Investment Articles

Today’s topic is a bit more 201 then 101 for subject matter, but good nonetheless for real estate investors of any experience level. You see, there are two basic types of private money investments: deal specific and what I call time period specific. And each has its own thorns to avoid. Some private money you bring in will be tied to a specific deal. You raise money to flip a house, the house sells, and it’s time to pay the investor back. Other deals involve money being invested for a set period of time (whether loans or equity investments). The return is paid on a monthly, quarterly or annual basis.

A lot of times, when you first get started raising money, you’ll tend to go the ‘deal specific’ route. You may find it easier to have someone commit funds for the time period of a deal, which could be a few weeks to a few months or possible (such as with an apartment building) a few years. It’s important to build the investors expectation the right way from the beginning. You should avoid investors who want to place funds with you as some sort of a high yield holding tank for their money. I’ve seen it happen before (it’s happened to me) where a potential investor wants to place funds for 3 or 6 months but then has an immediate home for that money after their investment with you cashes out. This is what I call “temporary” private money and it can really put you in a tough situation. It does beat hard money or not doing the deal at all, so keep than in mind – but they type of investor who cannot place funds for more than a few months isn’t one you can work with long term. So…back to our main question, which was: when is the best time to roll private investors back into the fold? What I mean is – as an investment is about to cash out or the time period for an investment is about to expire, how can you work to get the investor to roll their money back in?

First, you have to be proactive. Find a home for the money before it comes time to start talking to the investor about what they want to do with it. A lot of your private money investors will want to “keep a good thing going” and just roll the money back in. I suggest beginning discussions with investors at least 4-5 months before their investment matures. For deal specific investments, it helps to broach the subject at the beginning of the first deal. Make sure they are open to future investments if they are happy with this deal.

One big thing you have to pick up from all of this is what I call THE PROPER CARE AND FEEDING OF INVESTORS. I’m borrowing this from a Dr. Laura book my wife has, but it applies to private money investors. You have to make doing business with you an absolute joy the whole way through. You can get a lot of money re-invested and also get a lot of referrals to other investors this way too. Don’t automatically expect your investors to just roll their money back in. Actively work for it the entire time it’s invested. It sure beats going back to the well again (especially when you don’t have to).

Why not go back to the well for MORE money instead of just replacing existing funds?

Adam Davis is a real estate investor, author and speaker. He teaches real estate investors how to raise capital. Adam has completed hundreds of deals- from single family house flips to apartment buildings. He has raised millions of dollars from private individuals. For a FREE audio program on how to get private money go to: http://www.UltimatePrivateMoney.com.

Did you know that U.S. stocks make up only 42% of the value of all the planet’s equity markets? Yet, the average American investor still allocates ~72% of their stock portfolio to U.S. stocks!

Economists call this preference for investing close to home a “home bias.”

An extreme example was shown in an academic study from the 1980s. It showed that even though Sweden’s stock market represented only about 1% of the world’s stock market value, Swedish investors still put their money almost exclusively into domestic investments.

Living here in the U.S. and keeping most of your equity investments in the U.S. is a lot like working at Enron and filling your portfolio with the company’s shares.

This evening, get out your most recent account statement and look at it.

Are you over allocated to U.S. stocks?

How do you determine this threshold?

Well, one good way is to by taking a quick look at the MSCI All Country World Index which is designed to measure the equity market performance of developed and emerging markets around the world.

You will notice that 42% is allocated to U.S. stocks, 45% to foreign developed stocks, and 13% to emerging markets stocks. If you are over or under weighted in any of these areas you may wish to make changes to your portfolio so that you are properly diversified.

Plus, investing some money overseas will reduce both the upside and downside potential and allows you to obtain more consistent performance under a wider range of economic conditions. With so much talent spread out all around the globe you really never know where the next great opportunity or innovation will come from.

In China alone there are 1.3 billion people. In India there are 1.1 billion people. Many who have never owned a television. But progress is happening fast! These people are becoming educated in technical professions such as computer science and electrical engineering.

