How to legally raise money for other people's 506c deals?

4 Replies

Hello Legal Eagles!

I spoke with several syndication groups about joining them as a money raiser and got similar responses:

"If you can prove that you can raise at least $500K we will consider you. But we cannot make you a part of a GP upfront because we don't know if you can really raise the money".

So, this is a classical Catch-22 problem: how do I prove to them that I can raise a stated amount if I cannot tell prospective investors that I am raising money for such-and-such deal and I can definitely not advertise?

Does it boil down to convincing a syndicator that I can do it and have them making me a part of a GP? I.e., if I become an "official" GP, I can advertise for 506c deals and hopefully raise money that way. But If I don't meet the minimum, they would quietly remove me from the GP, so no harm is done.

Can this tactic work? Is it even legal?

How have other people overcome this obstacle?

Thanks 

This is a great subject.  On the GP side it is hard to commit to brining another sponsor on because as you stated, the GP is taking the persons word that they can raise the amount of capital they say they can.  Usually the Operating Agreement needs to be created right away, so waiting a month or so for the capital to be actually raised will cause some problems for legal docs. It really comes down to selling the GP team on why you are confident on raising X amount.  On the flip side, you also need to have a material involvement in the deal for the legal team to be on board with you being a "capital raiser".  Consult with an attorney for specifics but generally they don't like to hear your sole role in the deal is raising capital. 

Hi Brock,

Thank you for chiming in. I don't mind doing something else besides raising money.

The real question is how do I convince people to invest not even with me but with whoever I refer them to? Not just convince but also get a soft comment from them.

For example, let's say I tell you: "Brock, if I show you a deal with projected returns of X% with A, B, or C as a sponsor, would you invest in it and how much?" 

Suppose you know A, B, and C. Would you commit to me and not them directly?

@Nick B. Great questions you have here. I will say that when doing this your investors are really investing in you. You would need to let them know that you have the ability to recognize good deals and that you are able to find good operators as well. At the end of the day if a deal goes sour your investors would fault you instead of who you refer them to. Just as the sponsors are interviewing you, you should also be interviewing them to make sure they are successful. If you can feel confident in their success then you can utilize their experience when talking with your investors. Hopefully that helps.