Call notes from discussion with my syndication attorney

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I Had ~40-minute call with my syndication attorney yesterday and needed guidance on how we should proceed with raising outside equity for our deals. I mainly was needing help deciding on whether to start a fund or raise equity on a deal by deal basis and where to start raising funds (HNW individuals, RIA/placement agent, Family offices, PE, Institutions) 

Below are my summary notes. Sorry if they're not super clear.  Hopefully, this can provide some clarity if you're looking into syndicating your own deal. Consult with your own attorney for your specific needs.

-More sophisticated the investors the less documentation and compliance we need.

-Institutional investors will do their own due diligence

-Investors unknown to us = more disclosures and nuances.

-506 B offering = Investors we know

-506 C offering = General solicitation to accredited investors only = More steps to disclose and more steps to verify accreditation status

- Don’t need to be licensed, we file a “issuer exemption”, as long as the person on our team does more than just capital raising and their compensation isn’t based on how much they raise. Can only file this exemption once per 12 month period. Many companies file this more often but they are bending the rules.

- If we use an RIA (registered investment advisor) it adds a layer of insulation if we were to get sued but it also adds a "mouth to feed". They will raise the money for us and will be compensated for the amount they raise. 

- She can introduce us to a few RIAs that she would recommend. Also knows someone that knows a lot of RIAs but then again that is 1 more “mouth to feed.”

- Each crowdfunding website will give us their own checklist of compliance documents that they require.

- Most crowdfunding is really just a 506 C offering that has a “web-enabled” mass marketing platform.

- True crowdfunding to unaccredited investors only allows for $1 million raise per year. 

- The difference between a fund and single deal raise is 

1. how we market it

2. the extra scenarios for disclosures included in fund papers

3. Disclosures for each scenario for fund. Single deal raises are easier to “sell” because we can clearly articulate the situation.

-Legal doc prep costs associated are not going to be drastically different between a small single deal raise and $100m+ fund raise.

- Unless we have deals lined up and a highly predictable deal flow we can raise the fund but only do capital calls once deals are under contract. If we call the capital to early we still have prefs that we owe accruing.

- If we do a capital call and investors “default” aka (don’t wire the funds that they told us they would) we make consequences. Like kicking them out of the fund. Make sure to cover these scenarios in the offering documents.

- It’s better to start with a small fund and have it sell out than to start a huge fund that doesn’t fill up, Just better for our track record and marketing. It’s better to do a 10m fund, sell out, then do a 15m fund and sell out. Instead of doing 25m and taking forever to fill up.

- We can add language to the documents that allows preferential treatment to large institutional equity. Like participation in asset management fees etc. 

William, thank you. This is really good info. Not just on the syndicator side, but as an individual contributor it gives me a view into the thoughts of the people I'm investing with.

Good luck with setting it up and getting the funding for your deals!