The private placement memorandum that's kind of like the big
document the syndication attorneys work with, that we
give our clients it's aside from the operating agreement, which
really makes the investment entity work itself. The private
placement memorandum is a absolutely critical document.
What does it do? Well, in summary, what it does is it
allows the syndicator, the fund manager, the business raising
capital, it allows them to give to potential investors, an
identification of all the terms of the investment, identify
risks, identify conflicts of interest, all for the purpose of
allowing that prospective investor to make a good decision
for themselves about whether or not to exist, it is a benchmark
at Keystone in private offerings, it is an absolutely
critical document, it is absolutely required for non
accredited investors. And even though it is not required for
accredited investors itself, there is hardly a private
offering under 506 C, or even 506 B to only accredited
investors, that doesn't use them. Why? Because it's such an
important document. It's the document when the bottom falls
out, and you needed the most you can say hold it up and say this
is what I told you about the investment. It is your Get Out
of Jail Free card because you don't belong in jail, when
you've got this document, you've shown the investors all the
things that really can go wrong, you've identified all those
terms. So in this video, here's what we're going to do, we're
going to go through in detail, the 10 major sections that go
into a private placement offering, I know you're gonna
find it helpful. And it's really just like a list of all those
things that are there and the things that I think about as a
syndication attorney when I draft him. I hope you enjoy this
video. As a note for my podcast. As a note, from my podcast
listeners, I want to say thank you. This is our 100th episode.
That's why I did such a long talk for you. I wanted to make
sure that you have that. And I wanted to say thank you, you
listening to my podcast means a lot to me, I enjoy speaking to
you. And we've helped a hundreds and hundreds of people along the
way, do their own deals. And generally, I believe putting
this kind of good information out into the world is the right
thing to do. So thank you. Thank you very much for enjoying my
podcast, I hope you keep subscribing tell your friends,
get them to subscribe. Again, thank you for being here. 100
episodes, wow, that is a big.
So the private placement memorandum has a lot of parts.
Now we're going to talk about the 10 biggest parts, and how
they function and what their role is. Now this doesn't
necessarily mean that they have to be in this section. And it
certainly doesn't mean it needs to be in this order. Because
when I draft them, they're definitely not in this order.
But I thought it was the clearest organization to talk
with you about how to organize what a private placement
memorandum is, what that thought process is because it really
goes to the, again, the heart of what the investment is, and the
purpose of that of that PPM to describe those conflicts that
risk those terms in a clear and concise manner. So without
further ado, the first big kind of topic area of a private
placement memorandum is the summary of terms. So this is the
terms of the investment. Now, it does a lot of things underneath
the summary of terms, if you've seen them most often it's
structured as a table. That's how I write them as well. And in
that table, we're doing things like we're identifying the
investment entity itself, we're identifying who the manager is.
But we're also involved identifying that investment
objective. So we're putting it in the summary of terms to make
it clear and called out right here, that the objective of this
investment is to make returns for its investors. So it's a
security right, that's the whole purpose to make, make funds make
money for our investors is to do that and in some manner. So we
describe in some detail about what that objective is and how
it's going to be achieved. So maybe if I identified specific
terms, sometimes we put that in here as well, I mean, specific
goals, some targets that you want to hit in terms of IRR or,
or multiples or things like that, that oftentimes goes here
as well. Another Creek, Cara absolutely critical part of the
summary of offering terms is Who exactly is able to invest? Who
are those eligible investors? Now, this is either one of two
answers, or both. So yeah, well, it's so it's either accredited
investors. So accredited investors are those people who
meet the requirements of Regulation D, rule 501, they're
identified there and 501 A, who those accredited investors are.
