How to assist raising capital for syndications legally

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How to assist raising capital for syndications legally

Nick Cucci
Real Estate Investor · Asbury Park, NJ · Member since 2015 · 45 posts · 7 votes

Hi all - I have a goal to begin working on larger syndication deals. I'm not yet at the point where I would be sponsoring my own deals, but there are a few groups I'm in contact with where I can add value by assisting with the capital raise. I listened to Mauricio Rauld on the RE Syndication Show w/ Whitney Sewell last night and he said that simply assisting with the raise isn't exactly legal. Per that episode, it seems like the only straight forward way to raise capital legally is to be a co-sponsor of the deal. He also mentioned you can start a fund that "funds the fund" or become a broker/dealer, but he didn't seem too bullish on either approach. 

Does anyone have any stories or approaches they can share when they were first getting into syndications? Thanks for any insight!  

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Mauricio Rauld
Syndication Attorney in Newport Beach, CA · Member since 2014 · 55 posts · 83 votes
7y

Thanks everyone.  My YouTube Video How To Raise Money for others covers this.  You CAN NOT get paid to raise capital (flat fee or otherwise)  Period full stop.  You need to get paid for other things.  

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  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y

    Yes, you'll need a role in the GP, other than simply raising money. 

    2Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    @Nick Cucci yes there are a couple of ways to do it in compliance with SEC regs.

    You need to have an active role in the GP like investor relations, underwriting, due diligence, deal sourcing, asset management etc. one or more of these roles qualifies as an active role.

    You can get paid a flat fee for raising capital as long as you are not being paid based on a percentage of what you raise.

    4Reply
  • Kyle Kovats
    Rental Property Investor · Hoboken, NJ · Member since 2014 · 65 posts · 64 votes
    7y
    Originally posted by @Greg Dickerson:

    @Nick Cucci yes there are a couple of ways to do it in compliance with SEC regs.

    You need to have an active role in the GP like investor relations, underwriting, due diligence, deal sourcing, asset management etc. one or more of these roles qualifies as an active role.

    You can get paid a flat fee for raising capital as long as you are not being paid based on a percentage of what you raise.

     Regarding getting paid a flat fee for raising capital as long as it's not being paid based on a % of what you raise, that's not exactly true from conversations I've had with people such as the aforementioned Mauricio Rauld. If you are the be paid solely for raising capital and nothing more, you would have to have a securities license to do so and disclose that to all investors. To just keep it simple, you basically have to be a co-sponsor or GP who is materially participating to raise capital from investors for a syndication opportunity. 

    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Kyle Kovats:
    Originally posted by @Greg Dickerson:

    @Nick Cucci yes there are a couple of ways to do it in compliance with SEC regs.

    You need to have an active role in the GP like investor relations, underwriting, due diligence, deal sourcing, asset management etc. one or more of these roles qualifies as an active role.

    You can get paid a flat fee for raising capital as long as you are not being paid based on a percentage of what you raise.

     Regarding getting paid a flat fee for raising capital as long as it's not being paid based on a % of what you raise, that's not exactly true from conversations I've had with people such as the aforementioned Mauricio Rauld. If you are the be paid solely for raising capital and nothing more, you would have to have a securities license to do so and disclose that to all investors. To just keep it simple, you basically have to be a co-sponsor or GP who is materially participating to raise capital from investors for a syndication opportunity. 

    Kyle - yes you can be paid a flat fee. I think you misunderstood what @Mauricio Rauld said to you. I tagged him here to clarify. 

    0Reply
  • Jerel Ehlert
    Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes
    7y
    "Flat fee" is a poor choice of words because that could be on a "per investor" basis which still violates SEC regs.  A better safe-harbor is salary position.  It could be an investor relations position with ongoing duties after funding closes.  Compensation not dependent upon money raised.
    Alternatively, you could get a broker/dealer license.
    2Reply
  • Nick Cucci
    OP
    Real Estate Investor · Asbury Park, NJ · Member since 2015 · 45 posts · 7 votes
    7y

    @Sam Grooms @Kyle Kovats @Greg Dickerson @Jerel Ehlert Thanks to you all for your responses and for taking a moment to dig in. 