In the next decade many innovations will come from countries other than the United States. You do not want to miss it for no reason other than wanting to stay close to home.

Hold on… I’ve got one more secret to tell you about investing,… buy-and-hold is broken! My clients’ accounts made new equity highs this year while most people were still recovering from the bear market of 2008. Want to know this powerful investing secret? Get your FREE copy of ‘Buy-and-Hold Sucks Market Timing Rules’ at http://www.simplevesting.com

Raising capital for a start-up, corporation in expansion mode or a company in virtually any position presents it’s challenges and roadblocks. There has been no period in recent history that can simulate the difficulties that current entrepreneurs and executives are having when trying to achieve the procurement of venture capital. The standards have become more stringent and the cross-collateralization of personal and corporate assets as security for loans has virtually become a mandatory prerequisite for any type of funding, equity or loan based.

When initiating the process of raising capital one should take into consideration the use of a combination of funding options such as but not limited to: traditional venture capital, bank institutional, institutional equity investment, hedge fund lenders, private money lending, angel equity and loan investment, a private placement memorandum as the mechanism for raising capital distributed in shares, international equity based funding, the reality of taking your small business public on the OTCBB and many other concepts of capital raising that can be placed into a simultaneous strategy.

It’s a common mistake among entrepreneurs and executives to place all of their attention and time into one singular aspect of the above funding concepts. Instead, you should pick a multi pronged approach and go after multiple genres of financing for your business. Some avenues will yield success, some will not but you are more likely to achieve incremental funding successes as oppose to one gargantuan, be all and end all finance victory.

To achieve funding you’ll need to be able to contact multiple finance sources to start the ball rolling. Find online membership database sites that are owned and operated by professionals in the venture capital industry. There is a big difference between a generalized database of possible lenders and a strategic database of success driven finance solutions. Find the most cutting edge, full range database on the web and join them.

If you are trying to raise capital for your business and would like to start off on the right foot with many great options check out: http://www.angelfundingproject.com you will even receive a free download of an extremely powerful online marketing and corporate public relations submission software that will transform your company fast and get it ready for funding.

The latest hot product to come out of Wall Street is the Exchange Traded Note (ETN). It sounds a lot like the Exchange Traded Fund (ETF), and like an Exchange Traded Fund it trades through the day on stock exchange. Also, like an ETF it tracks an index. But buyer beware, although the clever bankers might have made this product seem similar it is something very different indeed.

An Exchange Traded Fund tries to replicate the performance of an index by purchasing the assets which make up the index, and it is thus an equity investment. It is unable to exactly replicate the index and is subject to tracking error. An ETN is an unsecured promissory obligation, which is issued with the guarantee of a financial institution. Basically the issuer says it will pay the investor an exact match of the index’s performance with no tracking error. It is an investment in a promise rather than an underlying basket of assets, and is a debt obligation. Thus an ETN has a counterparty risk, and if you don’t think this is a significant factor then you should consider that the counterparties to Lehman brother contracts are still trying to get their money back.

Another important difference is that they are regulated differently, with Exchange Traded Funds regulated by the 1940 Investment Company Act, and ETNs regulated by the 1933 Securities Act. This means that can have different characteristics as financial instruments, with ETNs able to make use of derivatives. Exchange Traded Notes have a fixed date of maturity, whereas Exchange Traded Funds can be open ended.

There are so many products out there trying to capture the imaginations of the individual investor that it is sometimes easy to forget the importance of researching each one and investigating the risks and rewards associated with each. When you come across complex financial products such as the one discussed in this article one sensible option can be to discuss the pros and cons with an independent financial adviser, but make sure they are indeed independent and not tied in any way to the bank that is selling the product. Tied advisers are sometimes motivated by commissions and they are conflicted from providing the independent advice that may best suit the individual looking to save a nest egg, for retirement, or purchase of a home to live in. These are important considerations when you are investment, that is for sure.

