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What’s up, everyone? Today, I want to tell you how to structure a syndication deal for your fund!
For people who are raising money for the first time, I’d say that syndicates are the best way to go.
If you don’t have a track record or 20 years of Wall Street experience, then syndication deals are for you.
If you do have that experience, then this route will still work for you.
Fund Structures
Here are 3 different fund structures:
- GP/LP
- LLC
- Syndication
In the GP/LP fund, the investors put their money in the fund (LP), and the GP manages it.
The LLC fund has ‘Class A’ shares and ‘Class B’ shares. ‘Class A’ are the investors, and ‘Class B’ is the management team.
The syndication deal is an LLC, but it is structured differently.
Legal Docs
Setting up legal documents is the 4th step to the fund launch formula.
You can either choose the syndication loop or the fund model.
The syndication loop is like real estate flippers.
When flippers find a great deal, they set up an LLC and their investors put their money there. The deal happens, and capital is distributed.
This works great, but when the flippers find a new deal, they must set up an entirely new LLC.
The fund model is different…
The fund model is beautiful because you only set it up once.
Find your deal, frame your fund, pitch your investors, then set up your fund once.
Then, when a new deal comes your way, use your fund! That way, everything is set up and there is a lot less work for you to do.
Structure your Syndication Deal
You may still want to set up a syndication deal. So, here’s how you do it…
You could do an 80/20 split. You assume 20% equity in the deal and the rest is up for grabs.
For example, an investor could invest enough money to gain 40% equity of the syndication deal, 5 other investors can take the other 40%, while you take 20% equity in the deal.
This setup could work out, but it also presents some risks.
If the investors are angry and want to kick you out of the fund, they probably could because they have more equity.
You can protect yourself by putting in this clause that I mentioned in my video, or you could just do a fund model instead.
Aaron Wager’s strategy is to take 51% in the syndication deal so that his investors can’t take over.
I wouldn’t recommend Aaron’s strategy to beginners!
Conclusion
That is how I would structure a syndication deal for your fund.
There are pros and cons to syndication deals. There are some risks, but you can handle the risk because it’s your first fund!
Hope this helps!
Thanks,
Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.
