Last week I had three different people ask me the same question, “How likely is it that I will be successful in raising private capital?” My answer, “If I had a crystal ball I would be the richest man in America”. The truth is, there’s no way to be certain that a private capital raise will be successful. However, with new technology and available resources, it’s possible to use data to gauge the market. To better understand the fundamentals of a successful private capital raise, issuers and intermediaries can utilize data to measure all aspects of the raise: the market, the investors, and the actual raise itself.
The are many providers of private capital market industry news and data such as Deal Index, Placement Tracker, and Private Raise. These companies provide data on deal size, terms, pricing, and parties involved. There are also websites such as WhoGotFunded that aggregate SEC Form D filings. These resources provide the data and metrics to judge market conditions. It is crucial to know the health of the market before entering into it.
The creation of Rule 506(c) under Regulation D allows issuers and intermediaries to turn to the internet to advertise their capital raise through the use of general solicitation. Hosting the capital raise through an online platform allows for the entire investment process to be tracked, therefore data surrounding the raise can be evaluated. Companies like WealthForge provide a compliant and easy-to-use transaction processing engine giving the issuer or intermediary full insight into the investment process.
Through technology, every step of the investment process can be monitored providing easier access for the issuer or intermediary to track progress and create their own analytics. For example, say the average person who invests in your offering spends two days between the time they first hear about the offering and the time they complete the review of the documents. What should you do when a prospective investor has spent over a week without reviewing the docs? While each investor has their own personal schedule, you can use data to understand the likelihood that a prospective investor will become an actual investor and not just keep leading you on without investing. Other data points that can be monitored are the rate of prospective investors that don’t complete a full review of your offering information, the number of times an investor returns to view the documents again, or the length of time between signing docs and receiving the investment funds into the escrow account. The opportunities to track investor activity are endless, and the future will bring more ways to monitor investor activity to help issuers and intermediaries better understand which prospective investors are likely to invest.
The Capital Raise
Once a capital raise has started, there are many data sources that can be monitored surrounding the live raise: how many days before the first investor was secured, what is the differential between the minimum and maximum investment, and how much each investor will invest to name a few. One important data point to monitor is how many days will the capital raise take? The average number of days the successful capital raise takes through the WealthForge platform is 30.8 days. So, if you are at day 30 and only have half the amount of capital raised you might need to change tactics. Monitoring the data around the capital raise can help the issuer or the intermediary find weak spots in the offering.
Raising private capital does not have to be a shot in the dark. There are many metrics around the capital raise that can help judge the capital raise progress. Technology and Rule 506(c) have created greater visibility into the private placement industry. To be successful moving forward, issuers and intermediaries raising private capital should utilize data to better judge the success rate of a capital raise.
Securities offered through WealthForge, LLC. Member FINRA/SIPC. This post is an industry update from WealthForge. The message does not constitute a research report or recommendation and does not take into account the specific investment objectives, financial situation or particular needs of the recipient. This message is not an offer to sell or the solicitation of an offer to buy any security or interest in any fund, which only can be made through a private placement memorandum that contains important information about the risks, fees and expenses of a fund.
Gray brings experience from a leading international commercial real estate firm to WealthForge where he focuses on helping make raising private capital simple for issuers, broker-dealers, and other intermediaries. With first hand experience in commercial real estate, he brings specific expertise to help make the process of raising private capital faster and easier for firms in the real estate industry.
This article was first publish at http://www.wealthforge.com/insights/raising-private-capital-a-shot-in-the-dark-or-a-measurable-event/