February 18, 2023

JF3089: How to Raise Capital Online in 2023 ft. Dr. Adam Gower

Active Investor Money Podcast

 

Dr. Adam Gower is the founder of GowerCrowd, which builds real estate crowdfunding platforms for sponsors, serving as a digital marketing agency to major syndicators and professional investors. He calls it “building shovels for the gold miners.” Using the GowerCrowd Investor Acquisition System, investors have raised more than $300 million in capital to date.

In this episode, Dr. Gower discusses why there could be more multifamily deals in the near future, the (subtle) differences between syndicating and crowdfunding, and how finding deals with a story can motivate investors to act.

Dr. Adam Gower | Real Estate Background

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TRANSCRIPT

Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Adam Gower. Adam is joining us from Beverly Hills, California. He is the founder of GowerCrowd, which builds real estate crowdfunding platforms for sponsors, serving as a digital marketing agency to major syndicators and professional investors; 1,000 episodes ago, or just over 1,000 episodes ago, he was on our podcast, Episode 2031, "Digital marketing to fund your deals with Dr. Adam Gower." In his current portfolio he's a GP in over 15 million in assets under management, and an LP in another 12. Adam, can you tell us a little bit more about your background and what you're currently focused on?

Adam Gower: Yeah, and not wanting to repeat myself from 1,000 episodes ago... I will tell you that I actually started in real estate investments and finance in the early 1980s. So I'm not gonna go all the way back there. But in the last eight years since the JOBS Act was passed, and since real estate crowdfunding or syndication online became legal, we have developed an expertise for helping sponsors to raise capital online. And that's what we do, we build robust digital marketing platforms; our clients manage probably in excess -- on my website it says 25 billion; probably more than that... And they have raised hundreds of millions of dollars using our systems. So at a high level, that is what we do, Slocomb. I hope that answers your question.

Slocomb Reed: It does. You were telling me before we started that you build the shovels for the gold miners; that makes a lot of sense in context. Adam, I have several questions here... You're building crowdfunding platforms. So would it make sense for anyone who is raising capital through a syndication to be working with you in this manner?

Adam Gower: Those are the only people that we work with, Slocomb. W work with capital raisers; people who are raising capital. Ys, that's what we do. And we bring them from the dark ages of doing it all in person, and we help them to create robust lead generation systems that attract, nurture and convert accredited prospects into being active repeat investors with them. That is exactly what we do. So anybody who's out there wanting to raise capital, or wanting to raise more capital, those are our clients. That's exactly what we do.

Slocomb Reed: Adam, I'm having a bit of a mental hurdle here... I'm going to ask you to jump it for me. So I tend to think of what most apartment syndicators do, and what Joe Fairless teaches in his book, The Best Ever book on apartment syndication. I tend to think of that as very different from crowdfunding. Let me talk about the assumptions that I'm making in my head, so that you can debunk them for me and for our listeners.

Adam Gower: Sure.

Slocomb Reed: So most syndicators, especially newer syndicators in my experience, are looking to develop some level of personal relationship with their investors, such that when they have an opportunity, they have people that they can call on, or send an email to, or whatever the medium of communication is; it is direct from sponsor to potential investor, and then that personal relationship is nurtured.

When I think of crowdfunding, I think of - if I can be terse, or crude, build a website, get thousands of people to look at investing opportunities, click some buttons and invest in money, and I'm not thinking about a personal relationship being involved, but I also make the assumption that there'll be investment opportunities that are significantly smaller than most syndicators are looking for, because a crowdfunding platform makes it possible to raise capital in smaller amounts.

Now, I'm sure some of our Best Ever listeners are more sophisticated than I am in this regard, but I imagine a lot of them are making similar assumptions to me. When you say "crowdfunding for syndicators", tell us a little bit more about what that looks like.

Adam Gower: Okay, so it's interesting you bring that up, actually. So I've had this debate... I've written several books, one of them was called "Unleashed." And in Unleashed, we analyze the scale of the business of what I call the crowdfunding business, but it's actually online syndication. And I have had considerable debate with all of the major crowdfunding platforms about the use of the term "crowdfunding"; you're quite right to pick up on that.

Technically, Slocomb, you are right. Technically, typically, it is not technically crowdfunding. Technically, crowdfunding is Regulation CF, which is Regulation Crowdfunding, or Reg A+, which is also essentially crowdfunding. That means going to non-accredited investors as well.

