Syndication Sponsors that Accept Sophisticated Investors?

14 Replies

Hi,

I'm interested to learn more about if there's any experienced syndicators that Bigger Pockets members could recommend or comment about that accept sophisticated investors instead of only accredited investors? I've researched a lot and have found several companies/funds that I would be interested in investing in as a passive investor, but they all only seem to be accepting accredited investors. Any advice or insight would be greatly appreciated!

Thank you,

Scott 

Hey @Scott McGuire being accredited is helpful for syndications and makes things a bit easier on the backend of things for sponsors. However, there are plenty of sponsors that are structuring deals under the 506(b) exemption that also take non-accredited, sophisticated, investors. 

However, you won't find many people advertising this for the obvious reason that you can't generally solicit for investors. The work is on you to find and create a relationship with these folks before an offering is made. 

@Scott McGuire

I second @Lucas Miller , the sponsors accepting non-accredited investors typically don't advertise it for compliance reasons. You should do the reverse engineering and search BP as this topic popped up many times in past. Also network with other passive investors to gain their feedback on who they are working with. Do it locally through REI clubs and virtually through this site.

To state things a bit more strongly and if I have my facts correct ...


506(b) is only possible is there is zero advertising. Anything that looks or feels like an ad, a promotion or solicitation would taint the transaction. If you want to reserve the search, look for 506(b) registrations. 

While a 506(b) can take sophisticated investors, that does not automatically mean they want them or that their definition of sophisticated will let you in. Still, there is a path with a door rather than a wall.

A link to the SEC site for 506(b). Note the extra work a syndicator has to do.

https://www.sec.gov/smallbusiness/exemptofferings/rule506b

@Scott McGuire Another way to find 506(b) offerings is through broker dealers. In my research, I read that a sponsor using a broker dealer can extend their "private relationship" network to those that the broker dealer has relationships with.

We haven't used broker dealers so far and I'm not sure if we will. They charge 5-10% of the capital that they raise. If you go that route, definitely do the research to make sure you are working with a good broker dealer with the right incentives that won't steer you into bad deals.

@Scott McGuire I'd echo what all the other posts have said. 506(b) offerings allow for sophisticated investors and there are a lot of syndicators who register the 506(b) offering with the SEC. It may take more time to find, vette, and trust with a 506(b) syndicator because they cannot advertise compared to the other syndications. 

All the syndications I've sponsored are registered as a 506(b) to allow friends and family to participate in the deal. One thing I'd like to point out, and why a lot of people stay away from 506(b) offerings is because of the increased risk of getting sued by an investor. Multiple attorneys have stated that sophisticated investors are more likely to sue if a deal goes awry than an accredited investor because a sophisticated investor theoretically maybe be impacted greater than an accredited investor. This is one of many reasons why we have great relationships and know our investors well. In many ways a syndication is like a marriage and you better know who you are getting into business with.

@Scott McGuire Many syndicators shy away from sophisticated (or non-accredited) investors because most only have single bulk cash to invest, and some investors can quickly get cold feet if a deal has some short term issues and require to have their money back.

That said, you can still get involved with some sponsors via the 506(b) route and getting to know some sponsors by scouting BP is a good start. 


@Sam Bates Totally agree, and thank you for the additional input. Luckily, while I don't quite qualify as an accredited investor at this point, I have a great resume with no red flags as a sophisticated investor and am confident I can find the right sponsor and foster that relationship as needed when the right opportunity presents itself. 

Thank you @Amy Wan for the link. The SEC obviously has a disconnect. Not to get into personal specifics, but I have a great investor profile. No red flags or negative history, no debt except my primary residence, ample investment knowledge and available capital, etc., and find it frustrating to be blocked and be closed off to funds that I would 100% invest in. Fortunately, I hope to be accredited at some point here sooner rather than later. Luckily, there's already doors opening quickly today with several promising leads through discussions and networking with so many great people and resources out there and here on Bigger Pockets.