    It seems like being a part of the GP and having an active role is the best way to keep it straight forward and be able to assist with the capital raise. Thanks for calling out a few role options @Greg Dickerson ! I think the investor relations role that you and @Jerel Ehlert identified seems like the most natural fit for someone who is new to a syndication team. 

    0Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    7y

    @Nick Cucci

    Hi Nick, 

    Don't miss seeing the forest for the trees.

    It might be best at this step, to talk to the Syndicators that you know and ask them how (if) they want you to proceed.

    If they have experienced Syndication legal counsel on the deal, and (if they are following counsels recommendations about you) they will know what to do with you.

    If you are looking to set up some kind of "One-man-shop" to provide investors to Syndicators, it would be wise to seek your own legal counsel, and get an opinion on how best to proceed (which may require securities licensing).

    Syndication Laws vary Federally, and can involve state laws as well, and there are hoops to be jumped through such as bad actor, etc...

    Just my 2 Cents...

    Good Luck!

    0Reply
  • Mauricio Rauld
    Syndication Attorney in Newport Beach, CA · Member since 2014 · 55 posts · 83 votes
    7y

    Thanks everyone.  My YouTube Video How To Raise Money for others covers this.  You CAN NOT get paid to raise capital (flat fee or otherwise)  Period full stop.  You need to get paid for other things.  

    4Reply
  • Nick Cucci
    OP
    Real Estate Investor · Asbury Park, NJ · Member since 2015 · 45 posts · 7 votes
    7y

    @Mauricio Rauld Thank you! 

    0Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Mauricio Rauld:

    Thanks everyone.  My YouTube Video How To Raise Money for others covers this.  You CAN NOT get paid to raise capital (flat fee or otherwise)  Period full stop.  You need to get paid for other things.  

    To clarify my comment regarding flat fee as I stated above you can get a flat fee for having an active role as a co-GP not for just raising capital. You do confirm that in your video.

    0Reply
  • Spencer Gray
    Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
    7y

    I wouldn't bring my investors into another deal unless I was a co-sponsor and part of the GP. It's the best alignment of interest for all parties involved. 

    1Reply
  • Adrien Lee
    Rental Property Investor · Portland, OR · Member since 2018 · 2 posts · 0 votes
    7y

    @Nick Cucci Great question! I’ve been wondering the same thing... looking forward to the feedback :)

    0Reply
  • Kyle Kovats
    Rental Property Investor · Hoboken, NJ · Member since 2014 · 65 posts · 64 votes
    7y
    Originally posted by @Spencer Gray:

    I wouldn't bring my investors into another deal unless I was a co-sponsor and part of the GP. It's the best alignment of interest for all parties involved. 

    Agreed. There’s people out there who are illegally fund raising and will bring investors to just any deal brought their way if they can make a quick buck on it. Bad stuff.  

    0Reply
  • Jonathon Weber
    Member since 2018 · 110 posts · 109 votes
    7y

    @Nick Cucci Hi Nick. I work for a company that is raising investor funds for a new product release. Like what takes place with our company, getting paid to raise money for those syndication funds is not allowed. There are a lot of rules in place to prevent this from happening. Even I can't go out and raise money for our company even though I know people who would invest. 

    0Reply
  • Theo Hicks
    Rental Property Investor · Tampa, FL · Member since 2015 · 1k+ posts · 969 votes
    7y

    Others have already provided advice on how to raise capital legally. Lots of people get started in syndications by raising capital for other syndicators.

    A few other ways to break into the industry: find off-market deals, underwriting deals for syndicators, become a syndication attorney, be the loan guarantor, start a MF property management company, do smaller MF deals with your own capital and transition into raising capital

      1Reply
    1. Jason Stubblefield
      Rental Property Investor · Braselton, GA · Member since 2013 · 119 posts · 36 votes
      7y

      Good information in this thread.  We accomplish this by making the capital raisers part of the GP and giving them a perpetual role in the deal. 