What we focus on, again, getting technical, is reg D 506(C) offerings. And these are offerings where you are allowed, for the first time since the JOBS Act of 2012 was passed, to do general solicitation. In other words, you're allowed to advertise, basically; it was prohibited to advertise before. So we use the term crowdfunding very loosely; the term really more accurately would be online syndication, where you syndicate your deal online.

Now, let me talk about personal relationships. Slocomb, seriously, over the course of my career I've raised over 500 million in equity, but I've got an extremely long career as well... And all of that capital was raised exactly the way that you describe it, in person. But the only reason it was done in person was because regulations mandated that you had to have a pre-existing relationship with a prospect, plus tech and communications throughout my career - I was around before faxes, for crying out loud. I remember Telexes saying; that was like hundreds of years ago. So you had to establish a personal relationship with somebody. Investors and sponsors alike - yes, they want that personal relationship. But what they don't want is to have to do it in person.

So when you're raising capital online - and all of your listeners, just think about this - or viewers - think about it this way. Slocomb, I don't know if you raise money, but I would challenge anybody listening to think about their best investor; think about one investor, and then have that person in your mind's eye right now; cast your mind back to how did you meet them. Was that an introduction, was it a conference? Then what did you do to follow up? Did you make a phone call, did you book a meeting? Then what happened? Then you had a meeting, they asked you questions, you answered those questions... And the chances are that over a sequence of many, many meetings, phone calls and follow-up, eventually, if you are lucky, most of them might tell you, "We're not going to invest", so you know you don't have to deal with them anymore. If you're unlucky, they just keep dragging you along. And if you're really lucky, they might invest. But that pathway from first contact through to actual investing is what we used to call in the industry the dog and pony show. You constantly have to go out and meet these same people, you're repeating the same story that you've got, your background, your experience, you're repeating it again, and again, and again, and it's very tiresome, it's inefficient use of your time, and guess what - as fabulous and as charming a person as you may be as a sponsor, nobody wants to sit down with you for an hour or two hours over lunch to be pitched. They don't want to do that.

Now, those folk who are not watching, I am waving my phone at the screen to say "This is how people want to invest." One of the beauties of using technology is that investors want to be able to do research on you anonymously. They want to be able to do that online. They want to be able to look you up. They want to be able to see your LinkedIn profile. They want to look at your website. They want to figure out what you do, how you do it, how well you've done, what kind of reputation you got, and they want to do all of that before they ever speak to you.

So if you digitize your entire pitch, all your story - that's basically what all online syndication is - again, a.k.a. crowdfunding, but online syndication... Basically all you're doing is digitizing your entire story, putting it up on your website, pushing it out to social media so that people find you, travel back to your website, and sign up. They're able to do their research on you easily and anonymously. And the first actual point of contact that you have with them in person is most likely only going to be at the conversion point, which means the kinds of questions that our clients here, instead of "What do you do? Tell me about your background" - none of that stuff, because that's all online; they can consume that and understand it in advance. The kinds of questions that we get are, "Can I use my IRA to invest? Will you send me the documents by FedEx? I don't trust signing online." In other words, they've gone through the entire sales process, and all that's left is the mechanics of actually placing the investment. That's typically what we see. And that, Slocomb, is syndication online, aka crowdfunding.

Slocomb Reed: Adam, it's really clear that you know your stuff. For the purposes of this conversation, we're recording at the end of January 2023, and a lot of high-powered people in the commercial real estate investing space have some high-powered opinions about what is coming next. So what our listeners will be thinking about with regards to the present, but moreso the future when they listen to our conversation, Adam. I'm not going to ask you to pull out your crystal ball; when it comes to commercial real estate syndication, you're uniquely positioned as a service provider to see a breadth of operators in this space, what they are and are not doing right now. Adam, when it comes to commercial real estate syndication right now, what are the metrics that you're following with regards to the activity in the commercial real estate syndication space?

Adam Gower: Oh gosh, what a good question, actually. So there are a few metrics that we look at, there are some indicators that give us a sense for what's going on in the market. What I will tell you though is that when interest rates -- and it's funny, because you said January 23; I actually thought you were gonna say January 22. I'm still living in last year.

Slocomb Reed: I wish I were living in last year, with some 3% interest rates, and...

