Raising Money Again After a Deal Goes Badly: How to Rebuild Investor Trust
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Some deals lose money or return less than promised. For a sponsor, that can feel like the end of a business. It does not have to be, but the way you handle the aftermath decides whether investors ever return. This post covers what to do for current investors, how to talk about the deal in a new raise and what the rules require. It is general information, not legal advice.
What should you do for the current investors?
- Communicate more, not less. Regular updates, even short ones, with real numbers. See underperforming deal playbook and investor updates.
- Be honest about options. Hold, refinance, recapitalize or sell, and the trade-offs of each.
- Use the documents. Follow the agreement on fees and priorities. Consider deferring or waiving your fees if that is fair. See how sponsors get paid.
- Treat everyone alike. No side deals. See side letters.
- Get advice. A securities attorney can help with disclosures, a capital call or a restructuring.
How do you talk about it in the next raise?
A new offering has to be accurate and not omit material facts (17 CFR 240.10b-5). Your track record should include the poor deal. A short, factual account works better than a defensive one.
| Part | What to say |
|---|---|
| What happened | Numbers: planned versus actual, the cause |
| Your role | What you decided and what you got wrong |
| What investors received | Distributions, returns of capital or losses |
| What changed | Specific changes: underwriting, leverage, reserves, team |
| What you learned | One or two lessons, not a long essay |
See track record and mistakes first-time sponsors make.
What changes about the next deal?
- Smaller size or lower leverage than the last one.
- A partner with a relevant track record or an experienced asset manager. See co-sponsors.
- More conservative assumptions and a stress test. See sensitivity analysis.
- More skin in the game if you can afford it. See co-investment.
- Clear reporting from day one.
What are the legal limits?
The exemption you use still applies, and only investors you may lawfully approach should be contacted (17 CFR 230.502; 17 CFR 230.506). Investors from the troubled deal are a natural group to talk to, but do not pressure them, and do not imply that investing again will help make them whole. Prospective investors may also search your record; see researching a sponsor and the EDGAR search.
Our take
Sponsors who recover usually do three things: they tell the truth early, they keep working for the investors they let down, and they come back with a smaller, simpler deal. Reputation is rebuilt slowly, one report at a time.
Trade-offs and who this is not for
- Not a way to hide a past deal. Disclosure is the cost of coming back.
- Common mistake: raising again while still ignoring questions from current investors.
- Not a substitute for counsel.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
DoorRaise keeps the deal in its own company with its own documents and a deal page, and runs an accreditation check on every investor, in 506(b) and 506(c) raises. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
Do I have to disclose a past deal that lost money?
Your track record and offering disclosures must not mislead. A material prior result generally belongs in them. Ask your attorney.
Should I waive my fees if a deal underperforms?
Many sponsors defer or waive fees when it is fair and permitted. Your agreement and counsel guide this.
Will past investors invest again?
Some will, some will not. Earn it through honest communication and results.
Is it better to wait before the next deal?
Resolve the current deal and your reporting first, then start smaller with a clear plan.
Sources
This article is general information, not legal, tax or investment advice. Talk to a securities attorney about disclosures in a new offering. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.