      1Reply
    2. Francisco Aguilar
      Member since 2023 · 3 posts · 0 votes
      3y
      Quote from @Jason Stubblefield:

      Good information in this thread.  We accomplish this by making the capital raisers part of the GP and giving them a perpetual role in the deal. 

      What kind of role do you give these capital raisers in the deal? Are you usually giving them an investor relations role ?
      0Reply
    3. Chris SeveneyBusiness Member
      Moderator
      Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
      3y
      Quote from @Nick Cucci:

      Hi all - I have a goal to begin working on larger syndication deals. I'm not yet at the point where I would be sponsoring my own deals, but there are a few groups I'm in contact with where I can add value by assisting with the capital raise. I listened to Mauricio Rauld on the RE Syndication Show w/ Whitney Sewell last night and he said that simply assisting with the raise isn't exactly legal. Per that episode, it seems like the only straight forward way to raise capital legally is to be a co-sponsor of the deal. He also mentioned you can start a fund that "funds the fund" or become a broker/dealer, but he didn't seem too bullish on either approach. 

      Does anyone have any stories or approaches they can share when they were first getting into syndications? Thanks for any insight!  


       This is a GREAT TOPIC!!! The attorneys in this group NAILED IT. I will comment on what we are seeing, what people are doing and what we are doing. Note I am not an attorney, i am a GP of a fund so not legal advice

      1. We are seeing a lot of "fund of funds" popping up. The first question I ask to them is "what is your selling proposition"? Why go through you? Unless you have a very large network of high net worth individuals, this will be very difficult to raise $ because you will need to spend money on marketing and probably best case is you are making 1-2% on the investors money which marketing will cost you ALOT more than that.

      For me, I see this as a huge risk for the GP where they are just investing passively in other funds because if this goes bad, will they get sued and are they trying to skirt FINRA regulations selling securities without having a license.

      2. We have been approached by investors wanting to raise money for us or want some type of kickback or commission. First question we asked is if they are a RIA/IA and hold some FINRA license. If the answer is no, we let them know we cannot pay them commissions. A potential way around this is to pay them a monthly marketing fee, but that was something we were not interested in.

      3. For our staff, while we believe we qualify under the sponsor exemption as a GP, our IR team is paid salary and its not commission based. So they get paid whether they raise money or not. They are also employees of the company and not a management company outside of the ownership entity.

      Lastly, we see funds out there paying big commissions and promising 20%+ returns to investors. Do not fall for doing this for someone. 

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    4. Evan Polaski
      Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
      3y

      There is a lot of grey area in this whole "co-sponsor, co-GP" world.  The SEC, while not taking action actively last I heard, has not made this arrangement explicitly allowed by changing the letter of their rules.

      My general take is: be cautious.  A group that is willing to operate in the grey areas for one part of the business is likely to operate in grey areas for others.  Clearly, there are deals where there is no question about having multiple GPs: all are signing loans, there are regular meetings of the GPs, etc.  But there had been, and continues to be a lot of unlicensed capital raisers that are pretending to be IR roles, but in reality they bring money and then maybe forward a few emails each quarter.

      And as for Fund of Funds, these only make sense to me for the offerings that have huge minimums or in the rare cases the operator is offering a major benefit to larger investors.  But for a lot of the syndications you see and hear about through BiggerPockets, and some of the fund of funds that run in the same sphere of influence, where investment minimums are $50k, there is very little value proposition in them.  

      If you are considering investing in a Fund of Funds, you need to research and understand what costs the Fund of Funds GP is able to push through the offering.  Marketing is one, but legal setup, ongoing accounting fees and banking fees, etc.  Since you are coming in the "second tier", the benefits provided to you through better terms in the main offering need to more than offset the additional layer of costs/fees that arise in a Fund of Funds. 

      2Reply
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