The Concept Of Convertible Shares In Co-Syndicated Funds

There are some exciting things I have been exposed to recently centered around a co-syndicated fund structure.  In a co-syndication a number of promoters get together and each participate to raise a lot of money together for a common cause.  For instance, 10 investors can each raise $500k from their investor network to form a $5M 506 placement.  If the placement is successful you can later open new funds with some of the existing members and/or new folks.  

One of the challenges with using a construct like this is that geographical dispersion, competing interests, or any number of other issues can dilute the mission of the fund and make it more blind-pool-like.  Potential investors do not like structures like this because they would like more constraints on the fund to get a better sense for what they will be investing in.  It is difficult to satisfy all of these competing desires in a co-syndicated fund model.  

One interesting solution is to "carve out" a special class of stock for disparate types of deals that attract a sizable amount of capital and share in the overhead of setting up and managing the fund.  Attorney fees can all be paid once, websites can be common, accounting services can all be centralized, etc.  This new class of shares that will be put to work in a certain type of project can later be converted to shares common to all of the co-syndicated sponsors.  The idea is that once investors are more comfortable with the well-defined projects they will be more likely to move their funds to a blind-pool-like bucket that can be used wherever the managers can find the best yield.  

In today's increasingly competitive environment for investor dollars constructs like this may make sense for your capital raise needs.