I am pursuing a search in which I plan to use a combination of investor cash + SBA for deals in the $2-3M range. I will put in roughly $100k, and raise another $150-$250K from investors to support the down payment. At what stage is it important to have the investors lined up to support you?
I have noticed a few different themes here. 1) Funders will want to have a clear understanding of who will help you raise the additional capital. 2) Brokers and Sellers want confirmation of funds / funding prior to going down the rabbit hole with you. 3) Investors will often want to see a company, return metrics, and detailed explanation of the company, industry, etc. prior to committing anything.
These three items seem to create a conflict in the approach of what comes first.
My thoughts are that I reach out to family/friends first, educate them on the model, high level returns expectations, investment structures, etc. early on. This will help them gain comfort with the process and build general expectations of what types of returns they might make along with selection process. For those that are interested, I get a soft commitment for X amount of funding and will include them in the decision making and deal selection process.
For non-related investors (for example, those in the forum), I would only reach out once a deal is active and I need to fill a gap for the down payment.
I would be interested in everyone’s thoughts here.