So briefly, that's the, they make 200 or $300,000 of income
for the past two years with the expectation of the third year,
or the current year to make that same amount, it's $300,000, that
for counting the spouse, or they have the net wealth of over a
million dollars, not including the value or any equity in the
private or primary residence, because negative equity Does,
does have an effect. But any positive equity does not. So
that's the accredited investors eligible investor time, now,
almost always, you're going to be taking them because why
wouldn't do the other group that is that can be available for a
four a five is for a 506 b offering. And those are your non
accredited investors. Those are simply those people who have not
reached the level of the accredited investor. Now, they
must be known to you and they must have some level of
sophistication about business and about investing. So they
must meet a minimum threshold in order to invest, you wouldn't
want to take somebody who's never balanced a checkbook in
their life and put them in as a non accredited investor, they're
probably not sophisticated enough. Not that they're bad
people, they just don't fit into the criteria, and probably
shouldn't be investing. But those, those people should be
there. The non accredited investors, if you're doing a 506
b offering, may very well be an eligible investor in. And then
like I said, third category is both. Most of the time if you're
doing a 506 b offering is going to be both you'll both have non
accredited investors, which is limited in their 506 beat to 35
of them in any 90 day period, and an unlimited number of
accredited investors. If you're doing a rule 506 C offering,
you're just taking an unlimited amount of accredited investors,
but they must be verified to be accredited investor. And so
that's just a quick summary of what those of what that eligible
criteria is. Another important term is what's the offering
sighs Are you raising 5 million 10 million 100 million a
billion, it's important for investors to know because they
need to know what they're getting into. Right, it's a very
different thing to invest in something that's going to be
raising a million dollars, if I'm going to give you $200,000
And your raise is a million, wow, I suddenly own 20% of this
thing, if you're going to be raising $1 billion. Now I own
very, very small amount, right? I own point 2% of this thing. So
much, much smaller. So it's that what is that offering sighs
number three is really are for is really the use of proceeds.
Now. Here we expand the use of Jenner of proceeds greatly. But
here I'm going to speak just kind of generally about it. I
normally put a section in my terms that says we're going to
be using these funds for paying for expenses as well as
investing in the primary assets, whatever those are, because
remember, this isn't just real estate that uses these real
estate is a lot of my clients, but it's not all. So I have an I
have clients that invest directly capital into their
business. I have ones that build funds, or hedge funds or things
like that. They're all buying different asset types, and
they're using the funds in order to buy those kinds of things.
Another main term is the estimated hold period. So I give
you $200,000 How long are you going to be using those funds in
this investment before I get back? Is this a three year deal?
A five year deal a seven year deal? A one month deal? It's
kind of important for me to know so I have an expectation of of
how long it's gonna be tied up. If you leave left this out.
You're gonna have a hard time finding investors because they
have no idea what they're getting into. Right if I give
you $200,000 I kind of want to know Another Creek key term, and
probably the term of the offering that investors flip to
first is what the distributions look like. I mean, we're giving
you this money in order to get those distributions. So what do
they look like? Am I getting a preferred return with some sort
of water? Am I getting straight equity that's getting split out
some way? Am I getting basically a preferred security? So it's
paying out at a fixed rate? I want to know, I want to see the
language so I can understand what exactly it is. So that's a
very key piece of information for me. What do the expenses
look like? Am I getting if I invest in your business? Is my
money going to be used for what kind of expenses? Is it going to
be used for your as the syndicator at for your office
space in your personal assistant, kind of important for
me to know that is, is are one of the regular expenses going to
be paying for, you know, preparation of tax returns, most
of the time it is, but it's not always that kind of like to
know, well, what is all this money that I'm providing you
going forward. And along the same lines of expenses, this is
also where we talk about management fees. Now we have
lots of different kinds of fees that oftentimes get baked in,
not always so I still some, I prepare some private placement
memorandums with no fees, no management fees whatsoever,
which is certainly an option, certainly a good marketing
advantage. But it's not, it's actually more common to have
some sort of feeds. So asset management fees, property
management fees, if it's a real estate deal, acquisition fees to
buy the the asset, disposition fee to sell the assets, finance
fees, if there's outside financing being provided. These
are all kinds of fees that are that exist, that are common. And
they need to be put here, they have to go into a private
placement memorandum, obviously. But this is normally where we
identify where those what those fees, what that fee structure
looks like.
Another key term are is transferability of membership
interest. Now remember, under Regulation D, these things
these, the security is not freely transferable. So that's
why cryptocurrencies oftentimes don't work. Because you have if
you have a cryptocurrency by its very nature, it's had its
tokenized to make it freely tradable. Regulation D
offerings, regulation, D securities are not supposed to
be freely tradable, is right there in the rules. So this is
normally where we talk about those things, there are major
restrictions on the transferability. Now the purpose
of those restrictions is really just to reduce the the
possibility of a secondary market being created. That's
really the goal of the SEC here is to restrict it. So there's
not like these mini stock markets all popping up all over
the place, where people are trading on their private
placement offerings, just on the value of the stock, or the of
the units that there are, they should only be an investment
should be geared towards driving the business and towards the
business goals of what ever it is. And I don't mean
specifically a business because it can be. But it doesn't always
mean it can also mean a real estate thing or a private equity
fund or something like that. But the goal is the money should be
driving that not not speculation on the value of the security
itself. That's why it's restricted, it is not allowed.
