Syndication Attorneys Podcast
Not a week goes by where I don’t have a consultation with a potential new client, where I don’t hear something along the lines of I didn’t do a private placement memorandum in my last three syndications happened last week, and I’m sure it’ll happen this next week as well. Let’s talk about it. Do you really need to use a private placement memorandum? What do I answer these clients? And what do I tell them? We’re going to go over that
My name is Tilden Moschetti. I am a syndication attorney for the Moschetti Syndication Law Group. So do you really need a private placement memorandum? Now granted, I’m biased in this I prepare private placement memorandums for a living. So let’s go over what exactly a private placement memorandum does first. So the private placement memorandum or ppm, so we’re probably going to call it PPM from now on is a document, which is a set of details in details out the investment itself that’s being made. It details out all the risks that are associated with that investment, or everyone everyone that we can reasonably think of, we have no way for example of predicting that Martians could land on the planet and take over. That’s not one of the risks that we would identify in a private placement memorandum more likely than not. But we do identify risks such as we don’t know what the economy’s going to do in the next year, we don’t know what lending rates are going to be and how that will affect our business is such and such, if they go up substantially. We don’t we identify? Well, this is a risk because these types of investments are illiquid by nature, we’re not supposed to be freely trading private securities under Regulation D. So those are the kinds of risks that we generally talk about, we also talk about conflicts of interest, like the manager of this fun, may have something to gain from it, they’re going to be receiving management fees. And perhaps it’s a situation where they will make more money by having the investment go on and on rather than end it when it would make most sense for the investors when we talk about those sorts of conflicts of interest that are inherent. But we also talk about what the use of the funds is. So we talked about how the money is getting used. So all these things go get taken place in a private place in memory in that ppm. So you can think about a PPM also in this context, and I like to describe it this way. Because a PPM isn’t a marketing piece, it’s not a piece of marketing material that you use, as you know, as a to hold up and show the world. It’s it doesn’t serve that purpose. That’s more placement for your marketing materials. The PPM is something else. I like to think of it as when you go to the bank, and you open up a new checking account, and they give you that big thick booklet that you never look at, you put it back in the folder that they gave you. And you never look at it again. Because it’s you know, who would read that thing anyway, that in a lot of senses is what the private placement memorandum is. A lot of people don’t read private placement memorandum they’re not read. So I have to live with the fact that a lot of my work never gets seen by anybody other than my client, and they give it out to people, but they probably don’t read it, maybe maybe 80% of people don’t look at them. That’s just my rough guess. So why do we still need it? Well, here’s why you need to know first off, you absolutely must have a private placement memorandum. If you are doing a Regulation D Rule 506b offering, the chance of a non-accredited investor entering into your investment is very high. And a non accredited investors must get the information that’s within a private placement. It’s critical that they see it that they have that information. accredited investors, interestingly enough, aren’t required to see that kind of information. Now, you may think to yourself, Well, I’m doing a 506b offering, but I’m only taking in accredited investors. They’ve all told me that well, that bar isn’t really quite right. Well, it’s interesting when we see litigation coming a involving a Regulation D offering, we oftentimes say see this, this this item in the case itself where there was this many number of investors this many assumed to be non accredited investors and then there’s always there’s some larger number more of who people will actually are non accredited. So there’s always more non accredited investors in a 506b than you think. Now we don’t have that in a Rule 506c because everybody has to have verification from a third party. So most of the time, like 99% of the time, you won’t have any non accredited investors. But they still should see this information. Why? Because it answers that question. When the investor calls you up and says, Well, you never told me that the that the economy was directly tied to the performance of this investment. You can show them the PPM and say, This is where we told you exactly that. Or when they come to you and say you are have been paying a preferred return of 7%. But I thought all along that it was 9%. Why didn’t you tell me that it was that? We’re distributions are happening annually, and they’re not quarterly? Like I thought they were? Why didn’t you tell me that? If you don’t do a private placement memorandum, I guarantee you’re going to get those questions, at least, that’s a concern for the accredited investors. For the non-accredited, we’re talking big problem here, you must give them a private place of memory. So it answers all those questions. And so it goes over all those details. It’s also your backstop at the end of the day, if you ever will come under an investigation with the SEC, you can present the PPM, you can say this is what we told them. And this is why it’s there. This is what happened. So not only is it just a plain good idea, even if you don’t have to use one, it is a really good idea because it’s insurance for you. Your investors are probably the ones paying for it. Most of the time, my legal fees are reimbursed to my sponsors to the syndicators by their investors. So essentially, the investors are paying for your insurance policy. So it’s kind of a no brainer to do it. Now, yes, it does take a period of time. And yes, it does cost money. But it doesn’t make sense to risk everything on something that basically you could get for free. Not only that, but it does make a case that you are a professional, I can guarantee you that Goldman Sachs, when they go and they’re doing a private offering for one of their clients, or one of their subsidiaries is doing a private offering, I can guarantee you that they do not do a deal without