Joint Ventures: The Cheapest, Easiest, Fastest and Safest Alternative

As you know, there are a lot of details that certainly are not intuitive about how to make sure you’re complying with the securities laws if you are going to syndicate. And one of the those happens to be that you have a pre-existing relationship with whoever it is you’re going to make a pitch to, and invariably, what would happen after I teach them this particular aspect of security compliance, I get somebody coming up to me after the break with a very concerned look on their face. And they say, “You know what? That’s great but I have a deal now. And if you’re telling me that I can’t talk to a potential investor about the deal, unless I already knew the investor and had some sort of “pre-existing substance of relationship,” which itself is an assembly of terms, each of which has their own special meaning, then I got a problem. I got a deal now. I need money now. What do I do now?” And in that moment, they realize that syndication isn’t going to help them. And what I tell them is what I’m about to explain to you and your listeners, the alternative of a joint venture. So I’m really glad that you saw that firsthand because the people that you and I communicate with don’t know.

And the challenges with syndication, aside from what we just discussed, which is that in many situations, the investor doesn’t have the time to do a syndication because they don’t have enough preexisting substance of relationships. That’s one reason why this is important because they may not have another option. But even if they do have the option, they do have preexisting substance of relationships. Syndication is significantly more expensive from a legal standpoint than joint ventures. I can set up a joint venture for a fraction of the legal fees that they will have to pay me if I do a syndication. When I say cheapest, easiest, fastest, safest, there’s a reason for each of those words. One of them is that it’s cheaper. Second, syndication is too complicated. It’s complicated for a variety of reasons. The least of which is that, again, it’s not intuitive. As a matter of fact, in many situations, it’s counterintuitive.

Listen to full episode: https://lifebridgecapital.com/2019/09/ws335-joint-ventures-the-cheapest-easiest-fastest-and-safest-alternative-to-syndication-with-jeff-lerman/

The one where most investors think that the proper sequence of events in doing this business is find the deal. Then start looking for your investors. But as you know, in syndication, you have to have ideally your perspective investors lined up before you find the deal, not only for the reasons, for securities, for complaints, but also because if you start looking for the money after you find the deal, it’s going to be more difficult to make sure you get all the money that you need to do the deal within the time frame that you’re going to be able to negotiate to do it. It’s got that going for it. And depending on how much money you need for your deal, let’s just say for every million dollars you’re trying to raise, on the average, how many investors it’s going to take. I don’t know. Maybe 10. If everybody’s putting in a minimum of $100,000, if you’re going to accept investors with lower minimums, then it’s going to take even more. So, it can be risky if you’re trying to, depending on how much money you’re trying to raise, to raise all that money from a number of smaller investors.