0% of profits over that. The deal ended up returning 150%.

So, she made out like a bandit. They got what they bargained for. She gave them the choice, and they chose 30% preferred return and no profits after that. She made out much better than the investor did, so that investors come back with them and invest it again. They’re not going to do that structure again, because it might only be one out of every five deals that goes out well, or one every three or maybe never again, who knows. But they don’t want to be left out when the deal goes really well. I just thought that was a really unique thing for them to offer, and like a great story that it went so well, that was actually bad for the investor.

 

Kim Lisa Taylor:

So that’s interesting. When you’re saying that she offered a 30% preferred return, that was a return on their investment. Was that over some period of time or was that per year?

 

Richard Wilson:

Yeah, per year. It was a three-year investment period.

 

Kim Lisa Taylor:

So, the only thing that I would caution about that is that I’ve had a number of times where people have offered too much to their investors. They’ve come back and actually said, “We need to lower the expectations here because people think it’s too good to be true, they won’t do it.” We can thank Bernie Madoff for some of that, because the SEC actually took the position after the Bernie Madoff scandal, that 12% returns were not achievable. Anything over 12% should be looked at skeptically. So, you’ve got to be careful, but certainly this family office, they probably had the infrastructure in place to be able to look at this deal and figure out whether these were real numbers or just somebody’s pie in the sky hope.

 

Richard Wilson:

Right. Yeah, for sure. If it’s not realistic on something. Developments can have a lot different returns than a cash flowing property, but I think really strongly that even if you think you might get a 30% IRR, you should underwrite at 15% or 17% IRR or always underpromise because you’re not going to be able to overdeliver if you overpromise. And then if it looks like you’re overpromising, then people just think you don’t respect their money and that you’re just promising the world. Whether they are a fraud or not, maybe they just think you’re an amateur who just doesn’t know that things could go wrong and you’ve not respected risk. So, especially in the environment we’re in right now, I’m glad you brought that up.

So, anyone to think that like, “Oh, you should go out promising these massive things on the deals you do.” If you think you’re going to get a 20% IRR like you said, maybe say, “Underwriting 12%. Maybe we’ll be able to return 15%.” If you have 20%, then you’ll look like a hero versus selling them a bill of goods that didn’t happen.

 

Kim Lisa Taylor:

Yeah, I think that’s really important. The other thing that I’ve seen where you get one deal that’s just a screaming deal and you offer too much on that deal. Well, you’ve kind of ruined those investors, because now you’ve got everybody with these unrealistic expectations, saying, “Well, find me a deal like the other one you did, and I’ll do it.” They want to invest in a kind of a normal market deal. So, you really do have to think about the future in every deal and not create unrealistic expectations.

So, now you’ve got to go do all the legwork and find completely new investors. These are some really good points that are being brought up here. So, we talked about the data approach, the performance-only fee structure. Again, I would call that a no-fee structure.

 

Richard Wilson:

Sure.

 

Kim Lisa Taylor:

If somebody came to me about it, just because when we set up syndicates, we usually have… Our syndicators earn money with a combination of fees and share of profits, so we call it fees or distributions. If you just took the fees out of the equation and we’re just earning the distributions and maybe you had to hit a hurdle rate with the investors before the Class B members or the management team were able to take its cut, I think that’s the same structure that Richard’s talking about here. I think there’s some merit to that structure. Everybody should give that some thought when you’re analyzing some of these deals you think are too skinny. Well, take your fees out of the equation and see if it does still look too skinny or does it make sense.

I think it’s a mistake to do a deal where you’ve got to go five or seven years before the management team earns anything. I’ve seen those deals fail. What happens in those situations is often out of need, people make bad decisions, or their interests are then misaligned with the investors, because the only way they get paid is if they sell the property, so they’re eager to sell. the meantime, these managers are basically being forced to work for free, and probably have to turn their attentions elsewhere in order to be able to feed their family. So, there’s always balance that has to be achieved. But maybe another way that you can handle some of these high returns deals if you really find them is to just do some kind of a cap.