a private placement memorandum. They don’t they it’s a free guarantee for them, their legal department would never let them go out there. So you showing up with your own ppm is a mark that you’re a professional, that you know what you’re doing, that the investors money is in safe hands because you know enough to protect yourself and you can probably protect their money too. So that’s why even if you don’t have to use a private placement memorandum, you’re really really sure. So here’s the key takeaways, private placement memorandums, they provide that detailed information about your business, about the financial health associated risks, all those things which are crucial for those potential investors to invest with you. A PPM also helps you comply with the securities laws. It mitigates any legal risks, and it enhances investor protection, because it promotes that clarity, that understanding so they know what they’re getting into. They understand what those investment terms and conditions are. While the ppm is require a lot do require time and financial investment up front. They offer such advantages that it’s a clear case that you need to do this. It is a clear way to communicate exactly what your what your offering does. And it gives the strategy and it also attracts those potential investors because you show up like a professional. My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group. Obviously, I do a lot of private placement memorandums and I would be happy to talk with you about your private placement memorandum for your next offering.
What is the one secret tool that syndicators and private equity fund managers use to keep their investors happy, and keep them to keep reinvesting? It’s got one word, it starts with the letter C, and we’re going to talk about it next.
That one word is communication. Communications makes all the difference. You want to keep yourself safe as a syndicator. As a private equity sponsor, investors will go a long way with you if as long as you’re doing one thing, and that’s talking to them, let them know what’s going on on a frequent basis, so that there’s no questions, they like to know what their money is doing. And if they don’t want to know they don’t have to read an email or answer the phone. So let’s go through the eight tips of communication or what we call investor relations, that oftentimes I give my clients and you are free to use them as well. Number one, fairly present both positive and negative aspects. Now, it may seem tempting to only focus on the successes of the syndication to spin it up. But don’t do that. Make sure to have it be fair and focus on the facts, make sure you’re presenting everything balanced about successes and challenges that you’re facing. For example, if you’re doing a real estate syndication, and you know, a vacancy is coming up, talk about it, it’s very important that investors at least know that it’s there, and it helps them know that you’re always telling them the truth and telling both sides. Number two, update regularly and keep communication channels open. I think it’s very important to communicate every quarter. Some people communicate every month, but I believe that’s a little bit too much to be writing and very good investor communication. To them. I think that’s a little bit much every quarter is very reasonable once a year is permissible under the rules. But it’s not enough, your investors will not know what’s going on and they’ll start to worry on you. But keep those channels those channels open as well. Even in most quarters where you have mixed results, maintain that open communication with your investors, invite them to call you invite them to have this open dialogue. It might make sense for once a year to do a webinar where everybody can come in and talk about things that might make sense for you. What it does is it it makes them feel reassured that you’re effectively managing their money so their money is in your syndication in your fund. Number three, be adaptable. The things that you present to investors should evolve over time to allow it to reflect the actual health of your syndication to help investors track their own progress. Number four, quality communications is key. Make sure your updates your communications are planned and effective and show that you’re a professional. If you’re doing a webinar, be well prepared. Practice that presentation, ensure your team is ready to answer any potential follow up questions. Number five, give understandable metrics. This helps investors understand the position that they’re in at any given stage of time. Number six, diversify that representation that shows up in the communications. Highlight somebody from your own leadership team other than you make sure that it’s it’s well rounded, when you’re planning this marketing occasionally include those other people because it gives those investors a broader perspective about what’s going on and gives them a sense that there’s a lot more going on than just running a property that there’s all these other players that you are coordinating for their own benefit. Number seven, be proactive in responding. So when you have bad news, it is very important that you quickly assess its impact and communicate it to investors proactively. And number eight, when you do that provide clear guidance. So successful syndicators syndications. Understand that transparency is key to getting that that key investor in and keeping investors happy. If you always offer to strive for guidance to your investors about what whatever’s going on means that it’s very important. For example, during COVID I had a property that I was syndicating. The first thing we did was send out an email as soon as lockdowns occurred. Yes, we didn’t know what was happening, but we did talk about what the ramifications ends would be to investors, if rent started not coming in, you know what the what the law was quickly evolving to be whether there was moratorium on the rent that we’re receiving things like that. It was very important for investors to know that we didn’t know all the answers. But what we didn’t know we could draw conclusions from. And what we didn’t know, we could say this is what we think we would do in these types of situations. That’s the kind of guidance and the kind of, you know, Captain at the tiller of the helm that investors expect from you. My name is Tilden Moschetti. I hope these tips were helpful. Again, the most important thing you can do is communicate, communicate, communicate with your investors. Make them understand that you know what you’re doing and you’re there at their money is in safe hands.
