Raising capital for your real estate deals can be a challenge, but it doesn’t have to be if you know how to approach family offices. Yes, ultra-wealthy families need access to deals just as much as real estate investors need access to capital. On today’s show, Sam Wilson talks to Richard Wilson, who operates the largest ultra-wealthy investor club, the Family Office Club, as well as CommercialRealEstate.com and Billionaires.com. Richard has set up over 100 family offices for clients and hosted 150 plus live investment club events. Today, he shares how he finds these families and their checklist of things they are looking for from investors. Tune in and discover Richard’s best practices for engaging with family offices that get him the funding he needs.
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Raising Capital Through Family Offices With Richard Wilson
Richard Wilson operates the largest ultra-wealthy investor club, the Family Office Club, as well as CommercialRealEstate.com and Billionaires.com. He has set up over 100 family offices for clients and hosted 150 plus live investment club events. Richard, welcome to the show.
Thanks for having me here, Sam. I appreciate it.
The same three questions I ask every guest who comes on the show. Can you very quickly tell us where did you start? Where are you now, and how did you get there?
I started in 2007. I was raising capital and figured out there’s a thing called family offices. I started writing on a blog and wrote a book for Wiley. We bought FamilyOffices.com. We listened to our clients over the last several years. I have spoken a couple of 100 times in fifteen countries and we have hosted 150 of our own conferences. I have written thirteen books in the last several years. I learned a lot through hosting all those events and interviewing a lot of ultra-wealthy families. Setting up about 100 ultra-wealthy family office wealth solutions for clients and putting together their family offices, essentially.
Where we are going now is building our platform. We have a community called the Family Office Club, and we offer 15 to 20 live events per year, an online platform with investor mandates recorded in there. We get smarter for people raising capital, do workshops for them, and have helpful investor summits, where people are raising capital because we are always doing text messages, phone calls, emails, and closing deals with our investors. It’s because we are working with the capital raisers, we have a good deal flow to show to our investors.
Out of 1,000 people who paid for a membership in the Family Office Club, 10 or 20 of them are interesting to some of our top investor clients and they appreciate access to that flow. It’s because of our Family Office Club Platform at FamilyOffices.com but also because of CommercialRealEstate.com and Billionaires.com that we have a high volume deal flow, which allows us to see the forest a bit.
I want to hear more of this story. How did you grow? Posting on blogs and things like that but grow the idea that this was a niche and there was a problem you could solve. The backup question to that is, what was the problem that you ended up finding out across the board that needed to be solved?
It’s all about adding value first because these individuals are very busy. They would rather reach out to someone at a time when they need their help as a resource rather than answer a voicemail or a random email from someone they don’t know.
There are two stages of that. The first problem was that when raising capital for some things like a hedge fund, you want to go to accredited investors at the very least. It would be better if you could raise seven-figure checks per investor. What I figured out that was an issue, I said, “Who has all of the ultra-wealthy clients? Where are they?” I figured out some of them are calling themselves family offices, which has nothing to do with having an office in the basement of your family’s house. It’s an ultra-wealthy wealth solution. Back in 2007, almost no one knew what the word meant. We’ve got in the industry early. I wrote some of the first books on space, etc.
Part of the issue was spreading the word about the industry, and part of it was, how do I talk to these people because they are private and nobody is talking about them? We provide one of the first websites educational resources, YouTube channels, and podcasts on family offices. That grew our stance in the industry. It also allowed us to solve the problem of how do we go direct to the people with all of the money? The joke says, “Why do you rob the bank?” It’s like, “It’s where all the money was.” It was trying to figure out how do you work with family offices? Several years later, I have seen it.
The other problem is that a lot of these families are not sure who to trust after they get liquid. They don’t know what a family office is or if they need one. Don’t they know how to set one up? They don’t speak to too many of their peers. There is a big gap between when people start a family office and make a whole bunch of million mistakes versus those who have run family offices for 5 or 10 years and know of certain best practices everyone should be doing. Many people learn those the hard way. Those are the two gaps to fill.
On that note of probably not secrecy but these aren’t people that are advertising or waving flags saying, “We had a business sale. We had something happen. Now, we are super liquid.” How do you find these family families that are in need of what you do? At this point, you’ve probably got some momentum but early on, how do you find them?