So, it’s like they get everything up to a certain level, and then then you get something else, and then maybe there’s even a second hurdle that once they’ve achieved this number, then maybe the split changes or something, so that the manager gets a little bit extra compensation.

 

Richard Wilson:

Sure, it makes sense. I know you want to move on to something besides structures, there’s just like two more real quick things if you don’t mind.

One is that sometimes people don’t qualify for financing because of their balance sheet. So, somebody sometimes can step in as a guarantor of the financing as long as they like the asset enough that they would maybe be one day owning that in the worst-case scenario. So, sometimes are given 2% to 10% equity for standing in on a deal and they don’t have to invest any money or just a little bit of money. They’re on there with the bank, it’s kind of a guarantor on the property.

The last idea is just Co-GP. We interviewed two investors this week with our Investor Mandate Interviews, who are both single family offices. One is $1.5 billion in assets and one is $850 million. They both are actively looking for Co-GP opportunities, which means that if you have a great deal and you’re realistic on sharing those terms with this sophisticated family office, they might be able to bring a lot of LP money to the table. They might be willing to partner on the deal, and everyone’s looking for excellent deals. If you really think your strength is very sharp deal origination and you’re struggling on the capital raise side, you can always be getting an experience and kind of being mentored by some groups that have done this 82 times before. I just want to bring that up.

I think for some people who may be your clients, that could be especially helpful, just to keep in mind. Some people haven’t heard that Co-GP term before and just knowing that it exists and that could be a possibility for you, it could be helpful.

 

Kim Lisa Taylor:

Yeah, and how we’ve seen that happen is kind of a joint venture structure where there will be a title holding entity that takes title to the property if you’re doing a real estate deal, then there’s a joint venture entity that actually owns that title holding entity. That joint venture entity is comprised of a private equity fund or family office and a syndicate. So, each of them is bringing some of the money to the table, and then they are appointing a management team to kind of co-manage that property. So, the organization charts get a little bit more complicated than what we’ve seen, what you do on a normal syndicate, but it can get done that way.

So, that’s something we’ve helped a number of clients on that. We can represent you if you’re getting into a joint venture with a family office or with a private equity fund or somebody like that, and represent you, and make sure that your interests are protected, and you understand what they’re expecting of you. Because there are usually a lot of deliverables and expectations and reporting that goes along with that kind of structure.

OK, so, what types of things do family offices invest in? What have you seen?

 

Richard Wilson:

It depends on where the family comes from industry-wise, typically. So, a family made their money in commodities or stocks and bonds, much different than a consumer products family, or somebody made all their money in real estate. But I would say if the family did not make their money in stocks and bonds and did not make their money in real estate, which is typically 60%, 70% of the families in our experience fit that category, then a lot of them still like to have cash flowing assets, that are going to sleep at night with the assets in their portfolio. They’re usually breaking up a portfolio in three components.

They’ve got the wealth management diversified bucket, the cash flowing real estate part, and maybe 5% to 10% of that is real estate development on average in my experience, and then the final component would be investing in the operating businesses. Usually that real estate component is 20% to 40% of their net worth unless they made the money in real estate, and then it might be an enormous percentage to the extent where they might not even like to have public market access. They just love real estate so much; they feel like they have a big advantage there. They’re operating businesses in real estate like property management, or leasing, or brokerage, et cetera.

So, it’s always good to have that template in mind of those three components to their portfolio and know that pretty much everybody likes to have cash flowing real estate in their portfolio. Another commonality is that a lot of families are looking outside of their operating business investments, which is where they create all their new wealth typically, and it’s where they’ve created their wealth in the past. They’re not looking to shoot out the lights, they’re not looking to become ultra-wealthy through your real estate deals. They’re looking typically to get maybe a 7% to 10% cash flow might be realistic.

Of course, they’d like a couple points more of their hard money lending or something. But 7% to 10%, or 7% to 12% cash flow coming from a deal if they can, or an IRR that’s going to be hopefully in the 11% to 15% a year, 12% to 17% a year range. People get confused, I think. They come to our events or they message us and say, “Well, we’ve got this deal. This is so great.” They’ll say silly things sometimes like “It has no downside or has no risk,” which is never true. But they’ll say things like “Oh, the IRR is amazing, and the returns are going to be so good.” They say it with enough passion or use the right numbers that some ridiculous sounding IRR is actually going to get them the meeting. Because what we talked about before, it’s the opposite.