It is not uncommon for me to meet a client for the first time and them to explain that they have four different projects that are all very different from each other. And want to know should they put this under one umbrella or how to organize everything. My name is Tilden Moschetti, I am a syndication attorney with the Moschetti Syndication Law Group, I’m gonna go through how I would if I were them organize those projects
so a lot of times private equity funds will look at a series of projects and try and make a decision on whether or not to put them all in one under one umbrella, or to separate them out. So I’m going to talk to you about the pros and cons about putting them all under one or the how to how you do it, or separating them out and why you’d make that decision for your own. Now, it doesn’t have to be a private equity fund or a syndication or whatever it is, put those terms beside. So let’s say you’ve got five, four different projects that you’re all trying to raise money for, and you’re trying to figure out the best way to do it. So that’s the most pragmatic way to think about it, just put the terms aside. So let’s open up a whiteboard. Because that will make it a little bit easier to explain. So let’s make up for projects. Let’s say you have a a business that you want to raise money for it’s in the services sector. And I’m making this up as we go. Number two, let’s say you have a, a crypto mining that you want to do. So you have a business that wants to do it, it’s professional services, or some sort of services. Number two, you have a crypto mine that you want to raise money for number three, you have a an apartment building.
And just for fun, we’re going to make one also in real estate just so that we can talk about that a little bit more extensively. So then let’s say we’ve got a triple net, which is you can think of like fast food restaurant or something like that. So we’re gonna pay is all of the operating expenses of everything. So you’ve got these four different business lines that you all want to raise money for. But you need different things, let’s say each one needs just first, let’s say each one needs one a million dollars, just because each one needs a million. So you can either do what $4 million arrays, which might seem like the easiest thing to do, right? So you would have your entity your investment entity here. And it would have all four projects that you are raising that $4 million for. Now, you could do that. But I want you to think of also or actually let’s talk about the the other alternative. Or you could have four different entities that people invest in to write each for a million. And just because we can, let’s say you also have this one where you have the option of an entity, just a real estate, one that also invest in both of them. That’s also a reasonable way to shape it. So those are sort of the three different structures that you can think of. Now the very first thing I like to think of when I’m putting together any kind of deal is my founders investment theory. Again, if you need to watch it, I’ve got videos on here that describe founders investment theory, but essentially what it is, is you can think of it as that story that makes you why somebody should invest in you, right. So why somebody should give this money. And so if you put yourself in the thought process of what an investor would be hearing is that that would be the way I would think about it. So if I was trying to pitch this first deal, right if I was trying to pitch this $4 million he’ll, then I would have to go to my investors and say, look, I’ve got a conglomerate, I’ve got four different things that I that we’re going to invest into, and you’re gonna get distributions in these four different ways for these four different business lines, you can do that, but it’s going to be kind of confusing to an investor. Why four different things? I mean, you’ve got things all over the map here, don’t you specialize in anything, you know, what’s special thing are you bringing to the table here, it’s gonna be a really real big challenge to raise money, raise $4 million for four totally different things, or at least three very different things. And two of those things are fair, two, new two things are somewhat similar. Or you could go to them and say, look, I’ve got, I’ve got three investment vestments that I’m looking to raise money for. One of them is a business is a services business, and you’re going to get a piece of the equity. But we’re going to do that on you’ll have an option to convert it into the prefer into the that into it, because we’re going to pay you a fixed percentage of 10% a year. And then after two years, when we’ve shown we’re successful, you can convert it into real equity into the business. It’s a great business, here’s what it does. The second thing that I’m raising money for is a crypto mine, and here’s how it makes money. And you’re going to immediately own equity in that business and just be getting the profits off of what what we’ve invested. And we’ll