Another key item here is income tax considerations. Most of the
time, for a for a non business, we're talking about these file
partnership level tax returns. So if they're new, most of the
time, the entity choice will be an LLC, and they'll file a k one
and you'll get K ones for each investment that you make. And
then lastly, for the major terms that I put in and this is just
high level, there's actually quite a few more, but I want to
give you a brace like broad overview is governing law. So
I've got a problem. I invested in your in your entity, and I've
got a big problem and I'm going to file a lawsuit. Well what law
governs here? Is it the state where I am is it the state where
you are is a Delaware is it Wyoming? Is it Texas? Is it New
York? Is it California? Where is that? It's a very important
point because if things go very bad I need to know it's a major
term choice of law is always a major turn. Lawyers love it
because it's a major topic for us. we study it in law school
for a whole year. And so that's why it ends up in your
agreements. But it also is very, very important. And so that's
why it's included under the summary of terms. The next major
topic, other after summary of terms, is the disclosures of
risks and conflicts of interest. This is a major part of a
private placement memorandum. Its job is to make sure that
investors know what they're going into. Now, I oftentimes
tell clients this, and I'm not really joking when I say it,
although it's true, is if I were to draft the perfect risk
statement, it would look like this. Dear investor, you are
going to lose every single penny, I guarantee it, we're
going to keep it all no matter what if we make any and you will
lose every penny. Now, if I could draft it that way, it
would be great because Boy, wouldn't it protect your wealth,
no matter what happens, you're right, the investor doesn't get
their money back. Of course, no investor is ever, ever going to
invest in that. Why? Because they're investing in it to get
money. So we need to give a proper picture of the risks and
conflicts of interest that exist. So let's talk about
risks. First, when we're talking about risks, we're talking about
reasonably foreseeable risks that could happen. Now, I'm not
going to put in the in a PPM that there is a risk that the
moon is going to fall out of the sky landed in the ocean and
closet tsunami, which is putting the money at risk. I don't think
that's likely to happen, could it? Probably not. But I guess,
you know, in the in a quantum mechanics world, maybe there's a
practically a nonzero answer that it could happen. Or if
you've seen the movie, Oppenheimer, you know, there was
a nonzero risk that the bomb was the atomic bomb was going to
blow up the entire world. It's a nonzero risk, it's there, but
you're not gonna put it into a private placement memorandum.
We're putting in reasonably foreseeable risks. Now here
we're talking about like business risks. So the big kind
of overarching risk, that's there for sure is, hey,
investor, this is an investment investments, by their very
nature are inherently risky, otherwise, there would be no
return. You don't get no risk, no reward, right? So this is an
investment and your money is at risk, you may lose money, it's
possible. So that's sort of like the broad overall business rate
US business risk that exists. But there's also other risks,
things like, when we talk to investors, we're oftentimes
leaning on our past experience, right? So my experience, I
personally have done quite a number of deals, I have a very
good track record of generating returns for my investors. But
that past history, the results that I got in the past, for my
investors are the past, it doesn't mean that my next
venture is going to be successful. I'm gonna try my
darndest to make sure it is successful and wildly
successful. But just because I had success in the past doesn't
guarantee that in the future, I'm going to have the same it's
it's, that's, that's one of the risks that you also need to make
sure investors know. Another key risk is you as a syndicator, are
bringing to this deal, you're putting this thing together, and
you're using all your talent, your skills, all all those
things that make you special, into this investment. Right. And
that's why investors are making this decision because of you.