Well, you’re promising the world, so that means you probably can’t deliver two worlds. So, you don’t know what you’re doing, or you’re a fraud, or you’re an amateur, or you’re just overly excited about something, you have no idea what you’re doing. But the bigger problem there is that they don’t care. They don’t care at all what the numbers are until they know you. Are you trustworthy? Are you excellent? Are you committed? Are you a good team? Does your track record match what you’re doing now? Does the actual deal make sense? Do you have the balance sheet to do this? Until they understand the context of all of that, they don’t care at all what your numbers are.

We have a free book at capitalraising.com, and we’re always stressing in our workshops, through a platform, et cetera, at the Family Office Club, that you really have to provide that context because nothing else matters with these investors. It’s about high conviction. It’s about high trust. So, when you’re giving them a white paper, or doing a webinar like this, or writing an article, or just recording a YouTube video, like I was in Colorado recently at a speaking event like a real estate investor, I recorded a little video out by the snow outside, a couple of quick videos for YouTube. That’s giving them that context, which is an absolute requirement to do business with the ultra-wealthy, I think. So, you’ve probably seen that with some of your clients as well, Kim, I guess?

 

Kim Lisa Taylor:

Yeah, absolutely. If you want to raise money from people, you’ve got to show them your team. You’ve got to build trust. I always like to say if you’re meeting people locally, just start showing up at events and go month after month after month. Eventually, you’re going to develop relationships with these people. You’re going to know what they do; they’re going to know what you do. They’re going to see you there month after month and year after year, and they’re going to be able to rely on the fact that you’re not going to go away and disappear with their money.

So, I think trust is something that you build over time. You also build it based on your prior track record. So, if you’ve got a history of having done deals before, you’ve got to talk about that. You have to talk about your track record, and showcase it, and use it as a selling feature. There’s nothing wrong with talking about what you’ve done. You just have to make sure that you’re characterizing it correctly, right? You don’t want to tell people “This is my track record,” when it’s really “This is the combined track record of my team.” We always want to be truthful when telling people. If you don’t have the right balance sheet or you don’t have the right credentials to do that on your own, then you team for the first few deals with somebody who has those things.

If you’re not making relationships with people and going to local events or networking events and developing relationships, then get somebody on your team that that’s what they love. So, yeah, track record, your team, your past experience, and just showing up and being reliable. I think those are all important things.

And then having professional marketing materials, I think, is extremely important. Richard, tell us a little bit about how you take your pitch decks. I know you started a company, pitchdecks.com, and you guys help people develop their pitch decks. How do you think that helps them when it comes to credibility and fundraising to have something like that?

 

Richard Wilson:

Sure, sure. No, I appreciate we get the chance to talk about that. I want to just point out four quick ways, quick things that the investors are really afraid of on a whole context subject. I think that people are afraid, like, “Is this person trying to raise $100 million and they’ve never raised capital before?” Like, it’s just not realistic, but they’re not telling you that. They’re afraid maybe you’re operating out of your mother-in-law’s basement or it’s not a real team. It’s not a real organization and it’s just like a made-up thing with a website. They’re afraid of that. They’re also afraid that someone is just a straight-out fraud or just that they’re amateur and they’re just acting confident. They have a good sales pitch, but they really don’t know what they’re doing.

So, those are all kind of the fears of why investors want to move slow, get to know you in person. I just wanted to kind of re-emphasize that, but I appreciate you bringing up pitchdecks.com. I mean, it’s a perfect segue from what we just talked about into it. What I found is that nobody’s going to take your investment more seriously than you take it yourself. So, if you’re emailing people with a Gmail email address, if your email signature doesn’t have your picture, your logo, or your tagline or even your contact details, if you don’t have a website, you don’t have a logo, or even 1990s clipart logo, or if you have a 44-page pitch deck or 72-page pitch deck and not a concise one, and if you don’t have a teaser, a one-pager and visuals, then you’re just dead in the water compared to other people.