have, we’re also raising money for an investments. Now we diversification is important. So we’re going to do something that’s kind of unusual, we’re going to invest in an apartment building, and we’re going to invest in this fast food triple net. And the reason that we’re doing that is because should something happen in the economy in these uncertain times, we want to be able to balance and make sure that you know, you’re always making money. And so if fast food suddenly stops making money at a at a reasonable rate, if the appreciation and just isn’t happening, you know that that apartment buildings still gonna go up. Or if you know that, because of some new laws about rent control, or whatever it is apartment buildings start to stagnate, we’ve now got this fast food business that’s going to carry that load and make sure that you have a good investment. So at the end of the day, you have a nice balance between two different types of real estate that are just ultimately going to make your portfolio more valuable. That would be how I’d pitch it. In that scenario, in the fourth version, over here, it separate them out into individual things, you just talk about apartment buildings and triple nets in a different way. Now, obviously, the number two and number three way is the easiest way to pitch a pitch. And it’s probably the way that you’re going to be most successful. So I would probably recommend that almost always you’re going to separate them into distinct different units. Now, sometimes you will have distinct units within one individual investment. So you could in your business services, say look, we have two different mechanisms here. So in this business, let’s move this off here. In this business, that’s a certificate, we’ve got two different ways of paying you and one is a Class A preferred. And one is a class. A common and what that means to you investor is that the class a preferred, they’re going to get paid first no matter what. So they’re always getting paid. But they’re only getting paid 10%. Right. So even if this company starts making a trillion dollars per unit per, per share, you’re only going to get 10% of the money that you invested on top of it. So you’re going to be making that return. Why if you think this is a great business, maybe you want to come in along this class a common now we’re not going to pay out a preferred return at all, we’re not going to pay 10% There’s no no guaranteed income, it’s probably not going to pay anything out over the next two or three years. But you know, we’re planning on doing or planning on going public in in three years. And you’ve seen boy IPOs go and you’ll probably all that equity is going to be equity you’re going to be carrying in to the IPO before it even happens. So that means you’re going to get this huge amount of appreciation in the value of the company and then you can sell the stock at that point. So those are the kinds of pitches that you would do. Now here you’ve got two different classes of shares. So sometimes the point is, is that you’ll have something that is two very distinct kinds of investment. But that’s under what that still goes under one umbrella. So we’d still net probably put this under one offer, as we call it. Insecurities language. So I hope that helps describe, well, why I would separate these into multiple classes like this into I mean, into multiple investments, multiple offers different things entirely, is the reason again, is just that you want to make the story as clear as possible to investors. Now, here’s an asterix. Just a disclaimer, yes, I’m a real, I am a syndication attorney, I put these offers together, and I do get paid more by splitting them out into four parts. But at the end of the day, your investors are probably the ones paying my fees. They’re the ones that you get reimbursed for it. But also, it’s gonna be that much easier for you to raise funds for. I always leave the actual decision making completely up to my clients, if they want to do it like this, with this $4 million raise. Absolutely, I’d be happy to write it. We can make it as good as possible and give you every opportunity to be able to raise that $4 million. My advice if you want an easier time raising money would be to split it up into four units or three units. So I hope that helps describe what you do in those situations where you’ve got four different things you want to raise money for and they’re all very different. My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group.
When you’re putting together a real estate syndication, a lot of your world gets consumed by the world of Regulation D, and the SEC and syndication and funds and all those things. But what we oftentimes forget is that many people in the world don’t know what we’re talking about when we say, real estate syndication, and they would be interested, but they just don’t know. And so a lot of times you’ll get the question, well, can you give me an example of what a real estate syndication would look like? So in this video, we’re going to do just that.
