Startup Capital - What did you use?

Question

I'm curious as to how others got started in the paper business. In my case I began buying notes with money that had been saved and previously invested elsewhere.

What was your source of start up capital? Did you use savings, a self-directed IRA, get a loan, find business partners with cash but no time, PPM investors......?

Arthur Mayer · Answer

Curious is a Reg D fund the same as Crowd Funding? Does it require accredited investors to invest in your re-performing notes?

Sean M. · Answer

@Bob E.  I'm a securities/finance attorney in Canada, and amongst other things, I create the types of PE funds and fund structures for Reg Ds (actually Canada's equivalents, called AIs) that Bob M is referring to.

Costs in Canada are different than the US, but I would add to @Bob Malecki 's comment that costs are $15k to as high as your creativity can lead.  Lots of these funds get very, very complicated - and the costs rise to match.  Similarly, if you get into the institutional investors, they'll have their own forms and legal reviews - which will add more and more costs.  The flip side to the costs of bring creative is that you can be incredibility flexible in your structures - it makes them really fun to create, one of the favorite parts of my job.

Bob Malecki · Answer

A Reg D fund will cost anywhere from $15K-$30K to have a competent securities attorney write the PPM, Operating agreements, disclosures, do the appropriate filings and provide guidance for promoting your fund while staying compliant with SEC and state securities regulations.

Bob Malecki · Answer

I started with self directed IRA funds and still using that resource to build up our retirement income. Also set up a Reg D private equity fund to raise capital to be able to purchase larger pools and expand our reach.

Bob

Sean M. · Answer

@Mark S. lol, you correctly summed up my 3 paragraphs in a sentence - damn lawyers, always use 10 words when 1 will do.

Mark Scarola · Answer

Wow, thanks @Sean M. for that. I understand of course that the answer will always be "it depends" and that the location of your investors and other factors will play a role. I guess my thought was if you had an equal number of investors in each country, would the rules of one or the other be so dramatically different that you'd be swayed to say "Well, obviously Canada/US would make my life simpler." And you did answer that in saying that the rules are close enough in each country to not be a deciding factor. That's really all I was getting at. Thanks again!

Sean M. · Answer

@Mark S.  - there are a number of differences, but the regimes are broadly similar (in fact, the larger "cross border" funds are often two mirror funds, one in each country, that allow residents of each country to invest in the fund resident in their respective countries).

Talk to your lawyer about your specific situation but generally the jurisdiction of your fund will be a natural result of the structure you choose and where you and your investors are located (in some industries it might be focused on a global hot spot for the industry).  You will have to comply with the rules of the jurisdictions of both your fund and your investors, so you can't avoid unfavorable rules by setting up outside of the US if that's where your investors are.  Also, mind and management tests could jam you up if you created a foreign fund, but undertook all activities locally.

I'm over complicating it and I could go on for pages, but in brief - consider the interests of your investor group and create your fund accordingly.  Are they a friends and family group? If so, do they have the means to address the tax consequences of an out-of-country fund? Are they a larger institutional investor? If so, do they have regional guidelines/limits they need to abide by for their investment mix?  The rules are close enough in each country that in most cases it won't be a deciding factor - you will benefit more from choosing an objectively reasonable structure that is transparent to, and provides a smooth investment process for, your investors.

Hopefully I haven't rambled too long and the 3 paragraph "it depends" is useful for you.  If you are thinking of setting up a fund, talk to a good attorney in the field, they'll know what is market in your area and have an idea of what the investors are used to seeing.

Mark Scarola · Answer

I'm in the same boat right now-- not ready to start a fund, but would love to work towards creating one in the future.

@Sean M.-  I'm not sure how familiar you are with US law, but I wonder if  you have any thoughts about how the two countries are different. In other words, are there major legal differences between US and Canadian funds or are they fairly similar? If you  had the opportunity to create your own fund tomorrow- what country would you choose?

Bob Malecki · Answer

Yes the first fund is friends/family, the new fund I am starting is going to be accredited only with a $100K min. investment.

Sean M. · Answer

Bob, just for clarity - I create funds for other people, I'm just the legal monkey putting it together for them.  I'm way to early/small to have a fund of my own.

Startup Capital - What did you use?

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