It doesn’t look professional. It doesn’t look like you’ve taken it seriously. You won’t spend $8 on a domain name. Nowadays, you can get a website that’s at least very basic made for a relative low amount of money. It just shows it’s not a real business that someone really hasn’t taken care to build something that’s serious. So, why should they invest a million dollars or $100,000, and you’re not willing to invest $50,000 professionalizing your business, yet you’re asking investors to put $7 million into your deal. It just doesn’t really add up. I think subconsciously, it doesn’t add up.

Investors usually tell me, they have one sentence to get my attention, or the first line of your materials, or the front page of your materials, or the first line of your voicemail, the first sentence, you say… If you don’t have that dial-in, then not much else matters. We’ve heard onstage and investors say that “I don’t care about the quality of marketing materials. I don’t need that to be all fancy looking,” like who cares? That same investor in the same interview on the stage who had it recorded, he said, “Oh, well, I look for trust.” In the first 15 seconds and the most important thing is trust. “I can understand what they do in a single sentence, and it sounds unique, compelling and something as trustworthy, incredible.”

So, when people hear us talk about help in this area, and we have an investor relations agency that just works on a retainer basis, usually not with a complete startup, it’s never raised capital before unless you’re just really well capitalized. Usually it’s someone who has raised some capital and wants to do more. People mistake it as pretty looking graphics, when really, it’s how do you replace 1,000 words with a graphic, so people get it instantly and they know your value-add process? How do you dial in your copy, like your written words? So, in a sentence, you communicate the credibility, the track record, the unique approach, versus someone having to read a whole memo or letter just to get the idea because people don’t have that time if they’re a valuable investor.

 

Kim Lisa Taylor:

Wow, that’s so valuable. You can’t stress enough what kind of an impact you can have with professionally designed marketing materials, and having somebody who understands what you’re trying to say, and helps you put it into plain English, and like you said replace 1000 words with a compelling graphic. I thought that was a really interesting concept. OK, so I think we’ve pretty much talked about kind of how the deals are structured with family investors, what they’re looking for, family offices? So, what about “skin in the game”? We always hear that term, family offices are more inclined to invest with someone that has skin in the game. What are they looking for, like a percentage of a total raise?

 

Richard Wilson:

I think that the average is 10%, and then 90% comes from investors. That said, I know people who put up 2% and they seem to be doing well, because they’re so credible or so dedicated in other ways and they just don’t have the balance sheet to put up more. They could go to their investors and say, “Hey, look, I can bring in a Co-GP and tell you, we’ll put in 10% in each deal, but then it gets more messy, so I’m just going to put up 2%.” Take it or leave it once they have a track record, but the average is 10. If you’re well equipped to put in 20% or 30% at the beginning, because your deals are small, then I would experiment with doing that. It just depends on your whole period.

I think the thing I would avoid more than anything else is to say you’re putting up 10%. Well, let’s say it’s $10 million deal, right? If 30% is going to be equity, then that would be $3 million of the deal. If 70% is going to be debt, that’d be $7 million of a deal. So, if you need to put $3 million equity in the deal, and you’re saying, “Hey, I’m putting up 10%, so I have skin in the game. My money’s on the line, too.” Well, that means that you put up $300,000, but you’re raising $2.7 million. Then many people have a financing fee of 1%, and that’s 1% on the $700,000 or at $7 million typically. So, that would be $70,000 brought in. And then they usually will have an acquisition fee or sometimes do, an acquisition fee could be 1% on the total asset. So, again, that would be another hundred thousand.

Now, you’re up to $170,000 in fees out of your $270,000. And then your management fee, even if it’s just 1% a year, again that could be on a total asset price sometimes. That’s another $100,000 a year, which gets you to that $270,000 actually. I don’t know if that math would work out that well, but basically, it gets you to exactly where you started. So, in other words, you have no skin in the game but only the upside after 9 to 12 months in the deal if you have no other fees like that. And some charge higher fees than what I just said. So when an investor does a math and I’m, “Wait a minute. You’re charging me this fee, this fee, this fee, that fee, and taking profits on the back. Why even put enough at 10%? Just charge me less fees, and don’t tell me you have skin in the game and basically lie to me.”