My name is Tilden Moschetti. I’m a syndication attorney with the Moschetti Syndication Law Group. Let me give you an example of what a real estate syndication is. I understand that if you’re watching this video, you probably already know what it is, but many people don’t. And I’m oftentimes surprised myself because I forget, you know, this is my world that I live in 24 hours a day, seven days a week, 365 and one-quarter days a year. But most people aren’t living in this world that are thinking about this stuff all the time. So here is sort of an example that I could use if I was asked, you know, can you give me an example of a real estate syndication? So I probably would say, let me tell you about one of the first deals that I did. So I found this piece of property on that property, it was already developed by a developer, it was a medical office property. And they had a tenant lease already signed. Now, I knew that who the developer was, I already had the relationship with them. And I knew that they were interested in just selling it pretty quickly because they wanted to move on to their next project. So I immediately thought this is a good opportunity to buy in at a lower price, and get a nice piece of real estate. I could have bought this property for myself. But I wanted to get started in syndication. And so I did this deal, right, so I bought the property, I put the property under contract. And then I started looking for investors. In this case, I have a good network. So I was using rule 506. B in order to find investors. So which meant I could take both non accredited and accredited investors. So I went around to all my everybody that I know, and I talked to them about this investment. I said, I’m buying this piece of real estate, I’m getting it at a discount, because the developer who’s just finished it, they already have the major tenant in place and is ready to move in as soon as development is over. But they want to go off and do develop another project for that same tenant. So I’m getting it at a good discount. Now I know that in the area, there is only one of these buildings and one of this kind of tenant, this is a medical tenant. And so I know that this is only one. There are some other reasons of why this, this is a very specific purpose. And that it’s an underserved community for the services that this medical company provides. So there was a there was a good need in the marketplace for it, which creates a value in that tenant, right? So they want that tenant there, the tenant is most likely going to stay there for a very long time and keep renewing their leases. Also the economics of the area, the demographics were really, really strong. It was strong in most areas, but it was also uniquely strong in the same medical service that was necessary that was being provided by my client by my my tenant. So I had this great opportunity, right? So what I did is I divided it up, I think it was approximately a $2 million raise. And I’m rounding here because I don’t remember exactly. It was a $2 million raise, and then I put financing of another $2 million on it. So I put a low got a loan had that done $2 million, so I still needed to raise $2 million. So I divided it up into at that time, I think I divided it up into $50,000 shares. And then I started selling those $50,000 shares out to people that I knew people who were already in my network. Now some people came in through family some of it was family and I would explain to them what the family was and they wanted to support me so they came in others were friends so friends were interested in they wanted to support me as well and they saw a good opportunity. They knew I knew the industry very well and so they trusted me with their money. The other was business associates so business associates knew that I knew what I was doing that I knew the property well and I knew what I and that they stood to gain, you know, well financially with it. Some people chose to invest just cash out of their savings out of their checking accounts or what have you. Some chose to invest with their self directed IRA, at the end of the day, we raised that $2 million. So then at closing, all $4 million, went to the property, I manage that property. I didn’t hire a property manager, it was on basically a triple net lease, so it wasn’t very difficult to manage. And then every quarter I made distributions, I made distributions to my investors, it turned out that we were making distributions, you know, right around the amount that we told investors we would be making. And we made them very, very regularly, we didn’t let a day go by when if we said it was going to be probably on the first of the month, it had to happen on the first of the month, or the first Monday of the month. In order for them to get their check. It was in we didn’t let a week go by in order for me to make that distribution. At the end of four and a half years, I projected that it was going to be a five year term. At four and a half years, I decided the market was in a really good position at that point. I wanted to sell the property. I told all my investors, I think it’s now’s the time to sell what do you all think? Everybody seemed to agree with me, we, I marketed the property I found, I did this deal myself where I put put it on the market. And I sold the property myself. The first transaction didn’t go through second one did made a lot of money for my investors made my final distributions. So that so each investor, I was projecting that each investor would make a 15% IRR, which is an internal rate of return. So you can think of it almost like it’s 15% annually that they were getting from their investment. And at the end of the day, that’s they got round like I think it was 15 and a half percent. So we overachieved just by a little bit. Investors got their money, they were happy, and investors came with me on the next round. So that is an example of a real estate syndication a very, very simple one. I had one tenant, I had a bunch of investors, I think I had maybe 1617 investors at that time in that deal, and we made the money. So there is an example of what a real estate syndication is. Hope you found that useful. My name is Tilden Moschetti. I am a real estate syndication attorney with the Moschetti Syndication Law Group.