Ultimately, the end of the day, that's the decision that they're
making. They're trusting you to do this. So you are a key person
to this investment. And there's no guarantee that you're gonna
be here next week, in order to keep it running. Right? Meaning
you're gonna you want to be, you're gonna try to be, but you
never know when that bus is going to be barreling down Main
Street. So it's a risk that exists. It's a risk that needs
to be disclosed that hey, we've got these key people, like
including you that exist, and they're very important to the
operations. We can't make a certain guarantee that they're
going to be with us always. Another key risk and we actually
talked about under summary of terms and that's the lack of
liquidity. So basically, because we can't freely trade this,
because there's no public market for these securities, I can't
just go and sell them on Wall Street. Right? It doesn't exist
to do that. So the investors need to know, there may be a
situation where you really wants your money back. But you just
can't get it, you just can't find a person who's going to buy
it. Maybe the managers got their money all tied up, maybe all the
other investors or have their money all tied up, and you just
can't sell it. It's not a liquid asset. And the investors just
need to know that that's just the reality of it.
Of course, there's always income tax risks. We don't know what
taxes are going to be in the next few years. Maybe they'll
they'll be more favorable, maybe there'll be less, it doesn't
really matter for the purposes of rafting and ppm, other than
this let investors know, hey, we're drafting this based on the
tax situation that we know today. Today, if it's real
estate, we know we can depreciate the property, we know
that exist, it's a reality thing. Maybe that will go away.
I don't know. Maybe they will do away with 1031 exchanges? Don't
know, it's just a reality that it may happen. And investors
need to know it. Now, why do they need to know these risks?
Because what if some one of them happened? Right, and they're
very mad. So let's say that they didn't really understand about
the liquidity thing. Right? They didn't understand that these are
illiquid, they didn't see that section on your summary of terms
that, that there's these restrictions on or they didn't
draw the conclusion of what that meant for them. Well, something
happens in their life, and they need to get that cash out. This
is their only pool of cash, and they need to get it. So they
come to you and they say I gotta get this cash out right now. Oh,
I had a life event that requires it. And they are earnest and
really, really need it. But you're in a situation at that
point, time point where you can't help them out and no other
investor can help them out. Well, what do you think their
complaint is gonna be? Why didn't you tell me that these
are illiquid? Why didn't should go through and tell me that I
had no idea I would have never invested if I had known that it
was illiquid. That is why it's in the private placement
memorandum. So you can hold up your private placement
memorandum point to the section and say, I did. See it's right
here. I told you that it's not it's just not a liquid thing. If
they make a complaint to the SEC, or a state regulator, and
they get a copy of the PPM, you can show them and say, I told
them that this was a risk. It's just the reality that it's that
these things are not freely tradable. And they'll understand
if they try and take it to a lawyer and try and sue you,
because Darn it, that's indicator didn't tell me about
it. The attorney, the plaintiff's attorney is going to
look at that and be like, it's right here, you can't, you're
not going to be able to sue, because of it. It's all over
this document, that it's illiquid. I'm not gonna take
your case, or I'll take it but you're gonna have to pay me our
you know, no, one attorney would take it on contingency because
it's a loser. So that's why we're so careful about making
sure our risks are well crafted. Now, why don't we put in every
risk in the known universe? Why don't we make this like a 10,000
page document that's got risks that are just crazy and
ludicrous in there? Well, courts have actually said, You've got
to tell your investors risks, but you can't bury risks in
other risks. So that's why we carefully tailor the risks of
those risks, which are reasonably possible for a that
reasonably foreseeable that could happen so that investors
can make a decision about those things that are reasonable. It's
not reasonable that that tsunami from the moon falling in the
ocean is going to be a big problem. It's just not. So we
don't put it there. That's why so I don't list out everything.
Normally, there's quite a few pages of risks, but it's only
what I think is reasonably necessary. Is there one or two
or three or five risks? It depends. But there's more than
five and there's more than 10. It's probably and I've never
really counted but my guess when you add up all the different
categories of risks, there's probably about 30 or 40. That's
my rough guess. So the other piece of this puzzle is
conflicts of interest. Now, when you as a sponsor are putting
this deal together, you're getting paid most of the time
99.9% of the time, you're getting paid. And when you're
getting paid, there is an inherent conflict of interest.
So a conflict of interest is when your needs don't
necessarily match up 100% to the needs of a, of an investor, I
think the best example of a conflict of interest that
happens all the time, is the sponsor, is a property manager.