I think that investors are really put off by that. They might not even tell you that negative feedback, they’re just going to be like, “Are you kidding me?” and delete the email and archive it. Most times you’ll never hear that feedback unless it’s a good friend. The other thing I say related to that is that a lot of people say, “Oh, well, these are industry-standard fees.” I was like yeah, but you’re a two-person team that’s done two deals. You’re not industry standard, you’re nowhere close, so no offense, but maybe you should do something better than industry standard more aligned and more favorable to the investor. Once you have 8 deals, 12 deals, 15 deals, then you’ve probably earned the right to charge the industry standard, but I see this as the exact same category as branding.

So, you can call yourself Wilson Capital, but no one knows what that means. Unless they already know you, then who cares about Wilson Capital? If you call it Family Office Club, it communicates community and ultra-wealthy investors, and it says kind of what you get by coming toward it. The same with one of our pitchdecks.com clients, they had a confusing name. We changed their name to Collateralized Income Investments because they offered equipment leasing and offered income as collateral behind it. I said, “That’s why people invest with us because we have collateral and they want that income.”

So, we just named them something that would attract somebody. You don’t have to do that, billion-dollar firms have horrible brand names. You don’t have to have a great structure. You don’t have a great fee schedule; you can just have average everything. But if you’re struggling, why not have that stuff sweating for you. It doesn’t typically cost any more money to have a smart name, smart structures, smart fees than just have a lazy industry standard, it doesn’t mean anything. You might as well have stuff sweating for you, in my opinion.

 

Kim Lisa Taylor:

Yeah, I think those are all really great points. I like your ideas about considering not having the fees. Looking at it from an investor perspective, what is it going to cost them for you to have those fees? Does your skin really stay in the game or it just kind of some token thing that doesn’t really mean anything? I think there’s probably some people on the call that are wondering, “Well, how am I going to come up with $300,000 to put in every deal?” I’m always telling people, “You’ve got to keep $50,000 or $100,000 liquid to be able to go out and do a new deal. If you’re looking at two deals at once, you got to double that. If you don’t have that money, you have to team with people at the management level.”

So, within your GP structure, you’ve got to bring people in that are willing to put up that kind of at-risk money and give them part of your management earnings in order to take on that risk. The other thing you can do is you can do a GP fund. We’ve set up GP funds for clients before who want to raise maybe $100,000 or $500,000. So, they can use those funds to get deals under contract to do the due diligence. And then once they get something under contract, they do a regular syndication, they raise the funds, they pay back their GP fund. It just keeps it kind of like a revolving seed fund. So, that’s worked really well for certain clients.

So, there’s lots of different ways, it doesn’t have to be your own money, don’t feel like “I can’t do this, I’ll never be able to do it.” You have to leverage. You got to leverage off other people, other people’s funds. You can do it at the management level as well as at the passive investor level. We’re happy to help people understand what their options are when it comes to doing those kinds of things. All right, so let’s just talk about the types of education events that Family Office Club offers.

 

Richard Wilson:

Sure, so we offer, usually when there’s not a virus going around the world, 30 live events per year, which are Investor Summits and Investor Relations workshops. Right now, what we’ve done is we’ve recorded about 30 of those, and we have them in our investor platform. So, in addition to interviewing one new investor per day and uploading that to the platform, we’re doing a weekly virtual investor discussion panel in the platform, talking about their investor mandates and insights in a longer format like this, but with two to four investors on the line.

And then we have the past recordings of our Real Estate Investor Summits, our Family Office Super Summit, which had 75 family offices and ultra-wealthy investors on stage, our Private Investor Summits, our Single-Family Office Summits that have only single-family offices on stage. At this point, we have between 400 and 500 recorded investor mandates within the portal. We also have 34 hours’ worth of webinars on niche topics, and then we have 5 different varieties of workshops that we do on capital raising. So, we have one called Investor Influence, where for six and a half hours, I talked about building the Family Office Club organization that we run through influencer persuasion and positioning.