One of the most challenging and frustrating times in the role of a syndicator, or fund manager comes, when you’ve already put the deal together, you’ve already got the documents assembled, you’re out there shopping in front of investors. And then now you’re trying to get the investors to what I call a latch on to the investment to give you their money, sign the subscription agreement, so that you can close the fund that you’re raising money for.
I am an active syndicator. Myself, not only am I a syndication attorney, but I’m also actively syndicating deals myself. So I know exactly what it’s like to feel that pressure of needing your investors to latch on to get their money to make it so this deal can go forward. So I know that frustration, I know the challenge. So I have a six part system and I hope you’ll find it helpful. Let’s go through it. The first step is provide the necessary documents after your investors already have given you the Okay, that sounds interesting, I’d probably be interested in something like that. That is the time when you provide those necessary documents. And here we’re talking about the private placement memorandum, subscription agreement operating agreement, I like to provide a questionnaire I find it helpful, and then provide those documents to them. You want to also include anything else that would be useful financial projections, marketing material, whatever it is, put it all in a nice cohesive, good looking package. Well put together presentations and well put together required documents packages get you funded where masses do not an investor is going to see a mass they’re going to run away scared. So make sure everything looks nice and cohesive and clean as possible. So step number one, provide those necessary documents. Step number two, address any questions and concerns they have. Make sure that that’s that you’re getting those questions and provide good answers. I mean, that’s one of the necessary things that takes place in a Regulation D syndication is you have a duty to provide those kinds of answers for any question they have. That’s one of the things that is absolutely required under the regulation. So get those answers to them, help them out, help them come to the decision. And hopefully that decision is they want to invest with you. Now it’s okay. When they give you a call. And they ask you a question. If you don’t know the answer to it, you can say I don’t know. Let me get back to you and make sure that you get back to them quickly and promptly to give them a full nice, well rounded answer. One of the things I as a syndication attorney like to help my clients with is when those questions come into my syndicators. They give me a call, and they say I’m getting these sets of questions. Can you help me craft them? And I am always happy to do that to help them come up with good answers for answering those questions in a way that not only is thorough and complete and accurate, but also pushes the deal forward makes it more likely for people to invest. Sometimes the answer is no, we’re not willing to do that or whatever like that. But the question always needs to be answered respectfully and completely. So I like to as an attorney help my my clients craft those responses. Step number three is obtain soft commitments. Now in a perfect world, you’re getting written soft commitments, because when a person writes it down, whether it’s by an email, or whether it’s a piece of paper, or a letter, or whatever it is, and they’ve soft committed to you, they’re much more likely to follow through and invest in your deal. So obtained soft commitments, ideally written. Now also, you need this kind of information anyway, if you’re raising $10 million, for whatever purpose and you you need to know where you’re at on on the deal, right, you need to have a list of all the potential investors that you’ve been speaking with, and you need to line it up with how much money people are likely to invest so that you can hit your targeted raise amount. So get those soft commitments. Those people who have soft committed to you are more likely to admit, more likely to subscribe, then the people who haven’t committed at all to you. Step number four is continue to provide social proof that can be something that tips the scale Now that social proof can either be just generally being on social media or wherever providing, you know, way, here’s a testimonial that we have, here’s a case study, here’s a review, whatever it is, if it’s a five of succeed, that’s not an issue at all. If it’s a 506 B, it can be an issue. So sometimes what I will do in my own raises, if I know Person A is interested in investing, and they know Person B and person B has already invested, I’ll probably invite both of them out for a for to go to have a drink, or something like that, or go go hit some balls at the driving range, or something like that, in order to build that relationship a little bit further. Really what I’m doing not only is building a good relationship with them, but I’m also building in that social proof, because now Person B is going to be saying, Oh, this is a great investment, you really should come into this, they’re going to be providing that that pressure, if you will, that social proof, in order for a person a to invest. Step number five, offer a sense of urgency. Urgency is a great motivator, people have a great great, great fear of missing out. Now, if they’re feeling a fear of missing out, that is a good thing, they’re more likely to commit to you. So you want to be telling them, Look, I’ve got this, I’ve got this investment going on, I’ve raised all but $500,000, or whatever makes sense of it. I’ve got a lot of commits that have already that are very interested and committed, I know you want in on this deal, I want to make sure that you can get in because I want you to invest because I like you. And I also know you’re gonna really like this investment. And I’m in this for the long haul with you. So I’d really like you to be able to come into it. But I’m also I