I was at Orangetheory working out and they played some hip-hop-type music. One of the lines I heard when I was on the treadmill was like, “I don’t chase money. Money chases me.” I don’t know who’s saying that. I heard that and I was like, “That is the key to our investor funnel and our platform.” It’s not that all the family offices are chasing us but we reversed the flow. We don’t cold call family offices or cold email these groups. We position ourselves to be found. When they have a migraine, we want to be a form of cure for that headache.
When they search, how do I start a family office? They find our book called How To Start a Family Office. It could be them researching what other centimillionaires are doing, which means $100 million net worth. We have the only book written for centimillionaires. We have resources, articles, blog posts, interviews, and podcasts that are very helpful to some ultra-wealthy families.
When we can add value to them on a podcast that they listen to for free, then the son of the $100 million net worth person emails their dad and says, “We should get on a call with Richard to formalize our family office because he rattled off a whole bunch of things that we should be doing as a family. We are not doing them. We need some help and guidance here.” It’s all about adding value first because these individuals, even if you have a big team to reach out to, all of them cold, they are very busy. They would rather reach out to someone at a time when they need their help as a resource rather than answer a voicemail or a random email from someone they don’t know.
When you first onboard a family office, what are some of the common problems that you are helping them solve?
There are so many big, expensive ones. I will rattle off some things that are not too long-winded. One is a lot of them start investing all over the place with a bunch of startups and risky Angel investments. It’s a big mistake. A lot of them don’t study their own DNA, passion, and where they want to go in the future. What’s going to be in growing demand? What’s not too competitive and zero in their strike zone based on where they made their money or what skillsets they have as a family?
If they went through that process, they could focus their energy on playing offense within the stem cell industry, manufacturing, self-storage or wherever they want to play offense. They could diversify into cashflowing real estate development and figure out who the best virtual family office or multifamily office manager could be for their public portfolio unless they made their money in the public markets. Many don’t go through that process and don’t identify what their values and objectives are. They start hiring people and spending money on consultants. Putting money into deals and haven’t yet even put down on paper on one page exactly who they are and what they stand for.
Once you do that, you can hire, fire, and spend money with more conviction. Invest your money and portfolio with more conviction. Otherwise, you don’t know if what you are doing is aligned with who you are, and no one around you knows who you are unless they have already known you for a decade. It might not be super clear to them. Those are some of the biggest mistakes I see right after a liquidity event.
That makes a heck of a lot of sense because you can mistake activity for progress. In fact, you are maybe regressing. You are throwing things out there without a strategic plan involved. You rattle off a bunch of different industries because a lot of this is, if you have a liquidity event, it’s almost starting a brand new business all over again.
What’s common that people should always remember if they hear this as an investor is that how you create your wealth and the skills you have? Your distribution network, position in an industry, relationships that you create your wealth through some very specific reasons and you can continue to create more wealth sometimes the best defense is, having a good offense. Could you be diversified? When the whole market goes down, you might go down with it but the people who have a good offensive game can not only be smart enough to allocate after things have gone down but also be making money even while the general industry or economy is going down.
Let’s talk about that for a second. What’s the buzz on the street in the ultra-wealthy environment? What are people doing now to make sure that if there is a correction, how do they protect themselves?
Normally, investors will be sitting on a little bit more cash but because of the inflation, which most people agree is around 12% to 15% inflation now. They are putting more money to work than they normally would in an uncertain economy because they feel like maybe it’s going to continue to be big inflation coming. There are more cryptocurrency investments going on now, exponentially more than two years ago with the ultra-wealthy. The other thing that is being discussed quite often now is levels of debt they want to have across their portfolio, the terms of those debts, personal guarantees on debt, and also the longevity of investments they are getting into.
If they can get their money back out of an operating business, restructuring gross revenue, royalty structure, which we have done in about a dozen deals now, that’s of interest or they can get in and out of the deal in 1 to 3 years. That is more appealing so that every year they have some deal with capital’s rolling off coming up. In that way, whatever year the economy sinks, they have had a small liquidity event again. They’ve got some cashback or part of their cashback, and they aren’t fully illiquid and don’t have the cash to invest.