So that property manager is making fees, property management
fees on taking care of the property. In fact, that's the
bulk of what they're making profit making they're making
their fees on is that management of the property. And the
investors have identified, hey, this really actually is a good
time to sell this, this asset. While the in the sponsor has a
conflict of interest, because they want to keep this thing
going. They want to keep their property management job, you
know, servicing the property, that's an inherent conflict, it
exists, it must be disclosed. Now conflicts of interest can
exist, not saying that they can, they always are going to exist.
And it's okay, they just need to be disclosed, investors have to
know, hey, these are the main conflicts of interest, I'm
getting paid fees, I'm getting these things, our interests are
never going to be completely aligned, I'm going to do my best
to act in your best interest. But just know, there are
conflicts, that way the investor can read those conflicts and
decide for themselves, whether you are going to act in their
best interest or not. If they don't, they don't have to
invest. If they do think that you're going to act in their
best interest, then they probably are going to invest. So
that's why we disclose them, because they got to be there.
The third big section is capital uses and expenses. So we touched
on this a little bit above under summary of terms. But that
breakdown of how the money's being used is critical for
investors to know, under Regulation D rule 506. B, when
you have non accredited investors, it's not only a darn
good idea, it's required that you make a very detailed
explanation about what those uses of the funds are going to
be. Now how detailed does it need to be? Does it need to be
30 pages of forecasts and analysis and things like that?
No, it needs to be reasonable enough that the investor can see
for themselves, okay, I'm going to give them this kind of money,
this money is going to be used here to buy this asset, some of
this money is going to be paid for these fees. Some of these
are going for legal expenses hid, some of this is going for
this, so that the investor knows what they're buying, right,
they're buying a piece of a company most of the time. And so
they need to know have a good feeling about well, this is the
entity that I'm buying, even if they're taking just a preferred
equity position, like a preferred stock,
they still need to know, because it's a very different situation
for me putting money into something that's going to be
used to buy to basically pay for you. Versus it's going to be
paid for this Ferrari that's going to generate all this cash.
Right, there are two different things. So I need to know that
as an investor. And that's why the use of funds is very
important. At the same time, this is also where we talk about
expenses, the kinds of expenses that are allowed to be spent,
right. So is if we're paying for the for paying for overhead
management, well, that's a very important thing. I need to know
that some my money is being used to pay for that manager. If I'm
getting distributions on money that's coming from investor
money starting to sound like a pyramid scheme. I want to know
that I want to see that in paper. Okay, well, if that money
is getting is getting paid to me, Well, how is the money
getting replaced on that? Because I need to know so that I
can make a decision for myself on whether or not to invest. The
fourth big topic is the details about the security offering
itself. So this is how many units are being offered. In
reality units are just sort of a construct that we use. It's not
actually in any of the LLCs laws that they are actually units. It
always is a percentage because really, most of the time these
are operating behind the scenes as partnerships. So it's really
driven by percentages, but units is about Very convenient way to
refer to it. So I almost always refer to everything in units.
Because at the end of the day, it's easier to calculate. Well,
where exactly is what exactly is that percentage rather than
having to deal with the math of calculating varying percentages,
if there is, if you own point 37215 of an investment, but that
investment was going to raise $20 million. And now it's, and
now through optimization, you were able to raise 19 million,
and you bought back $500,000 worth of units? Oh, my God, how
do you figure it out? It's much easier to just say, Okay, well,
those units got decreased here. So then my denominator changes,
and I can still figure out very quickly, what my, what my actual
percentage of ownership is. So that's, that's one of the very
key things, how much are those units selling for? How much?
What's the minimum investment? What What kind of
considerations? Are there for minimum investment? Does it have
to be that? If I make an investment? Are you able to use
the funds immediately? Or do you need to wait a period of time?
Is that money getting set put into an escrow account? Or is it
is it going into the LLC bank account, those are the kinds of
things that I want to know as an investor, and they should need
to be in your PPM number five, and six, I'm going to do
together. And that is your company background and the
management profiles background. Remember what I said earlier,
that people are investors are ultimately making an investment
in you, they're making a decision based on whether or not
to trust you, and at the end of the day, give you money in
exchange for this hope of making more money. So the background of
the company, and the background of you, as a manager are
critically important. Everybody needs to know who they're
investing into. If it was blank, nobody would invest. If they had
no idea that was going to happen, it's just not going to
happen. It's one of the major hurdles that exists when you're
marketing a security under 506. C, and you put it on the
internet and are trying to get investors because investors
still need to know they need to feel who that invest, oh, that
sponsor it, they need to know who's behind the curtain because
nobody just throws money at a blank wall, hoping that it's
going to be happen. It's you're just not going to collect
anything. So that somehow you need to overcome that hurdle.
