Joint Venturing ( JVing ) vs Raising Capital (SEC)

[David Putz]

We have heard from a lot of newer investors that they are looking for Joint Venture partners who have capital to invest.  What we are surprised is that this is being taught in education as something investors with little capital should do.  When an investor Joint Ventures with with another investor for the means of raising Capital, they need to be careful.  We often refer to the "Howey Test" as a rule of though.  

We are going to speaking to an SEC attorney to get some additional details to be order to determine exactly when Joint Ventures are illegal and legal.  Curious what other thoughts are on this. 

[Bob Malecki]

Spot-on Jamie. In my world, a joint venture is essentially a structured partnership between two investors - myself and my counterparty. I use a JV / partnership agreement that clearly defines each partner's roles and the variables that can happen for the outcomes such as the death of a partner insolvency, etc.

if you have a JV that involves more than two parties, then your muddling more so into securities and raising capital.

Dave, I think that exploring the legality of a joint venture is futile, since they happened every day across various sectors in our economy and worldwide for that matter. The more important component is how the JV is structured and if it is compliant with both state and federal securities regulations. A simple partnership should fly pretty much in any state and on a federal level.

Also consider that none of this matters if the project goes well and everyone has their expectations met. One attorney I met called this the "good deal exemption". The importance of a solid structure and sound regulatory compliance is relative if the deal goes sideways and partners start to go down the rabbit hole of litigation. Having a defense based on a handshake or very weak contract will put the sponsor and the investor at risk.

Just for the record here, I am not an attorney and only speaking from my experience and exposure to various operations that I've been involved in. I encourage anyone reading this to consult with their own legal counsel regarding their specific deal and structure....