For more information about exchange traded notes then see http://exchangetradednotes.co.uk

If you’re trying to raise capital there are regulations set forth by the SEC to make sure everyone is conducting business ethically and in a way that can keep one accountable for their actions if fraud takes place. Regulation D Rule exemptions 504, 505 and 506 offer solid fund-raising capabilities that can handle most investment needs. Companies typically hire a consulting firm to author these documents and within 30 days you’re off and running and talking to investors; that is, of course talking to investors while staying within the boundaries of Rule 502c which dictates the guidelines for solicitation which means no active promotion of the issuance of your securities.

This basically means that unless you have a bunch of millionaire friends, you’re no better off now than you were before the PPM was created. So, how does one raise capital in an environment which limits the promotion of your offering with such limitations? Easy, corporate publicity! You must have your timing right in order for this to work but here is basically what we do with our clients as we are writing their PPM and what you should do if you already have an Offering Memorandum written. First we make sure that they have a solid presence online, within their industry genre by getting them massive exposure virally using video, social and news bookmarks, press releases, unique article submission, image/photo marketing etc. This exposure is just for basic branding purposes and not advertising the investment opportunity.

This process will draw massive amounts of attention to their company while we use specifically researched tags that will cater to the internet user who is researching their industry and/or looking for this specific company’s position in the marketplace. The next thing that you’ll want to do is promote your company using traditional means such as radio, TV and articles written about your company and executives within the company. Now, these promotions are not ads, instead they are interviews and/or expert conversations where you’re being brought in to talk about your industry as a whole. This passive promotional technique will allow for multiple ‘plugs’ during the conversation that lead potential clients and investors to your doorstep.

If you don’t have a publicist you will need one and during your initial ramp up you’ll want to have a targeted, localized and national audience using a minimum of 5 promotional combinations, this is crucial! Lastly, you are going to want to start blogging like a maniac. Blog and respond to any and every industry specific blog you can find. It is crucial that you carve out your position as an authority in the marketplace to tower like a beacon to future customers and investors.

Now you are ready to start talking to investors. The publicity used above will usually deliver a powerful enough promotion that will yield a steady flow of clients and potential investors and once word gets out that you’re company is solid and that you are offering equity investment opportunities…well the fund-raising trail get’s easier and easier. You may also want to consider using an ‘investor finder’ at this point. An ‘investor finder’ is an individual or company that has substantial accredited investor contacts and will introduce you to those contacts for a flat fee. They are not a market maker nor are they a broker dealer. They are typically a broker of sorts that holds minimal securities licenses yet packs a punch with their ability to set you up with active investing contacts.

Raising capital is actually extremely easy if you set your company up in a way that is conducive to investment.

Do you need an Investor Finder or experienced PPM author? Do you want a legitimate, quick and easy way of taking your start-up or small business public? Do you want to talk to a consultant that will help you decide which path is best for your company? Call Princeton Corporate Solutions today at 267-233-0183 or visit our website at http://www.princetoncorporatesolutions.com there are many ways to take your company public in an affordable manner that will achieve your goals and begin raising capital quickly.

I love the word Eschatology and it is getting a lot of use recently. The study of End Times. But what is fascinating to me is its other, more subtler meaning: the end of the absolutely expected and familiar and the beginning of the starkly unknown. The Alpha and the Omega right in your face. Which is all a round about way of saying, wow, here we are, this generation, experiencing the terminal decline of gold, an omnipresent civilization industry for 6 thousand years or more.

According to the world’s top gold producer Barrick, annual production has fallen by approximately 1m ounces per year since 2000, even though exploration budgets have tripled. Further evidence is found in the drop in ore grade concentrations from 12 grams per tonne in 1950 to 3 grams (US). South Africa’s total production has dropped by 50% since the 1970s. And as ore quality drops and production falls we are looking at the dramatic extension of the greatest gold bull market in history.

