How do I build credibility as a first-time sponsor?
Short answer
Build credibility by closing smaller deals first and being honest that you are new. Each finished deal becomes proof for the next one. Bring in a strategic anchor investor who knows your niche, and give them good terms. Document your process as you go. Many sponsors talk to a securities attorney about how to describe results to investors.
Most first-time sponsors I meet want to skip straight to the big raise. It rarely works. Credibility comes from finished deals. So the fastest path is to finish small ones, tell investors the truth about where you are, and let each deal become proof for the next.
Start small and say it is your first deal
At a webinar I told the story of a sponsor who put a lot of energy into a first raise and raised nothing. He went back to the drawing board to build his capital raising muscles. His next move was a $110,000 deal. He syndicated most of it to six investors at about $9,000 each. It was a very small deal, and he told them honestly that it was his first.
Next came a $400,000 deal. A later one went very well and returned a couple million dollars to his investors. That let him step up to a $10 million deal. At our event he said he had just closed or was working on a $30 million deal.
I walk through this small-to-large ladder and why the first investors often come back for the second and third deal.
Summary and key takeaways from this video
Those early investors are not tapped out after a $9,000 check. They can come in again. Starting small also builds your processes, your investment contracts, your momentum and your track record. The more sophisticated the investor, the more you need your act together. By deal four you can say so. On deal one you cannot.
Borrow credibility from an anchor investor
You do not have to build all of it alone. Find the person who knows your industry cold and made their money in it. If you are raising for a dental practice, start with someone who owns ten dental practices or sold a platform. They ask sharp questions. If they back the deal, other investors may trust it more.
I would give that person very good terms, even terms that feel painful. You are building a brain trust inside your cap table. The value is credibility, momentum, and help opening doors. I also like fee breaks for the first million dollars in. In my experience, some people fail to raise because they are stingy on fees and terms. Then they never really get to exist as an investment firm.
"So, what you want to do when raising capital and building a platform is play the momentum game. What does that mean? Start with smaller investors. Start with smaller deals."
Expect a rough first raise and build a system after it
Rob, a guest on our podcast, told me about his first deal. They raised $4.5 million and had to beg the seller for extension after extension. It took six months. They started with family and friends and brought in partners to co-GP with. They were willing to share the GP because getting the deal done mattered more than being greedy.
Rob explains what that first raise taught him and how it led to a system built on content and a book.
Summary and key takeaways from this video
That experience pushed him to build a system. He started making content and wrote a book in about two months. He self-published it through Amazon for close to nothing. Later he had a $50 million deal under contract. They raised $14 million and were massively oversubscribed. He called it the easiest raise they had done.
The pattern is the same each time. Finish something small. Keep the records. Share what you learned. Then ask for a bigger check. Many sponsors talk to a securities attorney about how to describe past results and approach investors.
From my books and event talks
One trap I see, especially with fund managers, is the belief that if you build a track record first, the investors will come. That is not true either. If you wait for a long track record before you try raising capital, you will not have learned anything about raising it. I also tell new sponsors that the trust and relationship you build matter more than the track record bullet points most people worry about. Start talking to investors early, learn from every conversation, and let the relationships carry you while the record builds.
"Some people think, especially in the fund management industry, and the hedge fund space needs to hear this all the time, is if you build the track record, the investors will come. That's not true either, because if you don't try raising capital until you have a long track record, you're not going to have learned anything yet."
"The actual trust you build, the relationship you build, is more important than some of those bullet points that we might worry so much about related to track record, etc."
On the record
- One sponsor's first small deal was $110,000, syndicated to six investors at about $9,000 each.
- Rob's first deal raised $4.5 million over six months and needed repeated extensions from the seller.
- Rob's later $50 million deal raised $14 million and was massively oversubscribed.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Capital Raising FAQ Webinar, Prioritize Raising Capital: Guest Speaker Rob Beardsley - PODCAST - Family Office Club, Family Office Live Forum: Capital Raising, AI Tools & Investor Feedback (with Richard C. Wilson). Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around describing past results, investor communications and offering documents. Do not use AI to write your own legal agreements.
Your next steps
- 1Pick a deal size you can fund with a small group and close it.
- 2Tell early investors plainly that this is your first deal.
- 3Write down your process and contracts so deal two runs faster.
- 4Offer a strategic anchor investor strong terms to come in first.
- 5Consider talking to a securities attorney about how to describe your track record.
Follow-up questions
Should I tell investors it is my first deal?
Yes. The sponsor in my story told his investors it was his first deal, and they grew with him. Honesty makes the second meeting easier.
Does a small first deal really help with bigger investors?
It does. By deal four you can point to a record instead of saying this is our first. Some sophisticated investors may hesitate to take a second meeting without that.
Why would I give an anchor investor better terms?
Because their name and experience can help others trust the deal. They can also sharpen it, open doors and help at exit.
Related questions
- How do I show traction to investors with only one deal?Treat one deal as the first step of your momentum.
- Can I use my partner's deals as my track record?Many sponsors show their partner's deals by presenting them as the partner's and saying what their own role was in each one.
- How do I calculate IRR for my track record?Line up every dated cash flow for each deal.
- How do I present track record from a previous firm?Show what you personally did at the previous firm, with your exact role and results you can document.
Work through it with the dilution calculator. See all track record and credibility resources.