How To Get Your First Investor: Momentum Capital, Discounted Shares, Anchor LPs, Leveraging Partners, and More

What’s up everybody?? How are you all doing?

I’m excited for our topic today, and I think all of you should find it extremely applicable.

The questions that I get asked the most almost always have to do with capital raising?

“Bridger”, they say, “I the deal on lockdown, I know it’ll work, I just can’t find anyone that’ll give me the capital I need.”

Or “Bridger, where do you find investors? I’ve searched my networks and I can’t think of anyone that fits the bill.”

So today, I’m going to tell you how to get the ball rolling, how to get over the hump with the hardest step, the first one.

Let’s get to it!

Momentum Capital

I want to briefly touch on this topic. For those of you who aren’t familiar with the principle of “Momentum Capital” it simply refers to the concept that once you’ve raised your first dollar every subsequent dollar after that gets easier and easier.

The same idea applies with sales, best time to make a sale is right after you just sold someone.

Think about it, most investors don’t won’t to be the first one in on a deal or fund.

If you hypothetically pitch someone saying, “Hey we’ve got this deal coming up that’s going to be amazing. We’re looking to raise $10M, are you interested… You’d be our first first investor.”

People are going to get nervous. They don’t want to put their necks on the line without having an assurance of others joining with them.

Now contrast that when you pitch the same fund but say, “We’re looking to raise $10M, we’ve got $8M so far and are just filling out the last couple of spots.”

Investors can then see that other people believe and trust you, and they’ll want a piece of the action. You also tie in an element of scarcity that can be a powerful motivator for people to join.

Step by Step Method

This is one of the more sure and practical ways to grow your fund.

The idea being you start at the bottom and work your way up. Most will form a series of syndications and acquire experience as they go through the investment ladder on a deal by deal basis.

This strategy steadily builds rapport with investors, and gives you the experience needed to move forward with confidence.

Once you get comfortable in one stage you advance and advance until you’ve got a sizable pool of resources and investors that you can tap into for your fund.

Discounted Shares

The discounted shares is essentially an agreement that people put in place within one of two areas; a founders share or a standard share.

These shares give you tools to incentive early investors in unique ways.

Those ways could be any of the following:

  • Waived Management Fee
  • Higher Hurdle Rate
  • Liquidity Preference
  • Transparency Rights
  • etc.

The key here is you have to present these advantageous as a bonus. They are ONLY available for those who jump on the deal first.

By doing so you’ll entice those on the fence to make the plunge and jump in with you on your fund.

Anchor LP

The Anchor LP is an individual, or group of individuals, that agree to come in early with a fairly large sum of initial capital.

They are willing to do this because they essentially treat your GP as if it were a company.

The Anchor LP gives you the cash in exchange for a percentage of equity and ownership of the GP.

Which has it’s pros and cons for sure. This helps you get the fund up and going and allows you to utilize the momentum capital strategy.

However, you’re also surrendering a portion of your control over the fund and its decisions.

Leveraging Partners

This is probably the most obvious of the strategies that we have discussed today.

Basically by leveraging your partners I mean bringing on extremely well connected individuals to your team.

If you’ve got a heavy hitter as a significant part of your GP then being able to find connections through his or her personal network will be that much easier.

I’ve personally seen just how effective bringing on powerful partners can be in both your fund and any other business.

Sure, it will cost you equity, but the dividends will make it more than worth it. It is an investment in and of itself.

Conclusion

All in all, these are just a few of the strategies that I’ve seen be successful in acquiring that ever elusive first investor.

If you can take that first step, you’ll find yourself running in no time.

I’d invite everyone to research these methods more in depth to truly understand what you can do and then make it happen with the people you are pitching.

Hope this was helpful!

Best,

Bridger Pennington

Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!

DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.


Leave a Reply