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EAW 7: RAISING CAPITAL WITH SECURITIES ATTORNEY GENE TROWBRIDGE

Updated: Nov 11, 2019


Today we have the privilege to interview Gene Trowbridge with CrowdfundingLawyers.net. He is a licensed securities attorney, syndicator, educator, and the author of the bestselling book “It's a Whole New Business “that has many tips on the business of syndication.


Let’s get started with some great tips and strategies we learned on this podcast with Gene.

Syndication is when two or more people or companies get together to do a business transaction and combine resources for the purchase. In most cases, syndications are done by some form of group or in a limited liability company.


Everything is a syndication when you pull money together to purchase an asset but the question someone should ask is if it may fall under Securities laws. There are regulations people must follow when using other people’s money to buy property if that person is not going to act as an active partner or member.


There can be complexities with the law and a securities attorney can provide the right guidance on the type of deal structure an investor may want to pursue to remain compliant with securities laws.


Investors pool their money into an LLC or limited partnership to purchase assets with other investors. The capital from other investors is not a gift and someone is in charge as the manager and the other investors will be considered limited partners or members. This type of corporation is with a member-manager that manages the deal and the other passive investors as only members. This means there is a sale of a security because there is an expected profit or return on the investors’ money.


This is different than a joint venture with someone. As mentioned earlier, it depends on who is in charge. In a joint venture, the LLC will list partners as equal members and all the decisions are made unanimously. It's not considered a sale of securities because they invested their money and are both active members of the corporation. There was no individual or group being managed. Both partners are member-managers.


To complete a syndication, the first step I recommend is contacting a Securities Attorney to review your plans and determine if it will be considered to be a security or not a security. If it's not a security, the process with the attorney would stop and you would go forward to form your LLC with your partners. If it is considered a security, then you must follow securities laws. One of the more important items is providing investors information ahead of time so they can make an informed decision which include the properties material facts, risks, structure, etc. That’s why it is good to have a Securities attorney draft a private placement memorandum which is the story of the transaction that tells investors all the things that are going to happen during the transaction, the rules by which the group works, and how the manager operates.


Additionally, there's a subscription to the investor that says, “hey I'd like to send you a check” and questionnaire that the investor fills out to give the syndicator information about the investor so that the syndicator can make a determination on whether the investor is suitable for this investment.


There are quite a few items capital investors must receive and sign. That’s why is it is important hire an experienced Securities attorney to handle the paperwork and file it. If you don't follow the Securities laws and are found to be in violation of them, it is considered a violation of a criminal statute which can lead to hefty fines and even jail time. So, it’s important to follow the rules and do it right to stay out of trouble.


There are different parts of the law such as 506b, 506c, and mini IPO.


Securities laws are designed to protect the public from investing in deals blindly or ignorantly. Another reason a law is created is to prevent people from selling fraudulent Investments.


In 1981, Regulation D of 506b has been the rule of the land to raise money. Someone cannot do any advertising with solicitation. 506b has an unlimited total dollar amount, unlimited accredited investors, and only allows thirty-five sophisticated investors.


506c allows a syndicator to raise an unlimited amount of money and use an unlimited number of accredited investors. You can advertise and solicit but there is a requirement to verify investors are accredited.


An accredited investor is someone with $1 million or more in assets, either individually or jointly with his spouse and an annual income exceeding $200,000, or $300,000 for joint income. A nonaccredited investor is someone with less than $1 million in assets, outside of their primary residence, and an annual income below $200,000. Not all unaccredited investors are considered sophisticated. Sophisticated investors are those that don't meet the requirements for accredited investors, but do have a understanding of financial and business matters. A person can also be considered a sophisticated investor if they have an adviser that can help them make financial and business decisions.


There several ways to pull money together. A blind pool and specific offering are common.

A specific offering is an offering for a specific asset(s). The multifamily property located at 123 Gold Berg Dr. that has a $2,000,000 sales price and a capital raise of $500,000. It can be for more than one asset, but all assets must be identified in the offering and capital can only be raised for those assets in that offering.


A blind pool is an offering that calls for a capital raise for assets that you don’t have right now. An example would be an offering to raise $10,000,000 to buy multifamily property, but no property has been identified yet. The plan is to go out and find the properties with the funds ready to purchase. A blind pool is better used by successful investors with a track record. For new syndicators or for specific properties, it’s recommended to use the specific offering first. After experience, a blind pool can be utilized.


Another rule to follow is only working with people which you have a pre-existing relationship. It is against the law to send deals to capital investors that a syndicator has no prior relationship with if they filing under regulation 506b. For example, a syndicator has a potential investor prior to the start of the offering and after the offering has been completed, the syndicator wants to send an invitation to the investor to participate in the investment, that’s fine. However, if the syndicator has an offering completed but then meets a new investor they didn’t know, the syndicator cannot send the offering to that investor. The offering is said to be completed at the time the syndicator signs the fee agreement with an attorney. It is recommended to have a record-keeping system with a list of investors and the relationship prior to your offering to avoid any gray areas with this law.


Hope you found this episode summary helpful. For more information we recommend you listen to the podcast.


Book Recommendations from the show: It’s A Whole New Business Third Edition by Gene Trowbridge


To learn more about how to become a private investor, visit our website https://www.everythingaboutwealth.com/capital-partners.html. Make sure to subscribe and like us on iTunes or your favorite apps.


If you would like to listen to our podcast Everything About Wealth it can be found in Apple Podcasts, Google Play, YouTube and any other place podcasts are found. Please leave a review and subscribe if you found it helpful. To learn more about us visit our website at www.everythingaboutwealth.com.


This article first appeared on the blog of www.everythingaboutwealth.com.


All information is for educational purposes only. We recommend hiring professionals prior to making any investment decision.


Written by Denny & Dessiree Troncoso


Follow us on Instagram @DennyTroncoso @DessiTroncoso


Email: everythingaboutwealth@gmail.com


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