New products are no longer just for institutions and ultra high net- worth individuals. Their creators are putting alternatives in front of a broad range of accredited investors at an exponential rate.
The list is growing. There’s everything from commercial real estate including multifamily, office, retail, industrial, and hospitality- to mention a few. There is also self storage, data centers, medical offices, student housing, seniors housing, and single family housing.
Some say alternatives can act as a compliment, smoothing out the highs and lows of the market and reducing volatility.
We have seen a lot of publicity recently about non-traded REITS being acquired, going public, and shaking loose some potential illiquidity. As success is publicized, the rest of the market recognizes it and then begins to go after the sector.
Other say it’s the baby-boomer investors that increased interest because of the volatility they endured during the financial crisis and the growing closeness of their retirement. Advisors are warning against too much exposure to loss just before retirement.
Accredited angel investors are increasingly aware of alternatives, whether from news reports or conversations at cocktail parties with other investors.
A word to the wise, they are not suitable for everyone. Each offer can be very different, even if they are in the same sector. You have to move cautiously and do your homework. Two multifamily offerings can be as different as night and day on structure, payout, ROI, liquidity, exit in case of emergency, commitment of time for funds, and on and on.
A GROWING MARKET
Growing interest and hefty commissions are also leading more financial services firms to enter the alternative space.
The number of alternative investment funds monitored by the research firm Morningstar has grown from 239 in 2009 to 424 in 2013- a 77 percent in- crease. A growing wave of money has been pouring into those funds as well. Total invested assets in these funds have nearly tripled since 2009, rising from about $49 billion to $139 billion, according to data from Morningstar.
There is more education for you to learn about the key to potential success. Interested?
The pundits are saying that growth in equities and fixed income may be flat in 2014. So, where are people looking? Alternatives!
The first thing to realize is in alternatives there is less standardization and transparency, requiring more study and homework on your part.
Don’t forget it starts with the most important question, “What are your goals and how might any alternative investments meet your needs?”
Some alternatives can be highly illiquid, while others can seem very lacking in clarity and transparency. Don’t be fooled by glossy brochures with a hard to understand structure.
During extended periods of low interest rates, investors often seek products offering more attractive yields.
If you are an investor considering alternatives, be sure you fully understand:
• Illiquidity and valuation complexities
• Fees can add up- what are the fees, commissions?
• What are the Complexities and Risks
• Distributions may not be guaranteed
• Distributions may carry tax consequences
• Early redemption is often restrictive and may be expensive
• Operating expenses can eat up profits
As part of our Angel Investors Network Live Interview Series, Greg Writer, CEO of Angel Investors Network , interviews national bestselling author, speaker and trainer, Lane Ethridge, about being a successful entrepreneur. Lane also reveals a mistake he made in investing that everyone can learn from. Please take time to check out Lane’s site @ http://mylanechange.com/
1. KNOW WHAT YOU DON’T KNOW
When I visited New Zealand, I found that majority of their small and medium-sized enterprises had no board advisors at all. This is the problem of most startups: they don’t know what they don’t know. Most startups feel that asking for help is a sign of weakness.
My advice is to have board advisors (comprised of people from different industries with diverse backgrounds) whom you can engage a couple of hours per week. Likewise, attend quarterly board advisory meetings where you present and account for your accomplishments, plans and goals. Having a board of advisors can help you learn the questions you do not know.
2. KEEP PEOPLE INFORMED
Start monthly newsletters.
The first newsletter should have about eight sentences. Send the newsletter to your board advisors, as well as to existing and potential investors. The goal is to keep them informed of events and challenges in your startup. When you need capital investments, these investors will be ready to commit funds since they know and understand how you are running the business.
The second newsletter should be equally as short as the first. Send it to your distributors, suppliers, partners, executives, fans and customers.
3. BUDGET YOUR OPERATIONS
Work closely with an accountant, and try to have a budget for your next month operation or next year. You will best understand your business expectations.
4. BUILD YOUR STRATEGY
Focus on your strategy, and stick with it. Though you may change your plans, just realize that you can only do so much. Focusing on your strategy will be your biggest challenge, but it should also be fun.
5. IDENTIFY YOUR COMPETITOR
A competitor is a good sign of a robust market. Identify direct and indirect competitors. The competition will tell people where your company stands and what sets you apart.
6. FOCUS ON THE WHY
Identify what drives people to buy your product or use your service. Focusing on the ‘why’ can motivate you to accomplish things you have never done before and help you pursue your goals.
7. LOOK AHEAD
Entrepreneurs seeking capital for their businesses should look forward to exciting new developments in 2014. New laws will open up more opportunities and new ways to secure financing and get funding.
8. TAKE ADVANTAGE OF NEW TECHNOLOGIES
Social media and internet technology are instrumental to all new ways of financing. You might find a new market or niche altogether.
9. WRITE A NEW BUSINESS PLAN
Writing a new business plan with an executive summary will help you focus and stick to it. Prepare a concise, two-page executive summary.
The world’s largest pension fund ADIA showed me that executive summaries have two pages, maximum, with up to six addenda. It should contain: name of company, state of incorporation, year incorporated, shares outstanding, compensation offered for capital, industry sector, executive names, geographical area and address.
Include the full bio of your executive team in the addenda because investors are always looking for a team. The first sentence of the first page should explain exactly what your firm does. I pass on too many deals many times when I cannot figure out what the firm does in one sentence or one paragraph.
10. PLAN AND PRACTICE YOUR PITCH
Practice your presentations in front of a mirror. People love to get instant feedback from everybody in the room. Initially, do this with friends and people you know. Practice makes perfect.
These are just little things startups often miss. If left undone, these can be their biggest mistakes.
Early stage software companies make exceptional investments. Licensing software is outstanding profit, and acquisition possibilities from giants of the software industry abound.
Technical due diligence of a software company can be challenging. Given my background of software development and innovation, many investors make requests for due diligence. Often, there isn’t time or budget to perform a complete due diligence study; a quick analysis is the only option.
This do-it-yourself checklist can size up a software company rapidly. The company’s CTO (or lead expert) can answer these questions without taking eons of time to prepare.
Schedule a call with the CTO and ask these questions. Emailing is not as effective; you want to assess how confidently the CTO answers the questions.
QUESTION ONE: “How many test cases do you use to test your software, and how often are those test cases executed?”
If the CTO doesn’t give you an approximation of the number of test cases and the frequency of their execution, then score zero. Test cases less than 1,000 with frequency of testing less than once per month scores one. 1,000 or more cases or frequency once a month or more scores two. More than 1,000 test cases and frequently better than once a month scores three.
QUESTION TWO: “Can you show me a copy of your product roadmap?”
Keep the information confidential – never share a company’s roadmap with anyone. No product roadmap scores zero. If the CTO creates a product roadmap within a week, score one. A CTO who already had a product roadmap scores two. A product roadmap that extends between six to 24 months into the future scores an additional point.
QUESTION THREE: “What differentiates your technology from your competition?”
Surprise or unintelligible answers get zero points. A CTO extolling product differences (as opposed to technology differences) scores one point. If the CTO extolls underlying technology principles, an additional point is scored. Then try for a bonus point by asking, “Can you tell me more about that?” Passion, detailed understanding, and ability to summarize scores another point.
0-2: Technology risk. Avoid investing if possible. If you’ve already invested, some leadership should be infused quickly.
3-5: Good foundation, needs improvement. Ask these questions again in six months. Without improvement, consider putting your money elsewhere.
6+: Outstanding. A company with this score will identify and mitigate software risk and increase the probability that you’ll land that home run with your money.