gotta take the first money that comes in, and it’s probably going to be oversubscribed, within three days or five days or whatever seems reasonable at the time. Now, that’s good sense of like using urgency. That’s a nice, powerful sense of urgency where you’re a powerful syndicator. Right, so you have command of this thing. And you’re offering to them the ability to get to come in, what you do not ever want to do is become a forceful syndicator, where you’re pressuring people like a used car salesman to come into the investment, where you are like some used car salesman, even used car salesman, turn syndicators, calling people and saying, look, you’ve only got 24 hours left, you got to get in now, you got to come in now, you got to come in. Now, that’s not going to work. Not only does it deteriorates a trust, but it also isn’t it isn’t even legal, we need to allow people to make their own decisions without a forceful way of forcing them into prying our security. So create the sense of urgency, but do it the right way. Step number six, and probably the most important other than providing the documents is follow up regularly. You can’t let this one die, you can’t let let it go where you have, you know, 10 people who you need to follow up with, and you’re not calling any of them. Because you’re working on the next person who may call in. If somebody’s expressed some interest, you got to stay in touch with them and help them make their decision. You don’t need to force them go back to sense of urgency. But you do need to make sure that they’re aware that gives the the idea that you are persistent and professional and can make the case for them to come into your investment. You don’t want to become a pest you don’t want to bother them too much, but you should be following up in a regular consistent manner. So let’s look at our key takeaways here are the six steps. Number one provide the necessary documents create the comprehensive investor package that contains all the necessary documents for those investors to make their decision. It includes the private placement memorandum, the subscription agreement, operating agreement, business plans, financial projections, pictures, whatever it is just make it good, make it look good. Give them wiring instructions as well if I didn’t mention that before, so that way, it’s all there for an investor when they’re ready to make it happen as quickly as possible. Step number two, address those concerns and questions. An open line of communications where investors can voice their questions, their concerns about your investment is not only a good idea, it is necessary to comply with the rules. You need to be ready to address any of those questions with To complete transparency, and patience, if you don’t know the answer, say you don’t know the answer and find the answer and then get back to them. This step, this step builds that trust and it reassures investors that their investment is in good hands.
Step number three, obtain soft commitments. Soft commitments are their expression of that they would like to invest and it’s not legally binding, do not assume that it is legally binding, do not pretend it’s legally binding, do not do anything where you’re putting that kind of pressure, where they’ve entered into a legally binding thing, all you’ll do is hurt yourself. But it is in their mind, it may not be legally binding, but people are kind of honor bound, they’re gonna be more likely to follow through if they’ve given you a written soft commitment. So try to convert those soft commitments into the firm commitment. By giving that keep giving that reassurance and give that investment opportunity and get the paperwork done so that they can commit as quickly as possible. Number four, provide that social proof success stories of your past syndications or testimonials from satisfied investors find ways to continue to get brand marketing or social marketing into your investors heads so that way they’re more likely to invest. Number five, offer a sense of urgency. Now it’s essential that you provide that clear timeline for investment, make sure that those potential investors know that the round is going to close. How many slots are left, make them have that fear of missing out, just don’t push them into making a decision without without them committing to it themselves. They’re the ones that have to come up with that answer. And step number six, follow up regularly. Don’t let potential investors forget about this opportunity. Follow up with them regularly. keep them engaged, informed about the progress that you’re making. However, just be mindful, don’t be overly aggressive or pushy. you’re striving for a balance between persistence and respecting their own decision making process. This is Tilden Moschetti. Syndication attorney for the Moschetti Syndication Law Group. Those were the six steps that I use in order to latch investors to investments when I’m doing my own syndications or raising money for my funds.
Newer Episodes
Episode 69 – What Happens When an Investor Wants to Exit Early in Your Reg D Syndication Or Fund?
Episode 66 – How to Start a Real Estate Fund: A Step-by-Step Guide Using Reg D, 506b, and 506c
Episode 65 – Mastering Financial Analysis: A Key Skill for Reg D Syndicators and Fund Managers
Episode 64 – Raising Money From Friends And Family: Unlocking the Legalities of Raising Funds
Episode 63 – Are You Creating a Security? The Howey Test Knows: A Look At SEC vs. Howey
Episode 62 – Deconstructing a Reg D Real Estate Syndication Deal A-to-Z: Part 2
Episode 61 – Regulation D Waterfalls 101: Understanding Investment Distribution
Episode 60 – Choosing Between Regulation D Rule 506b and 506c for Your Syndication
Episode 59 – Deconstructing a Reg D Real Estate Syndication Deal A-to-Z: Part 1
Episode 58 – 10 Essential Tips to Secure Investment from Family Offices for Your Reg D Offering
Episode 57 – The ‘Syndication LLC’ Disaster: Consequences of Bad Advice
Episode 56 – What Is Equity Dilution In A Regulation D Syndication Or Fund Offering?