Invest your money and portfolio with more conviction. Otherwise, you don’t know if what you’re doing is aligned with who you are.
Let’s shift gears here a little bit and talk about it from the capital raise side. You’ve got into this because you were raising capital. What was that industry for? Was there a particular niche you were focused on when you were raising capital?
In college areas, capital for a high-tech company from Angel investors, and then after my MBA, I raised capital for some hedge funds and estimate products. That taught me a lot about what to do and not do but I have found that with capital raising, figuring out what you are going to be best at raising capital for and honing that in to be very specific to who you are. Also, figuring out what investors are likely to say yes to you and typically, investors say yes to people who are local to the person raising capital or the team that’s raising capital and local to the asset being purchased. They can go see it easily and check it out or there has been a familiarity with the industry.
They made money in self-storage and stem cells. They are even more likely to understand it. At least if they are a doctor, they are going to understand stem cell therapy, more so than a manufacturing guy from Nebraska or something. There has to be familiarity with the industry, the team, person, be local to the person or organization. If you can line up all three of those trust curves, a lot of people are going to come into your deals. If you are going to investors who don’t know you, aren’t local to the deal, and don’t know the industry are probably never going to invest because they are starting from ground zero.
You realized that you could serve both sides of this industry by bringing on capital raisers and people that need access to the ultra-wealthy families. It’s a win-win. The ultra-wealthy family also needs access to deals, and people with deals need access to capital. You said you maybe have 1,000 people or so on board. You said this earlier and if I misunderstood, correct me but there are about twenty or so of those that could provide consistent deal flow. What does that mean?
We have 1,000 members who pay for charter membership to come to all of our conferences like the Super Summit. We have 3,000 plus investors who have registered with us and come to our events, webinars or conferences. Of those 3,000 investors, about 600 of them have signed a contract with me where I help them put their capital into deals and bring them deals. They don’t randomly bump into people at our conferences. I will keep an eye out for them year-round.
Those are the different levels we have. We have some VIP members that are charter members. They get some special access to investor databases but not in all of our investors. There are about twenty investors who are the most active like with a billionaire client that we have about $900 million in term sheets and JV commitments being closed. I have a very active $15 million net worth client that’s done six deals with us, for example.
On the deal flow side, we also think there are 20 or 30 interesting investment opportunities among those 1,000 members who are all raising capital. Meaning, what they are offering is a very good match for some of our top investors and we try to connect the dots. At our event in Fort Lauderdale, we probably will have 100 one-on-one meetings going on between investors and attendees. In addition to the 800 people attending the event and the 57 speakers on stage. Those would be a lot of follow-up and connections there live at the event. It’s not random.
What are the things that your family offices are looking for now that investors are presenting that they are saying yes to? I know that’s a broad question because, as you said, every family office has its own mandate. What are some things that you see are getting across the finish line that people are saying makes sense now?
Some things will be self-storage, conversion from a hotel into multifamily and healthcare, meaning medical practices and dental practices that have multiple locations. They are doing multiple seven-figures a year in gross revenue and royalty deals. It’s where people are getting their money back off the top-line revenue and not off of some dividend and crossing their fingers the company is going to sell in a decade to someone.
Deals that are local to someone real estate-wise and our cashflowing in a short duration, 1 to 3-year deals are the stuff that’s getting done most often. We’ve got a big co-GP, JV program with an institutional investor, and we have been signing several $300 million in equity term sheets for that. What we do is provide 97.5% of the equity for deals. The sponsor provides 2.5% of the equity.
We grow a $1 billion portfolio together with them over a 3 to 5-year period. We are doing that with our smallest group, who had only $30 million in AUM when we met them, and now, we’ve got them up to $150 million in AUM after eighteen months. Another group at $300 million in AUM had operated for four years to get to $300 million, and now, in the last several months, they are at $700 million in AUM. A few of those are taken off real quick but we do small deals, operating business and real estate deals. We are not specific only to one type of niche.
The people who have a good offensive game can be smart enough to allocate after things have gone down and be making money even while the general industry or economy is going down.
I’m aware it’s not specific to one niche. That’s fun because you get to see it all, which would certainly keep it interesting. I’m wondering, what are some deals that you see or stuff that’s being presented and it’s falling flat? Why do you think that’s happening?
