Deal Skill vs Capital Raising Skill (which one is more important?)
If you had to pick one, which would you pick and why?
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Money is the gas for the engine.. If someone cant raise money it doesnt matter how good a deal is. I went all in on being a 'money guy' a couple years ago and it was a far more efficient way for me to get into a lot of big deals early on as a co-GP.
Do you mind sharing how you became the "money guy"? Did you work in an IR function and then spinned out on your own? Did you do equity placement? Are you raising retail or institutional capital?
I was working as a generalist associate at a smaller REPE shop in NYC and learned the ropes on how to communicate with institutional investors.. I started networking with UHNW individuals with the goal of eventually going off on my own. Once I found the right person to back some of my deals, I had the confidence to leave my w2 job and start buying some assets.
In that case, I assume you also had specialized deal skills to find your own deals? Or did you partner with a "deal guys"?
How do you find UHNW investors? Personal network or through your old firm?
What would you say are the most important skills you need to have to speak to institutional investors and be a good capital raiser?
For all questions above- I had deep exposure to acquisitions/asset management at my last shop. Once you know how to source, structure, close and operate a deal, getting additional reps carries its own opportunity cost. Sourcing killer deals for someone else doesnt really help you long term aside from maybe some nice bonuses and carried interest (which is likely put on a vesting schedule and locks you in for years to come). Once you understand the business, you need to start focusing on networking with the people that control the purse strings. Refining 'deal skills' only gets you so far.
For all HNW contacts, I just keep in touch with everyone significant who I meet. If you havent, you need to join country clubs and attend events where HNW people hangout.. F1, ski in park city etc. Raising capital isnt rocket science, but you need really strong EQ, a very very strong understanding of what your investments, and most important, you need to be the person very wealthy people want to hangout with.
I'm assuming you're asking this in the context of starting your own thing? Because if you're going to climb the corporate ladder you can specialize in either and do just fine, and it ultimately comes down to where your skillset lies as to what you should pursue.
For starting your own company the answer is just "both", you can't do it without some talent in both areas.
For eventually starting my own thing. I have deal skills but not a ton of experience in capital raising. Trying to see if I should focus on building more deals rolodex and unique deals skills or switch to a capital raising role to balance out my skills. Finding a partner with a complementary skillset would be ideal. I feel that it's easier to find a deal partner, vs capital raising partners are harder to come by.
Do you think being on the LP side vs GP side makes a difference in doing your own deals? What skills/trajectory would you recommend someone who is just starting out in the industry to polish on?
Great access to capital can compensate for poor deal execution. However, great deal execution cannot compensate for poor access to capital. Obviously these are blanket statements and you need both execution and capital to some extent, but I'd personally favor capital raising / access.
A strong IR person is just rarer. Think about a $2B AUM firm that probably has 10 investment professionals. They may only have 1 IR person.
If by "Deal Skills" you mean sourcing good/killer deals, executing, and ultimately making money, then I personally would choose deal skills. Keep in mind that I am a developer, so I have a deep knowledge and skillset of my product (development). As a result of this knowledge and skillset, I am able to pursue the hairiest and riskiest deals out there from entitlement to ground-up development to preserving and restoring historic buildings. These capabilities creates a large moat around my business thereby limiting my competition. The larger your moat, the more attractive you become to investors because you bring a skillset to the table that very few possess. Currently I work for my family's business, but if I were to go out on my own, I know I will be able to raise capital. I've had friends ask to invest with me or help them invest, I've met other real estate investors who "jokingly" offer to poach me, and I know some mid-sized LP's who look for developers to invest in and have invested in less knowledgeable developers than me. I don't care how pretty your pitch deck is. Your track record will speak for itself.
On the other hand, if you are well connected with HNW individuals, but produce mediocre returns or worse, lose their money, they will likely never invest in you again. Even the Principal above admits that he had deep exposure to acquisition/asset management aka Deal Skills before he became the money guy, but I do agree with him in that at a certain point there is opportunity cost in building only your deal skills as it can only take you so far without capital, but you need the deal skills first to attract capital.
The 'great money guy' will always have another pocket of capital available - that's what makes them great money guys. What you're describing is a 'mediocre money guy.' Just as you're batting 1.000 with your mote of irreplaceable skills that no one else has, there are money guys who bat 1.000 in raising money.
