As the co-owners of Hornblower Yachts Inc. discovered, there are pitfalls in relying on broker-dealers -- even good ones -- to sell a private limited partnership. Such problems aside, you also have to pay the brokers' commissions, which generally range from 7% to 10% of the money raised. Even at that rate, you probably won't get a decent firm to handle your offering if you're looking for less than $500,000. In that case, you're better off raising the money yourself.
That's what Jim Poure did in 1983, when he needed capital for General Alum & Chemical Corp., based in Toledo. Poure served on the board of his country club, and he convinced a fellow board member to put $100,000 into a limited partnership, which would own General Alum's second chemical plant. In return, the investor got the tax benefits and rights to an appreciating asset. "Based on this investment," says Poure, "we were able to borrow another $500,000 from our bank."
Sometimes it's not who you know but who you used to know that counts. When Henry Stickney decided to open an eastern regional office of National Medical Specialties Inc., based in San Bernardino, Calif., he contacted two old Air Force buddies who lived in the Washington, D.C., area. Although they hadn't been in touch in years, they helped him find four limited partners, all local doctors, to put up $500,000 for a 4,000-square-foot building in Annandale, Va. Stickney then signed a five-year lease on the structure, with options to renew.
If your network of personal friends can't help, think of people who are already knowledgeable about your business. They can be particularly important in getting you established in a new geographic area -- or so discovered Karen Byrne, president of Health Imaging Centers Inc., based in Exeter, N.H. In 1986, the company wanted to expand to Dallas and Columbus, Ohio, but needed $800,000 to build diagnostic-imaging facilities. Local doctors, who understood the idea, came on as limited partners, providing more than 80% of the capital required. The approach has been so effective in getting the new facilities up and running, says Byrne, that "we'll be doing it the same way in other places."