6 Steps To Complete Your First Private Placement Offering

The following six steps are what I recommend that new syndicators follow in order to complete their first private placement offering.

1. First a new syndicator should determine how much money he or she wants to raise. Pick one potential deal (it may go off market in the meantime but pick one that is representative of your investment strategy and size of deal), then design an equity offering around that deal (proforma and ideal terms). Will you use bank financing as well? What terms will a bank offer to someone like you? It is important to note that a syndicator will almost ALWAYS be required to give a personal guaranty to take a mortgage loan. Banks typically look for a seven-figure net worth and good credit. If you don't have everything a bank requires, you may be able to find a guarantor that, for a fee, will sign the bank guaranty.

2. Next go meet (online or in person) with some attorneys that specialize in private placements. You can search Biggerpockets to find some that do a lot of work in this area. Talk with them about what you want to do (# of investors, if all reside in the same state as the offering, # non-accredited investors, amount of equity planned to be raised, any voting rights of investors, fees the syndicator will charge, etc). Be aware that the cost of entry is high. Initial syndication documents and support from a reputable attorney can cost from $8,000 to $25,000. Typically expect to spend about $10,000. Now go back and put that into your proforma. You may discover that an equity raise less than $200,000 or $300,000 is not financially feasible due to the syndication attorney. The good news is that you get documents for future deals at a much lower cost.

3. Your attorney will probably recommend that you work entirely with Accredited Investors. Rules 505 and 506(b) allow up to 35 non-accredited investors and for syndicators just starting out it may be tempting to take their investments. Working with accredited investors can be less time-consuming and costly. Generally it is accepted that accredited investors can afford to lose their investment without financial ruin and thus unexpected losses, delays, or unknowns are less stressful for them - and in turn, less stressful for you, the syndicator. Also, there are higher reporting standards and requirements when you accept non-accredited investors. Audited financial statements and other time-consuming and costly information must be provided per Rule 502(b).

4. Develop draft documents with your attorney. This typically includes an Offering Memorandum (size and risks of the offering), Subscription Agreement (how an investor can invest), Operating Agreement of the Ownership Entity (typically LLC or Series LLC documents that describe responsibilities of the parties). Prepare a draft proforma with tested terms, timing, and costs.

5. Send out as DRAFT to the investors that have indicated interest. Then request their feedback. On almost half the deals I have done I revise the offering terms based on investor feedback. REMEMBER that you cannot solicit (advertise, spam, or even discuss investments or your track record) investors with which you do not have a prior substantial relationship. The exceptions to the general solicitation rule are Rule 506(c), crowdfunding under Title III and Title IV (AKA Regulation A+).

6. If your feedback is positive, go out and put a deal under contract!

Good Luck!

Hopefully you found this information useful. If so, leave me a comment or question. I will try to answer it either in the comments or in a future post.