Introducing EB-5 Projects to Students
Perhaps the best place to begin is by explaining the nature of the EB-5 program to the student. It is likely that he or she is not even aware of the program. Even if he is aware, he may have only a superficial knowledge.
Begin by providing a broad overview of the program and its benefits to Chinese investors at large. This should give the student a sense of security that your project is legitimate, when you do disclose the details of it. In addition, this can give you a more immediate sense of whether or not he is interested in the EB-5 concept at all. Being direct in this preliminary discussion will lay the foundation for success in the more specific project conversations to come. Be careful not to use what I call the “Amway approach” of “Would you be interested in a business opportunity?” without identifying the opportunity. You cannot afford to appear like a guy in a trench coat on the street asking “Do you want to buy a watch?” In other words, be direct and show them the big picture first.
Let’s suppose that the student is already aware of the EB-5 program. If that is true, he or she may also be aware of the scandals surrounding the proposed Chicago Convention Center project or the fraudulent GreenTech Automotive project. The fact that these exist, or that the student either knows about them or will learn about them in his or his family’s research, increases the weight of your burden of proof. You don’t need to bring them up, but you do need to be prepared to discuss them intelligently, if necessary. As far as your own EB-5 project is concerned, once you have explained what the project is, we recommend, before getting into specific project details, you take time to explain the industry in which the project will operate, how that industry works in the U.S., how your business model serves that industry, and what will make it compelling enough to not only satisfy EB-5 requirements, but to continue to flourish once established.
Students are likely to be interested in what outside factors, such as governmental regulations, and political matters, affect the industry at large. If the project is highly innovative, you are going to have to be able to present some substantial independent data, along with anecdotal examples, indicating that there is a significant demand for what the completed project will offer. As a general rule, many Chinese investors will not be willing to rush to a new industry whose potential has not been established, because EB-5 projects involve a huge amount of money — which implies high risk. But when you can present hard figures, you will more likely win the student's confidence.
In balance, there is somewhat of a conundrum operating here. As a general rule, the wealthier the investor, the less he is willing to take the risks that he originally took to gain that wealth in the first place. That is why people like Richard Branson, Bill Gates and Mark Zuckerberg continue make headlines. The amount of their wealth has not made them fearful of taking risks. The other side of this coin is that the Chinese are known as risk takers and they tend to take greater risks with projects that have the most immediate potential for large returns.xl If they see an EB-5 project as something that is a wide-open opportunity that is going to be around for some time to come they may be somewhat ambivalent. However, if they see the opportunity as narrow and limited and the return horizon as relatively near, the chances of gaining their interest are greatly increased.
The real estate industry is particularly attractive to Chinese clients. This doesn’t mean that they won't invest in other good projects where due diligence has proven that gains could be substantial. They tend to flock to the real estate industry because it has traditionally the safest and almost depression-proof over the years. While it may be a disaster for the average American family or small business, the market for investors is experiencing a boom as they gobble up properties for pennies on the dollar. This is evident in cities like Detroit where, according to a July 2013 Fox News Reportxli, investors from Mainland China are calling real estate brokers, asking to buy 100 or more houses at a time following a report on Chinese television that you could buy two house in Detroit for the price of a pair of shoes.
Having explained the opportunity to the student, you should offer to take him to the project site to demonstrate at first hand the potential of the project. Be careful not to take a student to a site as a way of sealing a deal, but rather to demonstrate the legitimacy of the project underway. They are not going to “buy in” because of the location of the site. It would also be wise to supply them with any and all relevant legal documentation regarding the site and to encourage them to investigate the opportunity independently.
Chinese people typically prefer to exercise a choice beyond a yes or no. For this reason alone it is wise to have multiple EB-5 projects available. When that is the case, you will be much more able to promote the overall opportunity and the potential investor will feel less like he is being pigeon-holed. Think of yourself as a fruit seller. You are going to have a lot more customers if you offer an assortment of fruit than if you offer only watermelons.
Other details that you should explicitly explain include identities of all other parties to the project, including investors, bankers, and other entities and personalities. Trusting numbers is one thing, but meeting and trusting other key people involved in the venture should build confidence and credibility.
A note about exit strategy: One of the most fundamental causes of businesses closing their doors is failure to have an exit strategy. This is an amateur mistake. The time to develop an exit strategy is when you are developing your business plan. If your EB-5 project does not include an exit strategy, develop one now. Only the most ignorant of business people fail to understand that the most income they will ever gain from their business is when they sell it. With Chinese people typically looking for a short ROI horizon, ensure that your project proposal includes indicators that a payback in five years or less is possible. Show them the possibilities, but make no promises that you will later regret.
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