Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
Praxis Capital, with whom I'm pretty significantly invested, and whom many of you know to be a top-tier syndicator, recently opened up a "sidecar investment" vehicle with their Fund VI. I believe they raised about $50,000,000 of capital from accredited investors, but this means that a non-accredited investor could take a swing at the three or five good acquisitions they are placing in the fund. I already know of two and they seem good.
Just thought I'd put this out there, could be a good opportunity for someone to get their feet wet!
you would have to say No I'm sorry we don't know you already. ? That's starting to strain credulity, but I am in no way an SEC expert!
Yeah, we do it all the time--but we don't say it that way...what we typically say is "we don't have anything available at the moment..." and then we continue the conversation and begin the process of establishing that "pre-existing relationship" for later on. Following that is a series of email exchanges where we deliver information on us and our track record and a lot of other stuff. Eventually another offering will materialize and by then we should know enough about the investor, and them about us, to feel comfortable proceeding.
The challenge is we are dealing with federal laws, and they don't always seem to make sense. But like I've heard many NASCAR drivers say in the past "the rules are what they are, and we just race within the rules." So it is what it is...
Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
5y
@Jason Merchey thanks for the heads up. Is it another fund filed with a 506(b) exemption that will invest along side the 506(c) main fund or are the side cars direct 506(b) vehicles of individual fund projects?
I'm curious where the line is according to the SEC on LPs talking publicly about 506(b) deals as usually you aren't allowed to generally solicit or advertise.
Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
5y
@David Thompson I'm curious as to the liability to the GP if LP's share 506(b) deals publicly.
I'm also curious on what Bigger Pockets position is on this as no sponsor could make a post announcing a raise for a project without it getting taken down immediately. But if an LP that is a member/partner with the GP on other projects, can they announce projects/raises?
I'm not one to report posts, but it sure does seem like quite a loophole.
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
5y
OK Spencer, get hold of yourself. I'll state clearly that I am just an investor who likes Praxis enough to share that one should look Praxis up and be in contact if one wants to take my recommendation of them as a positive sign. I was not asked to publicize anything. Don't we basically use BP as a way to share information about syndicators? I can't imagine how many times someone has written I like this GP, I don't like that GP; here's what I think of such and such a deal, and so on.
As for you, sir, I like your email newsletter, but this whole thing has me decidedly against ever working with you as a GP. Even if I made an error, which I sort of doubt I did, this is petty and it speaks to your character.
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
5y
I'll jump in here in the interest of full disclosure and transparency. Jason is not affiliated with Praxis in any way other than being a satisfied client. We did not ask him to make this post, nor did we know about it until it came up in my keyword alerts.
Having said that, I don't know of any law that says that satisfied clients are prohibited from saying pretty much anything they want, and in today's "social media connected world" I doubt we could stop them even if we wanted to. However, if any post violates BP policy it should be removed, even this one, and I believe that just as strongly even if a post could be construed as benefitting me. I'm not sure that this post is a violation of policy, however, because it isn't self-promotion--it's like saying "hey I like this contractor, if you have any flips, use this guy."
As to @Spencer Gray's question about where the line is drawn if an LP (un-affiliated with the sponsor) speaks publicly about a 506(b) offering, I'm curious about that too (maybe some of the lawyers here can opine), but my sense is that it's not an issue. The exemption prohibits sponsors from making a general solicitation for a 506(b) offering. Unaffiliated third parties are not the sponsor (I could see a problem here if the sponsor asked them to do it or was compensating them).
Shortly after the adoption of Regulation D, the SEC staff made clear that the existence of a pre-existing, substantive relationship negated that an investor was attracted through general solicitation. As long as the sponsor is only admitting investors with whom they have this relationship, there should be no issue. And while we appreciate Jason's enthusiasm for our platform, because this new offering is a 506(b), it is only available to people who are already "on our list".
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
5y
Ok so Brian you are saying that there is no way that a person could contact YOU and say Hey I'm interested in investing with Praxis because I heard good things, and FYI I'm not an accredited investor, do you have any available deals that could accomodate my situation?, but you would have to say No I'm sorry we don't know you already. ? That's starting to strain credulity, but I am in no way an SEC expert!
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
5y
And how could this be against policy, when essentially the policy would have to read: No one is permitted to discuss the availability of an open deal or investing opportunity. I mean, ???
you would have to say No I'm sorry we don't know you already. ? That's starting to strain credulity, but I am in no way an SEC expert!
Yeah, we do it all the time--but we don't say it that way...what we typically say is "we don't have anything available at the moment..." and then we continue the conversation and begin the process of establishing that "pre-existing relationship" for later on. Following that is a series of email exchanges where we deliver information on us and our track record and a lot of other stuff. Eventually another offering will materialize and by then we should know enough about the investor, and them about us, to feel comfortable proceeding.
The challenge is we are dealing with federal laws, and they don't always seem to make sense. But like I've heard many NASCAR drivers say in the past "the rules are what they are, and we just race within the rules." So it is what it is...
Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
5y
Brian nails it and outlines best practice with no sharing active deals w/new investors for 506b deals. At a minimum, in establishing that pre-existing relationship by slowing the process down, having that introductory call is critical to understand the investor's situations (financial, objectives, suitability, risk tolerance, experiences, etc) is an important aspect. Sharing additional information on the issuer / firm and GP behind it with follow up emails. Great sponsors are great educators first. That is where trust is built. It can't be rushed.
You will often hear the term "cooling off period" which is not well defined but should be achievable over say a 30 day period. By not discussing active deals, taking time to have those dialogues to establish knowing your customer and determining suitability for these types of private placements, recording these conversations (CRM tool), its a process and important for the investor as well as the sponsor, which also helps support any future regulatory reviews.
Lastly, I will note that the deals should be presented to investors from the issuer (key principals w/actual roles separate from mere marketing / selling the deals) or licensed reps of broker / dealers who can market these types of opportunities, take qualification exams and are heavily monitored, regulated.
Where I see grey areas on BP are folks that are raising capital as part of GPs and that is all they do, are not licensed, and in posts are recommending sponsors and that is where I think folks may get confused as to what's their agenda, even if they are not disclosing a deal itself, operate around the fringes. An enthusiastic investor is one thing, an enthusiastic investor (LP) who is also acting as a part time promotor / paid capital raiser for the (GP) is another.
Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
5y
@Jason Merchey All is good and I am very happy to hear that you enjoy our newsletter.
My intention was not to call you or any one out. I was simply asking a few clarifying questions because while there are some clear lines with SEC there is also a lot of grey - and same with Bigger Pockets at times. Offerings of specific deals or investments usually have to stay in the marketplace. I'm sorry you didn't like the questions, but to me it is just as relevant as sharing information on a sponsor.
Just as an aside, I've heard only great things about @Brian Burke and Praxis. Brian, your explanation makes sense and I appreciate all you contribute to the industry.