Adam Gower: Right? [unintelligible 00:12:50.16] But that is exactly the point I was about to make. So what we noticed, depending on the month, and the year, and wherever we are, but we spend hundreds of 1000s of dollars, sometimes every month on Facebook advertising, for example, to attract accredited investors to our clients' platforms. We also do LinkedIn, and Google, and a whole myriad range of different kinds of advertising. But one of the first things that we noticed last year, when interest rates started to go up, was that the cost of acquiring an accredited investor lead on Facebook spiked. In other words, the same ad that had been running, that was yielding a lead for $50 to $75, suddenly spiked to over $100; the same exact ad. Now, why did that happen? It happened because investors started to pull back. They experienced a sense of having lost money on the stock market when the stock market went down; their home values were going down because interest rates were going up, inflation was eating away at the value of their savings... Suddenly, accredited investors started to feel less wealthy than they did yesterday, so it became much harder to entice them, if you want to use the term, to respond to an ad that said "Make money investing in real estate."

Now, what we've also found move the needle was when we changed the narrative of the ads. And the reason that I talk about ads is because the amount of data that you can process to understand what's going on online when you do advertising is mind-blowing, right? So you can really analyze what's going on. What we discovered was by changing the narrative from "Earn passive income and build wealth investing in multifamily", or whatever it happens to be, we changed that narrative to "We got a steal on a deal." We have one client, for example, they negotiated a 12 million on a $55 million acquisition multifamily; better than a 20% discount. And as soon as we started using that language, that they were getting a discount, that it was essentially a distressed deal, we saw the cost of acquiring accredited investors come back down. In other words, what we learned was, even though investors are concerned about the economy, as well they should be, particularly investing in real estate, because it is high-risk, what moved the needle for them and got them back to the table, to mix my metaphors across, was to say, "Invest in a steal. We've got a deal with a story. Here's the story of this deal", and that's what moved the needle.

So that's one key metric that we do look at, cost of acquiring an accredited investor. Because we work on an ongoing basis with dozens of the top operators in the country. Some of them are really, absolutely ginormous; billions and billions of assets under management. We deal also with hundreds and thousands of smaller sponsors. We also get feedback from them. In fact, Slocomb, we actually ran an accredited investor sentiment survey at the end of last year... So we ran a survey and we harvested responses for this survey from accredited investors, asking them what was driving their decisions... And just to finish out that thought, one of the most important things that we discovered, and everybody on this call should take this and use this in your marketing, because it's paramount to investors - principal preservation; investors were telling us "I will take a lower return, as long as I feel comfortable my money is safe and protected."

Slocomb Reed: And that was end of 2021 or 2022?

Adam Gower: No, December. I'm back to '23 now. Yeah, that was a month ago.

Break: [00:17:06.08]

Slocomb Reed: So what you're saying is accredited investor sentiment is they're much more concerned with safety now, than growth, by comparison to 12 months prior.

Adam Gower: Absolutely. Yeah. Principal preservation; protect my money, first and foremost, and then we'll chase yield and growth. Investors want to be sure their money is safe. So that's how you want to position yourself. There's all kinds of ways of doing that, obviously.

Slocomb Reed: Reading between the lines here, Adam, what I'm hearing you say is that accredited investors are more interested in now than for the last few years in the safety of their investment. Are you also saying that advertising or marketing your deal for the discount you are getting on the property at purchase is what makes accredited investors feel safe?

Adam Gower: Not necessarily. It's interesting to connect the dots there... No, to just correct one thing - what we've noticed is an increased emphasis in safety in the last year... Actually, within the last six to nine months, right? So that's where it's really started to kick in, as people have felt the economy is heading towards a recession. So loss aversion is a much more powerful motivator than capital gain. People don't want to lose money. And when they already feel that they have lost money because of inflation, the stock market's come down, their home prices are going down because interest rates going up, for whatever reason, that heightens their sense of not wanting to lose; sense of loss aversion, they don't want to lose money. And that's happened within the last six to nine months, as interest rates have gone up.

So that's number one... And then I forgot the other parts of your question you asked... Safety. So the point I'm making is -- and the way that I think... It's not really a good analogy, but people always slow down to look at car crashes. You notice that on the freeway; it drives you mad. You'd be in traffic for an hour, and then you suddenly realize there's nothing on your side, and everybody's gawking at a crash on the other side. I'm not sure why I mention that, but I always think of it when I try to give this example... People like the idea of investing in a bargain; they want bargains. So if somebody else is struggling, and losing their deal to the bank, that is what animates investors to participate.

So if you've got a regular, run of the mill deal, you're going to be fighting headwinds at the moment, downturn headwinds, to raise your capital; if you can find deals with a story, "The seller had to sell. Their cap expired, and suddenly now they have to refinance, they need to pay down their equity, they can't do it, the bank's not lending as much, interest rates have gone up, their numbers are upside down, so they sold to us at a discount." That kind of story animates investors to act, even though they are concerned with safety.