In the current environment there's lots of developers eager to break ground, but what they're missing is the capital. The money guy is the missing link and is extremely valuable in this environment - more so than the developer extraordinaire IMO. In 2021 the opposite was probably true, but we're in a different part of the cycle now.
I mean if your argument is that the "money guy" has so many pockets of money that there will always be money there to back him no matter how many times he blows up then sure? Not really sure how realistic this is. You may want to refer to the Tides' Equities threads. These guys were clearly not the "Deal" guys and were the "Money" guys. I think a bit more "Deal" skill set would have helped them
Imo you need a high baseline deal ability but then the focus should shift to networking for capital (and deals). I think it takes a certain personality and level of salesmanship that “deal ability” can’t overcome, however you define it. Nobody is going to know you are doing deals if you aren’t talking about it.
The fact that so many in this thread advocate for capital-raising skills over the skill to create great deals makes the current state of the market make sense actually.
Agreed. For the last 15 years the economy has been artificially propped up with low interest rates and quantitative easing. The covid relief packages exacerbated the issue. Anyone with half a brain and could raise capital could make money in real estate because prices would continue going up due to the economy being propped up. But now the music has stopped and not only are we finding out who’s been swimming naked, but we as an industry are about to be reminded why the “deal guy” is more valuable than the “money guy”
I mean the real answer is you need to be both to really become someone in this business, but for the purposes of this argument, the answer should be "deal guy". At a big institutional shop the transaction folks will have the highest comp (and candidly the more interesting work, in my opinion). In the entrepreneur's case, you have no business unless you can source deals, and they're going to fail if you don't know what you're doing.
The people who have stronger soft skills will argue capital raising. The people who have stronger technical skills will argue analytical skills.
Reality is you need to have a level of both people skills and brains to succeed.
But just because someone argues for capital raising, doesn't make it true. Anyone who has ever gone out on their own and has been successful started with "deal" skills because in order to raise capital you must have an investment strategy (or else what are you pitching to your investors?) and likely some sort of track record and in order to continue raising capital, you must be generating returns that investors are happy with, which means you are executing successfully. Everything stems from "deal" skills. If you reverse the order and raise money first, but don't know how to invest it or generate only mediocre returns relative to whatever the benchmark is or lose it all, you might be able to raise capital once, maybe even twice if you are that well connected, but your days of raising capital are numbered and you won't last very long. We are seeing this exact outcome right now with all the syndicators.
Could you imagine if a tech start up went to a bunch of VC’s to raise capital and told them that they’ll figure out the start up idea after they get the capital?
I'm assuming when OP says "deal" skills, he's not just talking about analytical skills like building a financial model. I'm assuming he is talking about the entire set of skills and knowledge required to generate returns and ultimately make money. At least that's what I'm referring to when I say deal skills.
Exactly. Yes, you do need both at the beginning, but if you already have some levels of deal skill (not just analytical but full cycle execution), once you scale up, you'll need a team with different skill sets. What I'm seeing now is that it's easier to find talent who know how to do deals (either hire someone or partner with), but it's much harder to find people who can raise a fund (I'm not talking about syndicator type of capital raise). Yes, you can hire a placement agent, but not everyone will take on a first-time fund. The people who I've seen who are able to raise first-time funds are usually senior execs who span out from huge shops. Let's say you are mid-level deals guys now. Would it be better to continue down the deals path or go to a different function to learn fundraising skills?
Deal skills, although I’m admittedly a deal guy. You can always find money if the deal is a winner. You can’t always deliver on time and on budget if you don’t know how.
I’ve seen far more deal guys get introduced to or find capital than I have capital guys know what they’re doing in operations.
Couldn't the capital guy find a good deal partner or hire a strong team?
That works both ways though. A deal guy could partner with or hire a capital guy too.
The argument in raising money for a project or a fund is that you’ll be able to execute on the business plan. That’s why the LP or investor is investing - you have skills and experience that they either don’t have or don’t want to spend time doing.
If you don’t actually have those skills, but instead it’s your partner with the skills or some employee with those skills, what value are you bringing to the table? If it’s just an introduction to money, you can pay someone at CBRE a fee to do that for you.
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