“There is a strong case to be made that we are already at ‘peak gold’,” said Aaron Regent, president of the Barrick, the Canadian gold giant. “Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore,” he said.

Meanwhile China and India continue their buying sprees. India recently bought 200 tonnes from the International Monetary Fund increasing their reserves by 2%, diversifying its reserves holdings which focuses on the US dollar. China continues its long march towards possible reserve currency status by doubling it gold holdings to 1058 tonnes, all the while implementing a startling new policy of personal gold and silver ownership for its citizens. The Chinese long view is eying a future monetized population, a possible gold back yuan, and the last spindly legs kicked out from under Old Man Dollar. It is the latest sign that the rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt.

As in all end days uncertainty remains certain and we can count on confidence and capital seeking security in the increasing scarcity of gold. How high can it go?

How high do you got?

Mad days indeed.

Aaron Kutchinsky is a lecturer/seminar leader and expert precious metals broker on the subject of proactive and timely personal and community economic protection and preservation.

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In my work as a metals broker I have an almost constant refrain: Trust no one except your own judgment. So let us take a look at a few facts we can all agree on and let the silver chips fall where they may.

Industrial use of silver is absolutely necessary. And while consumer buying may be down right now, it is certain industrial application will only proliferate and bloom into more and use and production. Think of it as a sort of giant Pac Man eating up supply.

China is monetizing its citizens with gold and silver. Where once private ownership of bullion was a serious crime it has now become national policy to exhort that vast population to buy silver, buy gold, and buy it now. Reserve currency anyone?

Historically, silver trades at a 16/1 ratio to gold. And we are talking about a lot of history so remember your Shakespeare, “What is past is prologue.” With a current price ration of 63/1 silver is a bargain.

At the end of the day inflation is very easy to understand: trillions of dollars poured into the money supply dilutes the purchasing power of all dollars. Regardless of drop in prices due to inventory, which creates a false perception of sensible deflation, the actual relative value of the dollar has dropped over 7% so far this year. Whoever is feeling bullish on the dollar please take one step forward…

The gold locomotive has left the station and it is not coming back and silver is the caboose. I know that sounds flippant but the new bull metals market is being supported by much vaster, deeper, and more determined markets (read China, India, our own domestic market, etc.). Silver is going along for the ride.

The Chinese curse, “May you live in interesting times,” has found fuller expression day by day. Every generation feels especially tested but, by gosh by golly, these times are unprecedented in so many ways it boggles the mind. And that is what is called uncertainty – the mother’s milk of precious metals investing. Does anyone have any real idea where we are headed? How could they, there road no maps for this undiscovered country. Thus faith-based currencies blow thither in the wind while real gold and silver money finds purchase within our hearts.

So I offer for your consideration: It seems that a little prudent hedging in an undervalued silver coin or two (or hundred) makes much more sense than dollars. What is the realistic downside? After all, on the other side of currency (and all paper-backed assets and securities) lies the darkest abyss of fiat nothingness.

Aaron Kutchinsky is a lecturer/seminar leader and expert precious metals broker on the subject of proactive and timely personal and community economic protection and preservation.

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Private equity is a term that has developed over the 20th Century during various boom and bust cycles, and with this came the terming of various asset classes – namely the various kinds of private equity investment. Under this broad heading two major sub sectors came about in the form of leveraged buyouts and venture capital.

The first era of the private equity age came about from 1946 through to 1981, which saw relatively low levels of private equity investment – where the term still did not mean a great deal to the vast majority of investors. What is known as the First Boom and Bust Cycle took place from 1982 to 1993, which saw a large increase in leveraged buyouts climaxing in the huge buyout of the RJR Nabisco. This occurred just before the leverage buyout industry collapsed in the late 1980s and early 1990s.

The second boom and busts cycle occurred from 1992 through to 2002, which came about after a series of events including the savings and loan crisis, trading scandals of an insider nature, the collapse of the real estate market and the recession of the early 1990s. The dot com bubble brought this period to an end – when it burst in the collective face of investors.

