Tilden Moschetti: It's almost a certainty that at some point,
you will have an investor in your syndication or your
investment fund, who wants to redeem themselves out who wants
to get out of that investment, get their money back and be
gone? Typically, it's because of some life event. Now, how do you
do it? Is it loud? Is it not allowed? Let's go through it in
this video.
So in order for an investor to get out of there have your
syndication or investment fund, this normally happens in one of
three different ways. And we like to have this conversation
at the get go, when I start working with clients and
understanding what their what their structure is going to look
like, because it's probably going to be part of the
paperwork somewhere. So the three ways that we do it, first
off, is redemption. So in this is extremely common in
investment funds, especially open ended funds, or what I call
cyclical funds. Every year, they kind of turn over on a regular
interval. So there'll be an investment period where we say,
okay, investors can get all of their money back at these
defined periods. It's in the PPM, typically, it'll say and
said they need a notice or something like that. Investors
need do need to recognize that this is a revolving fund with
people's money invested, and we can't prejudice the other
investors by people trying to get their money out too early.
things sometimes take a little bit longer than the notice
period requires. And they have to understand that will do their
best to do it. Because they're your investors, you want to take
care of them, and they could very well be in your next fund.
Or they may very well be a family member, whatever it is,
you want to take good care of your investors. The second way
that investors oftentimes are exiting funds is what I call a
sponsor buyout. A sponsored buyout may say something like at
the end of each year, we're going to send a notice out that
that says this is the this is an amount of money that's available
to redeem any member who wants to withdraw some or all of their
money can opt in to this period. But there's only this certain
number of dollars that's available for it. So our $10
million fund is only going to be setting aside for this year
$750,000 For redemptions. If you want to be redeemed, then you
raise your hand, you'd let us know. And we will then allow you
we will buy you out. Now if there is not enough, if there
are more people who want more dollars than the fund is made
available for this redemption, then we do it pro rata. So this
is also kind of the Warren Buffett model, I've been told
this is the way that he originally did his redemptions
for his fund early in his career, and nobody ever took him
up on it. But this is a very good model because people feel
safe and comfortable about it. But it still gives you as the
sponsor the control over that over the fun and over those
redemptions. The third and final way for investors to get their
money back that often is happens probably in the vast majority of
cases, is what we call a right of first refusal, or, Hey, I
want out, right, here's how it happens. The member calls up the
sponsor and says, Hey, I've just had this life event, I need to
get my cash out. I'm in a really bad situation, how can I do it?
What the best, the best method to do is, is you tell the
member? Okay, look, I think we'll probably be able to find
out, but I can't promise anything. Let me go to all the
members and see if somebody wants to buy you out. In the
meantime, you should look and see if somebody that you know
wants to buy out your piece of it as well. So they you call up
you let every member know, hey, we've got this, this member will
needs to make an exit. Is that a life event? Does anybody is
anybody interested in buying his shares? Or it could that person
could also be you? You saw so give them a chance in order to
find a replacement. Because at the end of the day, you want
that person who's getting out to be able to get top dollar. Now
what do I mean by top dollar is this is now a market driven
activity, they're probably going to be selling their spot at a
discount, because they're in an urgent situation. It's just the
way it is. So most of the time, they'll buy it at 90 cents on
the dollar. And that will be the buyout. Now that's just a very
rough idea on what it is. But the market itself will take care
of it. It's negotiated between them Unless you are the one
buying and buying them out, do not get involved in that
negotiating process at all. You don't want anything to do with
it. You want it to be entirely between the purchaser and the
seller. My name is Tilden Moschetti. I am a syndication
attorney for the Moschetti syndication Law Group. We focus
exclusively on Regulation D, and Regulation D offerings, helping
sponsors put together compliant offerings for themselves for
their investment funds syndications, whether it be for
real estate or raising money for their business, or private
equity fund or whatever it is, as long as it's under Regulation
D if we can help you and if you're interested in putting
together a fund or syndication, give my office a call. We'll set
up a time to talk and we can go from there.