Episode 54 – Demystifying Open-Ended and Closed-Ended Funds In Reg D Private Equity
Episode 53 – An Innovative Example Of A Syndication Investment Strategy: F.I.T. In Action
Episode 51 – Cash Flow vs. Appreciation: Understanding Reg D Syndication Investor Types
Episode 50 – Choosing Between Regulation D and Regulation CF: An Attorney’s / Syndicator’s Analysis
Episode 49 – How To Find Investors For A Regulation D Offering Without Using A Broker-Dealer
Episode 48 – The Difference Between REITs and Real Estate Funds & Syndications
Episode 47 – Securities vs Joint Ventures: Know the Critical Differences or Risk the Consequences
Episode 46 – Eight Steps to a Successful Real Estate Syndication
Episode 45 – How Long Does It Take to Raise Money for a Reg D Syndication?
Episode 44 – How to Ensure Your Reg D Syndication Offering is Marketable and Legal
Episode 43 – 5 Mistakes Rookie Regulation D Syndicators Make
Episode 41 – How Capital Accounts Work in Syndications
Previous Episodes:
Episode 35 – Unlocking The Secrets To Establishing A Pre-Existing Relationship for Reg D Rule 506b
Episode 34 – Unveiling The Essential Fiduciary Duties For Syndications & Funds
Episode 33 – Navigating Securities Laws And Social Media: A Guide For Syndicators
Episode 32 – Assembling Your Real Estate Syndication Team: Who’s In?
Episode 31 – Understanding Waterfalls in Real Estate Syndication
Episode 30 – Choosing the Right SEC Exemption for Your Investment: Alphabet Soup
Episode 29 – Understanding Reg A, Reg CF, and Reg D in Syndication: The Alphabet Soup Explained
Episode 28 – LLC vs. LP vs. Corporation: Which to Choose for Syndications?
Episode 27 – Can You Get a Bank Loan?: Leveraging Traditional Financing in Syndication
Episode 26 – Securities Licenses and Real Estate Licenses for Reg D Syndications
Episode 25 – Unlocking the World: US Syndications Open to Non-US Investors
Episode 24 – Syndicators’ Guide to Self-Directed IRAs: Maximizing Capital Sources
Episode 23 – GP and LP: Exploring Syndication’s Key Players
Episode 22 – Syndication Fallout: What Happens When Losses Happen?
Episode 21 – Business Funding Unleashed: Embracing the Opportunities of Regulation D
Episode 20 – Behind the ‘Bad Actor’ Rule: Rule 506d Demystified
Episode 19 – The Myth Of The Friends And Family Securities Exemption For Syndications
Episode 18 – Demystifying Form D Filings with the SEC: In-Depth Walkthrough and Tips
Episode 17 – Can An LLC Invest Into A Regulation D Rule 506b Or 506c Syndication Offering?
Episode 15 – How Does Regulation D Rule 506c Work For Syndication?
Episode 14 – Syndication Attorney Webinar – ‘Ask Me Anything’
Episode 12 – ‘Can I do both a Regulation D 506b and Reg D 506c in one LLC?’
Episode 11 – ‘Can I do a 1031 exchange in a Regulation D syndication?’
Episode 10 – Regulation D Limitations on Resale: What You & Your Investors Should Know
Episode 9 – How does Regulation D Rule 506b work for syndication?
Episode 8 – How do I pay people to market my Regulation D syndication?
Episode 7 – What information must be disclosed in a syndication private placement memorandum?
Episode 6 – What are ‘Blue Sky’ laws when it comes to syndication?
Episode 5 – How can you structure sponsor fees for a Regulation D Rule 506 syndication?
Episode 3 – Should I do a Regulation D 506(b) syndication or a 506(c) syndication?
Episode 2 – How do I market my Regulation D Rule 506 offering?
Episode 1 – How Should I Structure My Regulation D Syndication?
