Which structure is best for capital raisers?

Which structure is best for capital raisers?

If you’ve been in the industry for any length of time, you know that there are numerous ways to negotiate contracts, form alliances, and divide profits.
Raising Capital for Real Estate, written by a friend of mine, sheds light on the topic. You’ll be able to see things more plainly and make an informed decision about your capital-raising structure.

When it comes to optimising your business, making money, and (perhaps most importantly) staying compliant, picking the BEST structure for your specific skill set (and goals) is crucial.

To raise money in the real estate industry, one can choose from a few different organisational structures.

These are the most typical:

If you want to be the “operator” of a deal, you should become the Lead General Partner (GP). You are in charge of everything from strategy development and capital acquisition to deal bringing and seller negotiations.

Being a CO-GP is a business arrangement used when there are multiple “partners” in a transaction, but the number of “partners” should be kept to a minimum (ideally, four). There are typically some partners whose sole focus is on running the business, and others whose primary focus is on bringing in funding. It’s natural to want your partners to contribute as much value as they can, but it’s common practice to divide up tasks like running the business and bringing in funding among multiple people.

A JV is a relatively straightforward business arrangement in which two or more parties work together. The standard arrangement calls for one party to do the labour while the other(s) provide financial backing. For this structure to work, all parties involved must be able to continue exercising material control over the business. This will allow them to sidestep many of the complications that arise when issuing securities.

To invest in the deal of another, a “Fund of Funds” structure is used, in which investors are pooled into a “Special Purpose Vehicle” (SPV) by the capital raiser (where the capital raiser acts as an SPV Manager, and they are depending on another GP to implement the business plan).

To operate “under” a broker-dealer, a capital raiser must first pass the Series 7 and 82 exams, as well as the introductory FINRA exam. The relationship between a real estate agent and a broker is analogous to this one. A capital raiser can be financially rewarded according to the amount of capital they bring in under this setup.

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As a Registered Investment Advisor (RIA), the capital raiser must pass the Series 65 or 66 exams in addition to the Series 7 exam. Once they’ve completed the registration process, they can start advising clients on investments and getting paid a percentage of the funds they bring in.

Most people’s first thoughts when trying to figure out how to raise money professionally revolve around these three basic models.

Please listen to what he has to say…

Everyone has their own set of advantages and disadvantages…

Let’s have some, then.

As a General Partner (GP) or Co-GP, your responsibilities will extend far beyond capital raising alone.

If your main goal is to raise money, this may not be the best option.

Some people may try to avoid dealing with you, the Fund-To-Funds manager, and go straight to the sponsor, which can cause anxiety.

In addition to passing a mandatory regulatory exam, Broker-Dealers must…

…it’s a nightmare from a regulatory compliance perspective, and every transaction you make will be scrutinised by a makeshift compliance office.

Similarly…

An additional layer of compliance is required for those who call themselves Registered Investment Advisors (RIAs).

Moreover, you should be aware of some possible pitfalls in terms of both the people you can cater to and the methods you can use to do so.

All these systems and resources are fantastic to have at your disposal…

Capital raisers, in my opinion, need some background in all of these areas so that they can assess their unique circumstances and choose the path that will yield the best results.

To learn more on this subject, join us here where  we have online classes once every 6 months

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