Many times, people write an essay-long email to describe their deal, which almost automatically kills it. Many people reach out with blanket emails to hundreds or thousands of people. They don’t personalize it and don’t add value first. They are one email out of thousands in somebody’s inbox that kills the deal.
Most people will spend time getting an airplane ticket to come to a conference and show up. They can’t describe what they are doing in one sentence. They could have taken the time when you can’t use your laptop, and you are going up and down on an airplane to draft out 30 versions of a one-liner that in a sentence tells an investor why it matters you exist on planet Earth compared to your 10,000 competitors. If you are a hedge fund, they say that you provide absolute returns and do well, whether the market goes up or down or it goes down, you do even better. Everyone says that.
If you are a multifamily group, don’t say you take B and C properties based on demographics. Renovate them at $10,000 a door and provide that 17% IRR over 5 to 7 years. Everybody says that. You need to say something that hits them between the eyes and says, “We have been looking for that. I didn’t know that existed. That sounds like it’s just for us. That’s so refreshing because it’s structured much better than how everybody else structures their deals.” Those are some of the biggest problems.
Many times, when people go to their lawyers to set up a deal, they say, “How do I do this, lawyer?” The lawyer says, “Let me think. For $800 an hour, I can bill all these hours. It’s how much it costs to do a fund but I will use this template from this other fund I did.” They tell their client, “Everybody does it this way. You should do it that way. It’s a best practice.”
It’s great for the lawyer because they are doing something for the 90th time and charging their client $80,000 but you should do something that’s not what everyone else is doing if you do something better. Your structure is sweating for you, helping close investors and a superior in terms of alignment. It’s more performance fee-based or it feels like there is more transparency and rewards for you if you do well but not charging a bunch of fees for taking an investor’s money.
I see a lot of deals that are feed to death before it ever gets back to the original investor. What are some standard fees that you see, especially at the family office? If you have a single investor in a deal, if they are bringing in this case, maybe 97 or 90, I have seen a lot of those terms, a 90/10 deal where it brings the most of the equity, what fee structure makes sense on a real estate deal like that when you are bringing a single investor a large check?
Many times, there will be minimal acquisition fee, management fee, and more performance-based. Sometimes an investor bringing a large check will demand a higher hurdle but give them a more handsome profit share after that hurdle. They might want to 10 or 12 pref are putting in a lot of money and have a more fair profit share for the sponsor because that higher pref is they are worried about protecting their capital.
In general, if you can keep it so that your actual expenses are charged back, you are not making any profit on the acquisition fee or even the management fee, and you are transparent about that. The investor is happy to have you rewarded handsomely on the backend if you get them a preferred return, that’s slightly better. One example might be, let’s say, your actual expenses get documented, and you expect them to come right around 25 basis points on the acquisition fee side.
You show a spreadsheet of all your expenses, and management fees are typically industry standard at 1% or 2% maybe but you document them, they are at 42 basis points on average. You show the investor that and you say, “We will give you a 9% preferred return, but then we want a 40% profit share or something that’s a little bit healthier.” That would be maybe one option, just to throw it out there.
Last question here before we wrap it up. If someone were to begin approaching family offices, what is a best practice as they begin reaching out? What is something tangible that someone can do in that regard that makes a good first impression?
One thing we realized is that there are family offices in every city and industry. If you are raising capital for a healthcare deal, figure out who the wealthy doctors are nationally, who have a family office. Figure out got who the wealthy doctors are in your city and show it to them first. If you are doing a litigation fund where you are funding court cases and trial cases, go to law firm partners who would feed you deal flow, add strategic insight and invest faster than some random investor. You have to teach them what litigation funding is. Go to those that are local to you as a family office. Go to those who made the money in your industry. Figure out how do you add value first?
When I first moved to Arizona, the first week here, I’ve got my car serviced at a location, and they had a cool business model. I looked at their website, and they had twenty locations. I emailed the two owners and they replied to me the same day. They had had an exit for $100 million-plus to Goldman Sachs. They were building a second iteration of the platform in another state. When I approached them, it was a simple one-line LinkedIn email that said, “I run this ultra-wealthy investor club. I have an investment structure that allows you to continue to expand without giving up equity each time you open a new location to your investors.” They wanted to hear about that.