We have workshops on other topics like Capital Raising Catalyst. It’s kind of our fundamentals of capital raising workshop. We’ve got one on investment pitch prep. We go through all the marketing materials. There’s only a small percentage of sponsors that can afford the $2,500 a month to $8,000 a month that we charge clients and our investor relations agency at pitchdecks.com. So, listening to our 6.5-hour workshop on what we do for our clients, we won’t be implementing it for you, but you can get all of our ideas and strategies and figure out how to patch together your own implementation if you can’t afford that retainer.

So, I won’t bore you by rattling off all the different workshops we have, but we’re proud of what we’ve put together because for example, in addition to the investor interviews, we have about 75 people interviewed on the platform who have all raised $100 million plus. They get just 12 minutes to say what their number one strategy was on raising capital. I don’t know anywhere else globally, where you can hear from 75 people that are all experts in capital raising. Instead of pitching you on their gold fund or the real estate fund, they’re telling you exactly how they did it. I just think that’s a unique type of value that is hard to quantify what that could be worth over time.

 

Kim Lisa Taylor:

Well, I’ll have to say that I attended the capital raiser courses that you do and got the Certified Capital Raiser certificate. I learned a lot during all of that, I met a lot of really great people, really high-quality people in those rooms. So, if you’re looking to just understand how to interact with any investors, it can be your everyday $50,000 or $100,000 investors, all the way up to these ultra-high net worth investors, if you want to start learning what you need to do to position yourself, so that you can attract that kind of money, I highly recommend Richard’s courses for that Capital Raiser courses.

And then I’ve attended several of the summits, well mostly as an exhibitor, but those are just tremendous networking events with a lot of really high caliber people and very interesting people and really interesting panels. You can learn so much at those events and they’re frequent. They’re all around the country, so you can meet people in different parts of the country. So, if you start attending those events, I think you’re going to start to shift your own thinking about how to talk to those people, because you will have already talked to a number of them at those events and you’ll start being a little less nervous about approaching people.

One of the other unique things I think your program offers, Richard, is there’s a lot of trainers out there that have very expensive coaching programs, but one of the member benefits do you have is not only access to all of these different events that you have around the country, but you also give people access to your list of family offices. Can you tell us about that membership program?

 

Richard Wilson:

Yes, so the membership program, a lot of my competitors charge $25,000 to $40,000 a year for coaching. We do not. Our membership program when live events are being hosted is usually $2,450. Right now, since it’s all virtual — investor mandates being recorded daily, and virtual discussion panels, and recorded investor interviews and mandates — it’s just $1,450 for the annual membership. And then when our events start back up, you’re going to have gotten a deal of a lifetime because the second that we get events back on the calendar, then we’re moving that price back up to the normal pricing.

There’s also a month option, $299 a month, which is the same price as always, because we’d rather people kind of become committed to the community and really dig into the content. It includes a review of your marketing materials once every three months, and we’ll give you 20 bullet points of feedback. Again, it’ll show you what we are doing for our clients. But we know only out of our 1,000 members, we know only maybe 50, 100, or 250 at most could afford paying the retainer. So, you don’t have to upgrade to that level to benefit from the fact that all day long we’re serving our clients, improving the materials, because every three months, we’re reviewing your materials and give you that detailed feedback.

And then the last thing is that you mentioned that we have 100 investor directory leads that you’ll get when you become a member. Those are taken from some of the 42 different niche investor databases that we offer at familyofficedatabases.com. We’ve been in that business since 2008. You get 100 leads when you join, and then we can show you the 42 different niche investor directories that we have. You get all those investor databases for free, if you decide to get the VIP annual membership, which I think is just a little bit over $3,000 versus $1,450. So, our goal is to add a lot more value than we charge you for, like any business is trying to do. But even more importantly, it’s just adding a lot of strategies and ideas — more than you could possibly use by watching a workshop.

