How do I find a Financial Backer/Silent Partner

[Matthew Walsh]

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[John Corey]

Originally posted by @Matthew Walsh:

@John Corey mainly because I do not have the liquid equity to get into the market. Have the brains and the skill tho. Silent partner is better than dealing with banks I would think.

 Generally, the cheapest money will come from banks. Or, other institutions. Lots of great reasons why their cost of funds will be the lowest.

When working with private money, you might find things go faster or the investor understands better what you want to do. You would be talking to a decision maker. That said, what out for the regulations.

There is a 4 step test for figuring out if you are offering a security (requiring SEC and/or state registration). A silent partner who is in it for a profit and you are in charge tends to trigger the security issue. The Howey test' I will drop in some text from https://consumer.findlaw.com/securities-law/what-is-the-howey-test.html below. You can use the URL to find more complete info.

So, the more silent you partner is the more likely you will be bumping into the SEC or the state regulators. There are some minor exceptions. Stuff that might work for 1 deal yet does not scale for larger or multiple deals run together.

If you want the partner to do something, it better be material to the success of the project and it better be something the person is competent enough to execute. You would be depending on a judge to form the same view so it needs to be obvious to someone not involved with the project that your partner is really engaged in a significant way.

All text below can be found at the website for FindLaw.

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"The "Howey Test" is a test created by the Supreme Court for determining whether certain transactions qualify as "investment contracts." If so, then under the Securities Act of 1933 and the Securities Exchange Act of 1934, those transactions are considered securities and therefore subject to certain disclosure and registration requirements."

"Under the Howey Test, a transaction is an investment contract if:

• It is an investment of money
• There is an expectation of profits from the investment
• The investment of money is in a common enterprise
• Any profit comes from the efforts of a promoter or third party"

"Although the Howey Test uses the term "money," later cases have expanded this to include investments of assets other than money. The term "common enterprise" isn't precisely defined, and courts have used different interpretations. Most federal courts define a common enterprise as one that is horizontal, meaning that investors pool their money or assets together to invest in a project. However, other courts use different definitions."

"The final factor of the Howey Test concerns whether any profit that comes from the investment is largely or wholly outside of the investor's control. If so, then the investment might be a security. If, however, the investor's own actions largely dictate whether an investment will be profitable, then that investment is probably not a security."