Capital Raising Under Broker Dealer

[Tom Dittrich]

Hello all,

My question is about capital raising and working under a Broker/dealer to sell securities in the syndication space. 

First quick background. My pool of investors is 1500 physicians from across the US. I have hired coaches, consultants, SEC attorneys, real estate focused CPA’s to keep us on track. We have formed partnerships with solid operators and have some established deal flow coming in, but have yet to enter our first deal.

Website for reference: digcapital.com

I understand that the industry standard is the Co-GP route. I would like to make sure I am 100% following the law and I see my primary value as bringing capital to syndication deals

Does it make more sense for me to attach DIG Capital to a broker/dealer and get licensed through FINRA? Per my attorney with this route I can legally be compensated for “raising capital” provided all the regulations are followed.

Has anyone here gone this route and found success?

Please reach out to me if anyone has experience and advice!

Thanks!

Tom

[Bryan Hancock]

I am sitting for the Series 65 right now and opened a new company with my securities attorney for some of the reasons you're citing.  Note that you don't have to be just one box-checker either.  You can do deals as a principal even if you use the B/D or RIA regime.  What really matters for the B/D regime is you're taking "transaction-based income," which means that you're taking a commission for marketing and selling securities.  

You also need to consider whether you'll be selling investors straight in to the cap table of the issuer or, instead, if you're intending to serve as an intermediary and use something like a SPE to take their money in and invest on behalf of the entity as one item on the issuer's cap table.  There are, of course, plusses and minuses with either approach.  For larger deals having a single source of funding is often desirable and it would serve to allow you to negotiate a better deal on behalf of the investors with better control provisions in the OA.  

It's hard to do many things well so focusing your effort on capital raising is probably a smart idea.  For larger and more complicated deals I hire fee developers to do a lot of the work they're good at and focus my time and attention on raising and organizing capital, which I think is the highest and best use of most syndicator's time if they're organized properly and have a track record.  Everything else can be hired out save a few key things that should be assigned partner-level value in deal flow from how I view the world.  

If you need someone to sponsor your license please reach out.  We're happy to see if we can help and how our firm that I am starting can be of service.  We have the DNA of sponsors and real estate operators and have started this firm mainly to deal with some of the compliance issues you're dealing with.  My partner is a securities attorney and can keep you compliant without needing to rely on anecdotal information from message boards; albeit very well-meaning advice.