This is part of that. It also sets up as part of a private
placement memorandum separate from a brochure it's separated
puts you forward to give a reasonable basis for why
somebody would make that investment in the first place.
If you're a super experienced real estate professional, for
example, then by putting that sort of detail into your private
placement memorandum, if somebody is reading the private
placement memorandum, it's like, okay, I can see why somebody
who's reasonable would invest in this. If you've if your private
placement memorandum for building a 20 foot story, high
rise, what says, Well, you went to clown school and dropped got
kicked out. And that's it, there's probably not a
reasonable basis in order to invest. So that automatically
weakens the entire structure. So setting up a good foundation of
that background is necessary as part of the PPM. Now what about
the situation where you just don't have it? That's okay, too.
But we need to kind of make it kind of clear, right, we need to
make it so that there's nothing will being lied to. There's
nothing hidden about that. So maybe you went to college and
you graduated top of your class. Great, that's perfect for there.
Maybe it's you know, you've led a team in a similar type of
setup, but it wasn't specifically about whatever this
is, okay, well, that still needs to be there so that we can come
up with a rational reason, in order for this to happen.
Remember, investors invest in you, but they do it on an
emotional level. But at the end of the day, they need a rational
reason to prop it up. They need to justify it rationally. And
this is part of that justification. It's a part of
the justification to if something goes wrong, and
somebody is looking at the details of the investment. If
that kind of rational explanation isn't there, there's
a big problem. Also very important is our seventh topic.
And that is financial statements. Financial Statements
basically give the money situation that It exists. Now,
most of the time, my clients don't actually there is no
financial statements. This is a brand new entity. Oh, that's a
risk, we need to put that there. There's no financial statements.
There's no background, there's no history on this entity to
give financial statements for. We put that in a risk statement.
But here we're talking about the financial disposition of our
company. What is the basis for? What's the source of funds look
like? Is it primarily through this offering? Is it all through
this offer? Is there a third party lender, what's the metrics
that are being used in order for a third party lender to have cuz
that lender, if I go to a bank and get a bank loan, the bank
has priority over all of my investors, your bar, your your
investors need to know that what position that they're in, so
they can kind of make good estimation of it. It's why your
preferred equity people need to understand the business as well,
because they actually have priority over those common
investors, but they need to know who's over them. They need to
understand that as well. Is there going to be co investment
from you as the sponsor? Are you going to be putting money in as
well? If you are fantastic. If you're not, if your investors
would like to know that? I wouldn't necessarily say call it
out if you're not putting money. But if you get the question, you
certainly should tell them. If you if you are, you definitely
should tell them because investors are almost always
going to ask how much skin in the game are you putting in? So
this is another place where you can put that? What are the costs
of the asset? You know, are you buying that one acre of land for
$50? billion?
That seems suspicious? Or are you buying that one acre of land
for $10? Wow, what a great deal. Right? So what is the what are
those expenses that are being associated with it? If there's a
development activity? What kind of development costs? Are there
hard, hard and soft costs? What does the operating expenses look
like that I as an investor ultimately paying for by giving
you this money? What are management fees? You know, it
might, if I make this investment today, and say we're buying a
piece of real estate? Are you immediately taking an
acquisition fee? I kinda would like to know, if you're getting
your pocket, getting money in your pocket right away. It's
probably not a problem. But I need to know that that's what's
going on. Lastly, what kind of reserves are you planning and
now reserves to me, you know, as an investor that signals you
know what you're doing? Because if you have $0, in reserves,
something's wrong. You know, what kind of budget is that?
Where there's no, there's no safety net whatsoever? It's not
very safe, I would be thinking you're probably going to be
making a capital call within a month. So what is the reserves
look like? And what's your plan on reserves? How's that gonna
work? That's the talk about financial statements that needs
to be in your private placement memorandum. The eighth topic,
our legal considerations, now, probably you're doing this under
Regulation D, it covers 98% of all of the funds that are got
are gathered in the private investment world go under
Regulation D. So it's probably a Regulation D rule. But what kind
of entities are using? It's a different thing, whether it's an
LLC versus a corporation. Is it a partnership? That would be
strange? Is it a limited partnership that's important to
now? Because that certainly changes the game and how I think
about an investment. What, what rule under Regulation D, are you
going under? Are you going under Rule 506? B so that you accept
non accredited investors? Are you going over under regulation?
