Before the Jumpstart Our Business Startups Act allowed you—as a building sponsor—to generally solicit equity investments through online platforms, your investor pool was limited to friends, family, and business partners. That is according to Bill Florent, co-founder and CFO of Selequity, which has more than 35 years of high-quality financial analysis experience in leadership, acquisitions, investor relations, and contract negotiations. “When you approached these individuals with an investment opportunity, you had a built-in layer of trust because of your preexisting relationship,” he says.
However, now that the investing world has migrated online, the opportunity exists for you to seek investments from a much larger pool of investors, he explains in the exclusive commentary below, but he points out that those individuals know nothing about you. “Naturally, in this climate, a deep level of trust is necessary for empowering complete strangers to invest in your properties.”
The views in the guest column below are the author's own.
What Online Investors Want to Know
In the online investing arena, investors want deep, holistic, historical data regarding your assets and your personal track record. They want to know about your investment philosophy, your overall goals, and your history with delivering returns to investors.
They also want to see a thorough business plan for each asset you have listed. What are your plans for the property, and how long do you plan to hold onto it? Provide a list of the existing tenants and upcoming vacancies, and explain whether you plan to fill those openings with local or national retailers. Some investors love national tenants because they tend to draw other recognizable tenants, while others prefer to support localized endeavors.
Investors also want to see financial metrics, so identify the intended or targeted yield for performance, and tell them what split they can expect once their capital has been returned. Lastly, don't overlook debt leverage. Investors have long memories. Remember the heavy mortgage lending on real estate and where it went? They do, so be sure to show how your opportunity is protected from a market crash and foreclosure.
Delivering the Necessary Transparency
It may, understandably, sound rather arduous to compile and deliver this great depth of data and insights to investors on a regular basis. Luckily, online investment platforms make it much easier than you might expect. Here are three strategies to help sponsors attract, inform, and retain investors in the digital era:
1. Video Content: When it comes to grabbing attention and building trust online, nothing is more engaging than creative video content. In fact, in one study, 90% of consumers said informational videos help them make smarter decisions.
Take a multipronged approach to your videos. Some should introduce you, as a human, to the online world and tell your personal story. Others should be more specific to individual properties and describe what they have to offer. Don't skimp on the presentation: Consider using a drone to capture a stunning bird's-eye view of a building, or use a 360-degree camera to create an interactive tour of a property. The sky is (literally) the limit.
2. Frequent Reports: Be sure to put as much effort into retaining investors as you did attracting them. Being known for frequently and transparently providing performance reports for each property can help you stand out as a trustworthy partner.
Quarterly reports — along with operating agreements, K-1 tax information, and other documents — should always be available to investors (or their wealth advisors) at the click of a mouse. Permanently housing these documents online will eliminate the need for phone calls, hard copies, and countless trips to the post office throughout the year. It's a win-win for everyone — even your friends and family investors.
3. Third-Party Validation: In addition to regular reports, another key trust-building strategy is to provide unbiased third-party analyses of the communities where your properties are located. Most big brokerage houses like Cushman & Wakefield or Colliers make this information easy to obtain, and you can post these reports directly to your online profile.
This third-party data will allow investors to assess external developments that may threaten or strengthen their investments. If, for example, a city just approved plans for a big new apartment building right next door to the strip mall you operate, investors will be extremely happy to hear this news — and they will understand why you plan to raise rental rates in the coming years.
To build trust in an online environment, sponsors must increase the frequency, quantity, and quality of the data they provide to investors. Maximize your opportunity by educating your investors, new and old, and reminding them who you are, where you have been, and where you are going. Be prepared to win and retain them through creative marketing content and relentless transparency, both of those made much easier through today's online technology. And as a recent survey found, 60% of small businesses attribute their increased revenue and their abilities to compete with larger companies to their increased use of technology.
Educated, technology-enabled investors are your best friend.
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