What to look for when joining a syndicate

1 Reply

Hi BP Community,

I have been offered a chance to jump in on a syndication deal. This would be the first syndication that I have been apart of and I am wanting some help.

I would like to know what sort of things I should be looking out for with a syndication to make sure it is what I should be investing in.

I am confident in the deal that was put forward to me. I am just wanting to know what I should be looking for from the syndicators and the structure more than the deal.

I really want to learn a lot from this syndication as I would like to do my own syndication in the years to come and feel like this would be the best way to learn how to do it properly. 

Any help would be greatly appreciated.

Cheers

It's hard to comment given the multitude of ways syndications can be structured.  In general, look for an investor-friendly structure as opposed to syndicator-friendly, and look for alignment of interests between syndicator and investors.

For instance, I always look to see syndicator has their own capital in the deal.  Everyone wants to use OPM without risking any of their own money.  A syndicator having his own capital in the deal speaks volumes as to how much a syndicator believes in the deal.  

Look for where syndicator premium value comes from profit and not a fee.  If it is a fee (ie 2% off gross revenue), then the syndicator gets paid even if the deal goes sour.  This is a poor alignment of incentives.  You should stead look for something like investors gets the first 8% of cash flow, then afterwards is split with the syndicator 50/50.  

I also look to see if investor capital is preserved.  For instance, in a $1MM project, if investors are in for $800K, and the project loses $100K, the investors still have $800K in the deal.  Hence the syndicator takes the $100K loss.  Of course, I would expect syndicator to take more on the upside.  Since the syndicator has control and is supposedly the expert, I feel it is unfair to take only upside but share in downside.  

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