What is private capital, and how does it differ from traditional funding sources? What roles do investors and deal managers play in private funding arrangements?
In his book Raising Private Capital, Matt Faircloth explores the dynamics between those who provide investment funds and those who manage them. His insights reveal the unique advantages of private capital partnerships and the responsibilities of each participant.
Keep reading to discover the essential elements of successful private funding relationships and how they can benefit both parties.
What Is Private Capital?
According to investment expert Matt Faircloth, understanding private funding requires recognizing exactly what private capital is and the distinct roles and responsibilities of both parties involved: those offering investment opportunities and those providing capital. Faircloth emphasizes that private capital, sourced from individual investors rather than institutions, can function either as loans or ownership interests.
The Role of Deal Providers
The Deal Provider serves as the cornerstone of private funding arrangements. This individual or entity is responsible for sourcing, assessing, and managing potential investment opportunities. Faircloth notes that successful Deal Providers must develop a distinctive presence and trustworthy reputation while managing multiple aspects of the investment process, including:
- Negotiating purchases
- Coordinating with banks
- Overseeing construction crews
- Maintaining vendor partnerships
- Completing deals
Additionally, Deal Providers must maintain transparent communication about deal progress and capabilities, ensuring alignment with investors’ financial objectives.
The Role of Cash Providers
Private capital originates from individuals or entities acting as financial backers. These investors typically maintain passive roles, focusing primarily on investment returns rather than daily operations. Their funding can come from various sources, including pension funds, real estate equity, or personal savings.
Faircloth points out that successful investors understand and accept their passive role, allowing Deal Providers to manage daily operations. They typically seek specific benefits, such as passive income or long-term asset appreciation, and carefully evaluate both opportunities and Deal Providers before committing funds.
Keys to Successful Partnerships
The success of private funding arrangements depends on clear communication and well-defined responsibilities between parties. When investors clearly communicate their preferences and expectations, and Deal Providers maintain transparency and professional management, these partnerships can result in mutually beneficial financial outcomes.
Investors who understand their role and maintain realistic expectations typically contribute to smoother operations, while those struggling to relinquish control may create tension in collaborative relationships. This dynamic underscores the importance of proper role alignment in private funding arrangements.