It's almost as though the idea of getting a bargain brings - I hate to say this, but trumps the idea of protecting their investment. That's really what moves the needle for them. And you're gonna see a lot of that this year, later this year, Q3 and Q4, there's going to be a lot of distress. There will be a short window of opportunity. A lot of people are going to lose projects, and we're seeing it already. We're seeing huge discounts on multifamily deals, we're seeing some amazing opportunities, or amazing deals, that should have been fine, were it not for interest rates, now being traded at significantly less than sponsors had intended... We're only going to see that grow over the next six to nine months throughout the rest of this year, and it'll crescendo in Q3 and Q4, and then as soon as the Fed pivots and starts reducing rates again, there's going to be a massive explosion of investment prices go back up. So if you're looking for bargains, Q3 and Q4 this year are going to be the time; be ready to buy them.

Slocomb Reed: Adam, for the sake of a hypothetical scenario, let's pretend that GowerCrowd does not exist and you're not in the industry. Speaking about myself personally, for the benefit of our listeners, I am an apartment owner-operator, I have executed on some value-add deals, I've taken a few small things full cycle... I have a preference for purchasing more distressed assets, forcing more appreciation faster. I know how to lead a horse to water, I know how to make sure the horse was thirsty... I'm not very good at talking about it. The marketing, the advertising of myself, the sharing of the opportunity is not in my strength zone. So eliminating the opportunity to just, say, hire GowerCrowd, Adam, what advice do you have for me when it comes time for me to start raising capital for the deals that I'm going to be doing as they scale?

Adam Gower: I'll tell you exactly what to do. There's only one thing you need to do, and that is you've got to be authentically you. Slocomb, seriously, you and I chatted before we started; you're very personable. You're honest, you're authentic about who you are. Here's what to do. And I suggested this earlier - picture in your mind's eye the perfect investor. Go ahead and do that right now. Who is the ideal investor? It might be somebody already in your network. Who is that? But don't tell me, it's a rhetorical question. But picture that person in your mind's eye; who is that person? Get a photograph of that person, and put it up on your wall. And every single piece of content that you've written, video, emails, articles, whitepapers, pitch decks - everything that you produce, produce it exclusively for that perfect investor... That person, literally, think about who that person is, and use language that would be natural to you to communicate with that person. And I'll tell you why you need to do it that way. You may or may not remember high school math. Do you remember the bell curve? We called it the [unintelligible 00:24:40.08] So here's the thing about the bell curve, right? Down the middle is the median. This is the mean, is down the middle. This is where the average is; most people are in that part. When you're online, you are communicating not with one person at a time where you need to be worried about what they think, you're communicating with millions of people, all at the same time; it is strictly a numbers game.

So when you think about the bell curve, if you remember, on the left hand side were all the negatives; all that negative standard deviations; the negative view of what you're doing is all the way on the left hand side. There will always be people who think you are the biggest loser they have ever seen in their life. They're always gonna be there. Don't worry about that. They are on the left side of the curve.

For every single one of those, on the other side of that bell curve, two, three standard deviations away, less than 0.1% of all the people out there, they love everything that you say. So you have to speak to your avatar, your ideal investor. That's the only language that you should be using, is to talk to your ideal investor. Why? Because they will gravitate towards you. Don't worry about the ones that think you are a loser. You will never ever satisfy everybody at the same time. You only need to satisfy those people who think the same way and who love everything that you say, can't wait for you to pitch. Just like your ideal investor. Because those are the people who will change your life.

So that's my advice. Everything you produce, think about your investor avatar, produce it only with them in mind. Don't worry about what anyone else thinks, just that person, and you will then attract more ideal investors. That's how it works.

Slocomb Reed: Adam, excellent advice, just like last time. One quick question before we go... How can our listeners get in touch with you?

Adam Gower: Really, the best way is to just go to GowerCrowd.com. There's over a million words of content, if you can imagine; I've written all that bloody content. That was before ChatGPT as well. I spent all my life writing that stuff, but it's actually very advanced, and it's really good stuff. So you'll find a lot of content. I've got a newsletter that I put out every week, it's totally free. It covers the real estate syndication industry. Sign up for that, and that's how you'll reach me.

Slocomb Reed: Excellent. That link is in the show notes. Adam, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend who you know we can add value to through our conversation today. Thank you, and have a best ever day.

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