Independent Sponsors: How are you responding to probing questions about capital raising?

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April 27, 2021

by a searcher from Rice University - Jesse H. Jones Graduate School of Business in Houston, TX, USA

Specifically, how do you respond when asked "what does your cap raise process look like" or "how long does it take you to raise"? I understand each sponsor is going to be slightly different in the approach, but I'm looking for some good sound bites to better communicate the process, especially for those who haven't worked with Independent Sponsors before.

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Reply by a searcher
from University of Pennsylvania in Austin, TX, USA
The above answers are good. I'd like to add that the timeline question is usually asked because whomever you're talking to is likely just trying to get a feel for whether you know what you're doing. I wasn't taken seriously until I could articulate why a specific deal would be attractive to ‘X’ senior lender, I’m putting skin in the game, and I have at least one or two core investors providing equity that would be interested in ‘this’ particular deal for 'me'. Once you know some high level specifics, you can ask to get back to him or her. This gives you homework and you can name a timeline to the person who asked and come back to him or her with whether these lenders/investors would be interested. This gets both sides to a quick yes or no, a second conversation with the person who asked the question, and gains some credibility. Idle time kills deals so you don't really want to be taking too much time raising capital for a deal anyway. There is so much great content here and people to pose questions to making raising capital and understanding the deal process a non-issue. Finding the deal for should be the only bottleneck. You’ll get there, but it takes some upfront legwork to get some confidence the capital is lined up.
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Reply by a searcher
from The University of North Carolina at Chapel Hill in Raleigh, NC, USA
Most important sound bite - be honest. Never lie or over extend your position. This will come back to bite you. Its better to be honest and say you don't have anything yet and offer your plan to get there, than it is to fake it and get caught.

That said, I think the answer you want to give (the answer I want to give to that question) is that you have assembled a group of investors who will evaluate potential offers and are ready to commit capital if the opportunity fits their profile. The key here is to do that leg work, prior to giving that answer so you are being honest. So, even before you find your next big thing, have a group of people who are willing to entertain your wild goose chase of self-funded or independent sponsor search. It doesn't cost these people anything, but some people won't buy into your investment thesis and some will. Do the work up front so you actually have a group of people (with money) who you can run deal flow past to see if things make sense. Even if they don't invest, they will help you spot potential problems and risks that you will need to account for no matter what.

Long answer short: do the work early so when someone asks you, you can give an honest sound bite.
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