How To Score VC Money For Your Real Estate Startup
Are you interested in raising capital for your real estate startup?
There are venture capital firms, private equity funds, family offices, crowdfunding portals, and angel investors who are simply looking for somewhere to put their money. How can real estate entrepreneurs get a piece of this pie to fund their own ventures?
The Advantages of Venture Capital
There are many practical advantages for raising capital for real estate entrepreneurs and startups. In the past; mortgages, credit cards, and business loans have made up the bulk of funding for real estate pros and companies. While all still viable options, a hefty war chest can make a big difference. This enables buyers of real estate to operate with cash. That means faster closings, more negotiating power, and eliminating a lot of the costs and headaches that come with having to wait on lenders. It can provide a substantial competitive edge in the marketplace.
The Cons of Pursuing Venture Capital
For every pro, there is a con. Capital can mean kicking debt, interest, high borrowing costs, and monthly payments to the curb. However, it can also mean giving up some control, and taking on a lot of responsibility. At the very least, expect raising capital to take some work, time (possibly months), investment, hustle, and passing through due diligence hoops.
Before rushing out to ask for money, real estate entrepreneurs need to make sure they do their homework. That means doing all of your research and business preparation so that you have answers and can perform. You’ll also want to do your homework on what investors and VCs are looking for. They do want the hope of super-sized returns, but they also want to find safety for their money, support projects they care about, and to enjoy the ego boost of making smart investments.
Preparing a Powerful Pitch
To get anywhere with raising money from these types of investors, you are going to want a pitch deck. Business plans still have their place. All business owners need a business plan. However, most entrepreneurs will find that lengthy business plans don’t carry much weight when it comes to raising money these days.
Short, sweet, and well-designed, is what’s trending today. Maintain attention, and show your attention to detail during your presentation. You can also check out some of the latest decks from other startups, and some of the famous ones from the likes of Google and Airbnb.
Where to Pitch Your Real Estate Startup
The key to success and maximizing your time is going to be finding the right investors to pitch too. Just like selling a house or pitching a rental property for lease; the better targeted your promotions, the better ROI you’ll see on your efforts of raising capital.
There are many online platforms that act as intermediaries and matchmakers for investors. Find the one which seems to be the best match. Local investor groups both in and out of the real estate industry are always looking for fresh opportunities. The really aggressive may also directly pitch to investors that have shown a passion for similar investments in the past too.
Passing the Due Diligence Phase
Make sure you are well aware of what a startup investor’s due diligence involves before rushing in. Expect to be Googled, to be grilled with all types of questions, to have background checks and credit checks performed, to get visits from prospective investors at your office, and more. They not only want to see a great idea and business plan, but that you are the horse to bet on to see it through. This is also your chance to vet investors and make sure they are a great match.
Negotiating the Deal
Startups may be offered some form of debt investment, though convertible and ‘SAFE’ notes are more common in this arena. These agreements roll over to shares, which can be cashed in at major milestones, like an IPO. For early stage real estate startups, these term sheets are normally pretty basic. Make sure everything is run by your legal counsel, and doesn’t hamper further growth or fundraising in the future. Also, watch out for red flags that could suggest investors might fire you from your own venture and takeover.
Most will find raising startup capital to be a huge benefit. However, expect to do some serious work to get it.