Five, rule 506 C, that allows for only accredited investors, I
have to go through a verification process. Those are
things that need to be discussed. What is that criteria
that you're using for accredited non accredited investors? What
have you decided you need to do in order to verify accredited
investors? If you're going under Rule 506? See, if their
confidentiality in this, that's an important legal consideration
as well. You know, how open is Am I allowed to be? Can I tell
everybody about this investment? Or there's certain things you're
disclosing to me that need to be kept secret? What about
international investors, international investors can
invest, but are they being allowed to invest? What are the
rules that you're using in order to allow those international
investors to invest? And of course that restriction on
transferability is also a major legal consideration. The ninth
major topic and this really kind of is Oh critical because it's
kind of the whole purpose behind the PBM to begin with, and that
is investor suitability an investor needs to be able to
make that determine that determination that your
investment is suitable for their own needs, they need to be able
to figure out is the amount of risks that you're that you're
that you have inherent in your investment, is that suitable to
me is a super high risk, but I need something very low risk, or
is this something extremely low risk? And it's just not going to
give me the kind of returns? So is this suitable? Does it serve
my needs? Are you a cash flow deal? But all I want as
appreciation? Or are you an appreciation deal, and I just
got, I'm going to be living off this money. This is cash flow, I
mean, to make those kinds of things, what kind of expertise
exists in it? So if you're buying just real estate, how
much do I know as real estate? Is it really something I want to
get involved in? Is it something I want to invest in? So when I'm
looking at your, your strategy and your tactics, I can
understand them, because if I don't maybe is isn't the right
kind of investment, right, you get all sorts of investors who
know that I'm just not going to go into it, because I just don't
understand it. I mean, Warren Buffett himself didn't go into
tech stocks for a very, very, very long time, because they
said he just didn't understand it. Now, he is invested in a
number of tech stocks, but for a very long time, he didn't do
any, just because he didn't understand that market. And
that's a sensible reason. It just wasn't suitable for him. So
that those kinds of decisions are necessary for the your
investors to make, and that's the suitability analysis that
they need to go through. You at the same time have also somewhat
of a burden in order to understand their, their own suit
the investor suitability, if you know that the investor is a cash
flow dependent person, they need that cash flow, but your deal is
not going to cash flow for 10 years, you need to make sure
that they really understand that your deal is not cash flowing,
it may not be suitable for them. It would not be right to put
them in the position of buying into your security and not
making and, and just not telling them not making sure that they
understood that. So this idea of suitability is critical. And the
last thing that's often in a private placement memorandum is
the process. So what do you need to do to invest? I've read
through your ppm. I understand I am ready to give you my $200,000
today, what do I need to do? That's oftentimes part of your
PPM as well. Typically, the process is after you've read the
PPM and have the opportunity to ask questions of the sponsor,
then you will sign a subscription agreement, you will
fill out an investor questionnaire, if you need to
get accredited, get a third party that say you're an
accredited investor, you'll do that you give those to the
sponsor. The sponsor looks at them says great, we're what
happy to have you aboard. Now you wire the money to the
sponsor, and then you countersign the subscription
agreement that's most often the the order of events. But it may
be totally different. Maybe you have some other thing, maybe
they need to register on a website or a portal or something
like that. So this is the place where you would describe that.
Wow. So there is our big deep dive into private placement
memorandums. So I hope that you have found this video helpful.
Now, me i My name is Tilden Moschetti. I am a syndication
attorney with the Moschetti syndication Law Group. What do
we do? Well, we write PPM s. We also put together operating
agreements, subscription agreements, questionnaires, file
Form DS, notify states, everything that's needed in
order for you to start a syndication, put together an
investment fund, a real estate fund, or raise capital for your
business. This is what we do every day. This is all we do
every day is specialize in Regulation D. If we can be of
service to you. I'd be happy to talk with you and see if there's
a good fit. Give us a call and we'll schedule an appointment