The third boom and bust cycle took place after the dot com bubble, and saw unprecedented levels of leveraged buyouts up until 2007, when , as we all know by now, things started to go badly wrong.

Over the years North American private equity has been substantially ahead of the European counterpart. The liberalisation of institutional investors in Europe has lead to the maturing of the European market – making it one of the leading private equity markets in the world.

As the recession shows signs of those illusive green shoots, this business is back on track. Indeed, many would claim that a good time to get into private equity would have been very recently and indeed now. With so much upheaval in the markets, there have arguably been some very significant opportunities to be had, and many astute investors have grabbed the bull by the horn and made some serious killings.

There are of course numerous firms that help investors decide upon investment opportunities, as the whole business can sometimes be quite dauntingly complicated. These firms take into account a huge range of information, in many cases reducing the risk to investors a great deal.

Gino Hitshopi is highly experienced in the realm of private equity, having worked in the banking industry for many years. For more information please visit: http://www.preqin.com/itemSection.aspx?s=1

Much has been accomplished since the early days of modern microfinance when NGOs and organizations such as Grameen Bank started lending to industrious, but poor, communities in Bangladesh. The sector now touches well over 100 million people worldwide and boasts a total loan portfolio in excess of US$40bn. Although significant growth was originally catalyzed by grant-led initiatives, such scale would likely not have been possible without the participation of commercial capital. In fact, with billions of individuals still lacking access to basic financial services, representing an estimated demand of US$300bn in loans, the future role of commercial capital will be even more critical. The reality is that it is impossible for microfinance to achieve its full potential without the participation of private equity and debt investment. Quite simply, there is nowhere near enough grant capital available to meet the funding requirements of the world’s microfinance institutions (MFIs) as they continue to scale. 
 
A role for grant capital in microfinance, however, still exists. Indeed, there are many initiatives that simply fail to offer much potential for a commercial return, but are still critical to the continued development of the sector. These include programs for conducting social impact analysis or the development of microfinance products for “ultra-poor” clientele. In this respect, both commercial and grant capital can work hand-in-hand as the sector continues to evolve and bring more of the world’s poor into the formal economy.  
 
Private equity in microfinance is mostly invested in the form of early stage start-up or growth capital. This type of investing is very different from the large-cap private equity techniques employed in the developed world, where investee companies are often over-leveraged and streamlined in the pursuit of a short-term exit and return on capital. In contrast, private equity in microfinance often serves to strengthen balance sheets, not to weaken them, and the greater corporate governance requirements of such investors inevitably results in stronger organizations. An increasing flow of this type of capital will not only allow the sector to scale, but will also lead to greater accountability and transparency.
 
As an emerging sector within the global financial services landscape, microfinance stands to substantially benefit from the increased participation of private equity investors. Through the provision of risk capital, such investors will actively support new business models and lending methodologies. With this in mind, consider the interesting parallel of the positive role played by private equity in other emerging sectors, where it has often resulted in the financing of hundreds of innovative young companies. Not only have these companies generated attractive returns on equity, but many have also contributed considerable social value by improving productivity, health, and access to information, not to mention the many new employment opportunities they have brought to the market. Examples include technology, telecommunications, biotechnology and, most recently, clean technology, all sectors that would not have achieved the same level of success without the risk capital, strategic support and commercial networks that private equity investors provide.
 
While the volume of private equity invested in microfinance to date has barely scratched the surface of the sector’s requirements, there are already a number of examples of the positive role that this capital has played. In India, a series of notable investments has provided the foundation for increased outreach, greater geographic diversity, the introduction of new products and improved mechanisms to attract and retain high quality talent. Over the past two years, the five largest MFIs in the country have been the beneficiaries of approximately US$180m in private equity investment, which has helped them to grow their combined active client bases from 2.2 million to over 4.7 million, a compound annual growth rate of 45%. Four of these organizations are now serving well over a million active clients each. Furthermore, numerous new business models have been launched as a direct result of investor support. Of particular note are the branchless banking technologies currently enabling millions of previously unbanked individuals to efficiently access deposit accounts, government disbursals, insurance products, and even secure payment platforms.
 
