Trump Deal Faced Widespread Investor Doubt Before Raising $1 Billion

Last month, Donald J. Trump’s fledgling social media company announced that it had lined up $1 billion from 36 investors. The size of the deal, the former president said in the announcement, signaled that his start-up’s plan to end the “tyranny” of Big Tech had significant support.

Getting there was no slam dunk.

Beginning in the fall, bankers for the company, Trump Media & Technology Group, approached dozens of investors pitching the $1 billion deal, which offered them lucrative financial terms. By then, the start-up — intended partly as a conservative alternative to Twitter — had separately raised roughly $300 million through its planned merger with a special purpose acquisition company.

Those willing to put up at least $100 million, Trump Media’s bankers told potential investors, would get a call from Mr. Trump, said five people who were briefed about the pitches but were not authorized to speak publicly. Despite the opportunity to invest in a deal whose terms were structured to make a profit for investors, many of Wall Street’s big names passed.

More than a dozen well-known hedge funds and investment firms were hesitant to go into business with Mr. Trump, people briefed on the matter said, because any association with him could risk alienating their investors, which often include public pension funds and foundations. Others were wary of Mr. Trump’s history of corporate bankruptcies and disputes with lenders and partners, and concerned that details about his media company were scant.

At the moment, Trump Media — which hired former Representative Devin Nunes, a staunch Trump ally, as chief executive in December — has no disclosed revenue or products.

Among the funds that turned down Trump Media’s bankers were Millennium Management, a $57 billion hedge fund; Hudson Bay Capital, a $15 billion hedge fund; and Balyasny Asset Management, a $10 billion hedge fund. Apollo Global Management, the big private equity firm, also passed, a person briefed on the matter said. The deal on offer is known as a “private investment in public equity,” or PIPE, which gives certain investors discounted shares in a public company.

People close to the three hedge funds did not explain why the firms had chosen not to invest.

Highbridge Capital Management, a hedge fund unit of JPMorgan Chase, the nation’s biggest bank, had bought shares in the initial public offering of Digital World Acquisition, the SPAC that later agreed to merge with Mr. Trump’s company. However, Highbridge didn’t go into the PIPE deal because of the optics of doing business with Mr. Trump, one person familiar with the decision said. Investors who buy shares of a SPAC don’t know what company it will end up merging with, which is why they’re often called “blank check” companies.

A spokesman for JPMorgan declined to comment.

Mr. Nunes did not respond to emails seeking comment sent to his Trump Media address and the general company address. Liz Harrington, a spokeswoman for Mr. Trump, also did not respond to requests for comment.

A lawyer for Trump Media and two bankers at EF Hutton, the small investment bank that arranged the financing and recently took the name of a once storied Wall Street firm, either declined to comment or did not return requests.

Trump Media agreed to merge with Digital World in October, raising $293 million. On Dec. 4, the Trump company announced that it had lined up an additional $1 billion through the PIPE deal. Three dozen investors signed up, according to filings with the Securities and Exchange Commission, although they will have to turn over that money only if Trump Media’s merger with Digital World closes. Currently, that merger is under regulatory investigation. Its outcome will determine whether the deal can go through.

Among the bigger investors: Pentwater Capital, a $10 billion hedge fund in Naples, Fla., and Sabby Management, a hedge fund in Upper Saddle River, N.J., that manages more than $500 million, several people who were briefed about their involvement said. The amounts that Pentwater and Sabby invested couldn’t be learned.

“Investors have different risk preferences, including reputational as well as financial risk,” said Usha Rodrigues, who teaches corporate law at the University of Georgia School of Law. “If the deal is sweet enough, then the bankers will find someone who is likely to bite.”

In the days before Trump Media announced its $1 billion financing, the former president called a handful of hedge funds, family offices and others who had signaled they would invest at least $50 million each, two people briefed on the matter said. The calls were intended as both a deal sweetener for larger investors and an opportunity for them to ask Mr. Trump questions about the start-up’s plans before they made plans to invest, several people said.

Early on, Trump Media bankers told some prospective investors that they would get a call from Mr. Trump if they put in $100 million, according to interviews with those investors. Later on, other investors were told that $50 million was enough for a call.

The roughly $1.3 billion raised by the two deals would provide Mr. Trump with funds to get his company going. But before a single dollar can hit Trump Media’s balance sheet, its deal with Digital World must overcome scrutiny by securities regulators. The S.E.C. is investigating some of the events leading up to the Oct. 20 announcement of Trump Media’s planned merger with Digital World.

Regulators opened the inquiry after The New York Times reported that the chief executive of Digital World, Patrick Orlando, had talks with representatives of Trump Media as far back as March and had never disclosed that to investors — potentially flouting securities regulations. Regulators are also looking into trading in Digital World securities that happened before the merger announcement.

As the start-up waits for the regulatory scrutiny to wrap up and its merger with Digital World to close, several people close to Mr. Trump have sought to raise a few million dollars from past supporters of his to provide Trump Media with funds to get going, said people who were approached or told about the efforts.

Among those urging Trump donors to invest is Roy Bailey, a lobbyist who is also raising money for a super PAC that is financing Mr. Trump’s political operation as he weighs another presidential campaign in 2024, two people approached by Mr. Bailey said.

One Republican donor, Dan Eberhart, who said he had spent time at the former president’s Mar-a-Lago Club in Florida recently, said he had “been approached by a number of people in Trump’s orbit” about investing in Trump Media. But, Mr. Eberhart said, “my focus is on investing in candidates to help us win back the Senate.”

If regulators approve Trump Media’s merger with Digital World, investors in the $1 billion private deal stand to do well whether or not the company thrives. As part of the deal, investors get to buy shares of Trump Media for roughly 40 percent less than the prevailing market price. If the shares rise, they can profit from the rally. If the shares fall, their chance of losing money is significantly lower than that of the company’s other investors.

The investors also have the right to “short,” or borrow stock to bet on a fall of Trump Media shares, as a further protection against the risk of a price decline.

Vik Mittal, chief investment officer with Meteora Capital, which invested in the Digital World I.P.O., said the PIPE “provides downside protection to PIPE investors if shares of Digital World decline and unlimited upside if the deal works out.” His firm considered going into the PIPE but declined for reasons that Mr. Mittal did not want to divulge.

In the meantime, retail investors have turned Digital World into something of “meme stock,” propping up its share price partly because of its association with Mr. Trump. Shares trade around $80 — much higher than the $10 price of the SPAC’s initial public offering.

Susan C. Beachy contributed research.