It was a way to add value to them and not say, “Can I come into your office to show you something that I can sell you so that you can invest in my fund or something.” That’s asking to take something from them. I was offering to give something to them. A lot of people get that wrong. Nobody is obligated to respond to your random emails about your fund or deal, even if you are under some deadline. They get those emails hundreds of times a week if they are a well-known investor. You have to start from a different mindset.
I have the last final few questions here for you. If you could help our readers avoid one mistake, and usually this is a real estate-related question but one mistake as it relates to engaging with family offices, what would that mistake be and how would you avoid it?
One mistake is to be too high-pressure, stressed-out, feeling rushed or disorganized. Family offices are long-term minded and are used to staying at the W, Four Seasons or Ritz-Carlton. They are used to having people be professional, polite and patient. When you get thousands of inquiries a day because one of my clients has 4,000 employees, one of my clients has $500 million net worth and 140 LLCs. A lot of these people are the busiest people on planet Earth.
For them, a week flies by like a day. If you follow up three times in a week or twice in a day and you seem like a stressed-out sweaty person trying to shake everyone’s hand at the conference, they immediately will say and think to themselves, “I am never talking to this person again.” That’s a big mistake, and I see it live at conferences when people are stressed out about raising capital. We also sense it in people who are following up way too often versus spacing out the communications a bit and making sure you respect their time.
When it comes to investing in the world, what’s one thing you are doing right to make the world a better place?
One thing we are doing right is alignment and doing well to people while we are building our business. Treating employees as well, treating clients well, adding value, and trying to add value to lots of people on a show like this, even though maybe only two people read this or will do business with us directly. It helps people build their businesses by reading these types of strategies that family offices use.
My selfish motivation for running the Family Office Club is to put all these smart family offices on stage, listen to their strategies, and then use them myself in my own business. That keeps life interesting. I have to go to all of my own conferences, so I don’t want to be bored at my events. That’s generally how we are doing it.
We also have a new platform that we are building out called InvestorResidences.com. Every time we buy a house for that network of houses, those ultra-wealthy investors or high net worth investors can stay at, we short-term rental them out. They are not staying there. We are going to be building a house for our orphans and children that don’t have houses in other countries. It would be like we either buy a house or build a house. We are doing that in partnership with Jeff Hoffman. He is one of the founding investors of Priceline.com and Booking.com. We are trying to formalize that program with them now.
That’s one thing that we are excited about. If anyone would like to check us out, if you are a doctor, dentist or a passive investor, you can come to our Family Office Super Summit for free. You are welcome to come as our guest. If you are raising capital for something, you have a fund or you syndicate deals, then it’s a $99 first month trial to attend but the food catering alone is $170 a head for this conference. We are losing money for you to come to check us out.
For a decade, we have guaranteed people, if you don’t like the chicken, scrambled eggs, speakers or anything at our conference, we will give you all your money back that you spent on coming. At our last 840 person event at the Ritz Carlton, we had one person ask for a refund. Who knows? You might not like me, the eggs, the speakers, or something at the event.
We make it a ridiculously low-risk because most people, once they come, they love it. They are part of the community and grow with us, etc. That’s the Family Office Super Summit. It’s on December 13th, 2021, in Fort Lauderdale. We are going to have 800 people there and 57 speakers on stage in one day, including a couple of billionaires, foreheads of publicly-traded companies, and a shark from Shark Tank. If anyone wants to learn more, it’s at FamilyOffices.com/super
Richard, thank you so much for your time. This was great. I do appreciate it and look forward to seeing you here in Fort Lauderdale.
Thanks, Sam.
Important Links:
- Family Office Club
- CommercialRealEstate.com
- Billionaires.com
- How To Start a Family Office
- Super Summit
- InvestorResidences.com
- Priceline.com
- Booking.com
- http://CapitalRaising.com
- http://InvestorClub.com
About Richard Wilson
Richard operates the largest ultra-wealthy investor club, the Family Office Club as well as CommercialRealEstate.com & Billionaires.com – he has set up over 100 family offices for clients, and hosted 150+ live investment club events.