Despite the positive impacts of such investments, some still criticize private equity backed MFIs for their rapid growth rates. This is potentially a valid concern, but prudent investors will always seek to temper such growth with conservativism, since a default-ridden loan portfolio is of limited value no matter how large it is. This ensures that the interests of private capital are aligned with those of the recipients of MFI credit – both parties benefit from growing a quality loan portfolio, promoting greater operational efficiencies and technological sophistication, and ultimately from accessing public capital markets. These benefits all serve to lower the operating costs of the MFI, therefore resulting in a lower cost of capital and more efficient service for the end client.

As we reflect on the evolution of the microfinance sector from its origins in 19th century Germany*, and its subsequent development in South Asia, it is clear that an increasing participation of private capital has already stimulated greater competition amongst for-profit MFIs. This will ultimately lead to lower interest rates, a higher quality of service, and a greater diversity of products. Further private equity investment will be a key factor in enabling the sector to reach the billions of unserved clients who still live outside the formal financial system. It will also help more MFIs take a number of important steps towards better serving this market by securing banking licenses (enabling cheaper funding through deposits and a much needed saving tool for their clients), attracting world class talent and accessing cheaper capital markets. As we have seen, private equity and grant capital are far from being mutually exclusive and can actually co-exist. Grants have already realized many valuable developments, and in the future it is likely that this type of capital will also address many more important issues such as the measurement of microfinance’s social impact, the best way to serve the poorest of the poor, how to increase financial literacy, and how best to deliver complementary services like healthcare and education. Each of these is very valuable, not only for the clients concerned but also for society at large, strengthening the sector overall and thereby complementing the ongoing efforts of private equity investors.

* Raiffeisen Banks were founded in 1846 in rural Germany and are early examples of microfinance institutions. Many of them are still in operation today, functioning as co-operatives or savings banks.

Justin Willmott is a Vice President with Legatum Ventures, based in Dubai. Legatum Ventures has invested over $60 million of private equity to support the microfinance sector globally since 2007, and continues to be an active supporter of the sector as it develops towards reaching its full potential.

This article earlier appeared in Microfinance Insights magazine in June 2009.

Making your business attractive for private equity funding is not as easy as many businessmen think it to be. Contrary to popular belief, making investors bite takes more than just pitching a good idea, and then waiting until they send cash your way. It may even take years before a company can become “investment ready.”

Here are a few guidelines for those who are hoping to attract private equity investment for their companies:

Build your management team. Ensure that the members of your board have competence and experience. Strong boards impress private equity firms. Investors must also be convinced that they can develop a smooth working relationship with the board in the event they decide to join it.

Get good advice. You must appoint an advisor whom you can trust; one who knows the nature of your business, from inside out. Choose an experienced advisor who can give an honest, professional opinion on the status of your business, whether it is investment ready or not, and make more accurate forecasts about your financial prospects.

Tell investors why your business is worth their money. Investors need to be convinced that they are banking on a firm after being presented a clear picture of its history, strategy or financial status. You must be able to spell out in exact terms and figures why investors should support your company above others. Presenting a sound and realistic proposal is crucial. Experienced investors can smell a bluff from miles away, so forecasts about your company must be realistic.

Show where you are now. Familiarize investors with your firm’s current position.

Inform them about your product/service, who your principal clients are, main competitors, and your target market.

Show you can grow. A well-written and concise business plan with three-year forecasts, objectives and growth strategies appraises investors of the growth potential of your company. Predictions must be measured, realistic, robust, accurate and achievable.

Stan Stonesgate follows the private equity industry and collects investment advice and news on his website, http://finance-private-equity.com/