What’s up, everyone? Today, we’re going to clarify – investors vs. allocators – what’s the difference?
There’s a significant difference between raising a few million dollars and raising hundreds of millions of dollars!
Your capital raising strategy should differ from one situation to the other.
So, pay attention as I explain the difference between an investor and an allocator.
Investors
Investors invest their own money.
This includes any individual that is giving their money to friends, family, or businesses.
Investors also have shorter time horizons.
A typical private equity fund has a lockup period of 10 years. That’s a long time for you!
When you pitch investors, they’re more concerned about cashflow, capital growth, and will be less diligent in their due diligence.
Another thing to consider is emotion.
Lincoln said in the YouTube video…
“Investors will be more of an emotional sale. Individuals are emotion driven. Allocators will be a logical sale.”
Lincoln Archibald
Now, let’s look at allocators…
Allocators
Allocators invest other people’s money.
Any fund manager you pitch is an allocator.
This applies to family offices, pensions, or any institutional grade investor.
Allocators have longer-term investment horizons.
That means that they’re ok with lockup periods of 10 or 15 years.
Allocators will have a team of consultants that help make investment decisions. Their due diligence will be thorough! They will be less concerned about short-term cash flows.
What Makes a Good Pitch
Let’s go over 3 core elements of a good pitch…
Lincoln and I listen to hundreds of pitches a month, so we’ve determined 3 things that need to be communicated in a good pitch
- Sell me on your asset
- Sell me on your strategy
- Sell me on your sponsor
Asset
What’s the asset? If it’s commercial real estate, I need to know why that’s the best asset to invest in right now. Same thing goes with crypto, fintech, or whatever.
Strategy
What’s your approach? How will you be capitalizing on an opportunity?
Sponsor
Do you have good enough experience? What makes you the right person (or team) to do it?
Here’s the twist: You need to focus on one of these core elements more than the others depending on if you’re pitching an investor or allocator.
Pitching an investor: Focus on the asset. Why? You’re competing against bank accounts and their financial advisors. They’re not looking at 20 different real estate deals and deciding on yours.
So, the majority of your pitch should be spent making sure that they are sold on your asset.
Focus on the benefits! What are you going to help them do?
Pitching an allocator: They already know which asset they want. So, you need to focus on your strategy!
Why is your approach better than everyone else’s? What’s your edge?
You need to leverage whatever is giving you the advantage.
“What if I don’t have an edge, Bridger?”
Then do something about it:
- Buy it
- Build it
- Partner it
Conclusion
So, investors vs. allocators – what’s the difference?
There are obvious differences that we already discussed, but the crucial difference for you to understand is how to pitch both parties.
Hopefully, this information helps you in your capital raising! That’s it for today!
Thanks,
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 author.