Episode 5 – How can you structure sponsor fees for a Regulation D Rule 506 syndication?

My name is Tilden Moschetti. I’m a syndication attorney with the Moschetti Syndication Law Group. I work on private placement memorandums, and syndicators often ask me, “What exactly can I do to structure my fees? How should I do it? What’s the best way?”

Syndicators are doing their syndications not only because they enjoy the process, but because they want to make money by doing it. So a question I oftentimes get is, “How can I structure my fees?” There are a lot of ways that you can structure your fees. The basic rule that I tell clients is, you can structure them any way that you want to as long as it’s legal, disclosed, and known to your investor.

It’s completely legitimate to do a Rule 506c offering where you’re getting 95% of all the profits and everything out of it, and the investor is only getting 5%. As long as you made it very, very clear that you’re getting that 95%, and they’re only getting that 5%, there is nothing in the rules holding you back from doing that. You’ll never find an investor who’s willing to do that, but you can technically do it that way.

This opens up a lot of different ways to structure fees. Whether you are choosing to do a preferred return with a waterfall, or you’re choosing to do what we call a harvest promote, or whether you’re just taking equity off the top, sometimes called a rake – those are all legitimate ways of doing a syndication and structuring fees as part of it. There can also be asset management fees that people can make as part of it.

Because I’ve syndicated so many different projects, I can give you advice along the way if you decide to hire our firm about what’s normal and what I typically see as working and being successful. So you can make up your own mind about how you’d like to push the envelope of how much money you can make in your fees.

If you need some help with your syndication, be it for real estate, you’re an entrepreneur raising some capital for your business, or you’re putting together that new cryptocurrency hedge fund, give us a call. My name is Tilden Moschetti. I am a syndication attorney, and if you need help just with your private placement memorandums, we’ve got you covered there too.