Many times investors struggle getting a deal structure to stick. The issue grows because every investor tries to renegotiate the terms. How do you deal with this issue and put it to bed for good and always?
There are a number of ways to accomplish this. Perhaps the most effective is by bringing a very meaningful amount of capital into the deal by the principals. While you may not have the cash, this is not necessarily impossible. If you can find a strong partner and offer a meaningful enough position you may be able to convince them to come into the deal as part of the group of principals. Additionally, you could bring in friends and family as part of the principal’s ownership block. This might include these investors gaining the assistance of this ownership but not gaining the voting rights and other responsibilities. Also, in this situation the principal should recognize that maintaining an ability to exit your capital after the close for substitute equity may be another good way to reduce your investment as a principal. Many times, well established principals approach deal after deal in just this fact. They close a deal with meaningful capital invested. Raise capital to take their position out post closing and then move their capital in the succeeding opportunity.
Next, find a large sponsor to keep up in a place the investment. An experienced well known keep up in a place investor entering a deal often brings all discussion about ownership proportion to a close.
Develop a highly attractive debt financing structure that comes with ownership requirements and conditions on the principals is also a very effective way to manage the time of action.
The fact is this course of action is not a science. The meaningful is to examine the requirements of the deal and often you will find opportunities to preserve or enhance the principal’s ownership position. In one case I was personally a party to the project was truly two similarities. One was an office and the other was a small apartment complicate. We were able to negotiate a debt deal without cash on the office that allow us in turn to unprotected to an ownership position increase of over 25% because we were able to reduce the capital requirement for the apartments by that amount.
Strong principals are very good at analyzing deals, identifying opportunities, working out terms and conditions, negotiating concessions, and working with investors to unprotected to improved deal structure to protect their interest and increase their gains.