So, you can use some ideas now, some in six to nine months, some in six to nine years from now. And then it’s by us being aligned that you get an ROI, a genuine return on those actions you’ve done because we recommend that you do certain actions. You get an ROI that is selfishly what’s going to bring you back to us again and again. So, that we genuinely want you to get that benefit, because otherwise, you’re going to be a member and then not be a member. That’s bad for us and that’s bad for you. So, that’s kind of the mentality we take in building out the program. Maybe I’m just not smart enough to charge $40,000 a year, but we don’t have to. For what it’s worth, I’m sure some will appreciate that at least.

 

Kim Lisa Taylor:

Yeah. I want to point out that some of those fees that Richard was talking about, those are annual fees, those are not monthly, $3,000 a year or $299 a month. Different levels of these programs, how can you not afford to do that? If you get access to all these databases, of course, you now have to have a plan. What is your plan? To contact these people. That’s some of the stuff that you’re going to learn when you go to these capital raising events.

 

Richard Wilson:

The point that you just made is so fundamental, it’s so easily missed by people getting started on raising capital. They know they need to work with you to get their structure in place, and then they go straight into this mode of like, “Get me in front of investors. Where are the investors? I need to be in front of the investors.”

We always tell people, “You can go to a lake and splash around with a spear and trying to catch a couple of fish, but if you really study the lake and figure out where the water is flowing and position yourself like a grizzly bear, you can have the fish jumping toward you. If you don’t know how to nurture the fish and grow the fish, and cook the fish, and no one’s taught you how to catch fish with a net versus fishing poles, and not how to hire other people to catch fish for you, and have your own fish farm.” It doesn’t matter that someone got you four fish, like that is completely meaningless. Like you need to learn how to make bread not as “Oh, here’s a loaf of bread. Now you could eat for half a day.” That’s like a very low level of value, but it’s like 90% of what people want when they reach out to us.

We have to say, “OK, well, you can get some investor leads through the databases, through the investor mandate interviews, but honestly, the biggest value is the thing you’re not valuing at all, which is the strategies you can use. Now, they’re yours in your brain and your capability set. Now you can go out and find hundreds of investors with those strategies,” versus thinking like, “Oh, am I going to get four this week.” So, I think this is such a backwards thing in our industry. I just want to make sure we have time just to fit that in, just to kind of get that out there to your listeners.

 

Kim Lisa Taylor:

Yeah, that’s great. Thank you. The other thing I wanted to mention is Richard has written 13 books. My favorite book that I read a long time ago was “The Hedge Fund Book.” I got a lot on that, setting yourself up with marketing strategies and approaching people. I just thought the information in that was really valuable. So, what time span have you written these 13 books, Richard?

 

Richard Wilson:

It must’ve been over 13 years.

 

Kim Lisa Taylor:

So, Richard has been writing a book a year. So, while all of you are sitting at home, thinking about “Hmm, you’ve got some downtime.” If you’ve been thinking about writing a book, maybe this is a really good time to turn your attention to that book. I have to take this advice myself because I published a book, “How to Legally Raise Private Money,” last August and it’s available on Amazon and became a number one Amazon Best Seller. But we’re getting ready to publish the audio version. So, I just have to review what’s been recorded and get that out there. So, that’ll be coming within a month or two. But we can all be thinking about what can we accomplish during this extra time that we have at home right now? Maybe some of you can produce some books as well. So, Richard, how can people contact your company?

 

Richard Wilson:

The best thing would be to go to familyoffices.com because you can just see the types of investor mandates there. You can see our free book. You can also see our contact details there, clients@familyoffices.com is our email address, clients@familyoffices.com. I’m also giving away a free book at capitalraising.com. A lot of people who first interact with our YouTube videos, Family Office Podcast, or those free books, and then just get on the phone to the team member of ours, we get to know you kind of naturally over time.

 

Kim Lisa Taylor:

Yeah, and Richard has some really stellar team members. So, I’ve met a number of them. I’m sure they can steer you in the right direction. So, Richard, thank you so much for joining the call today. Sorry, we had to do it two days in a row, but I think this has been really great information. I can’t wait to get this back out to our list and to put it up on our website. Hopefully, you’ll get some business out of that as well. All right. Thank you.

 

Richard Wilson:

Yes, that’s great too. Thank you.

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