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Regulation D Resources

Real estate funds tend to have multiple fees that are paid to the Fund Manager. A typical real estate fund fee structure would include, but not be limited to, Fund Management Fees, Asset Acquisition Fees, Asset Disposition Fees, and Construction Management Fees.

One permutation of the Fund Management Fee structure we have seen in real estate funds before is where the Fund Management Fee has a deduction for general and administrative (“G&A”) expenses for operating the Fund entity.  We have seen (on fund vehicles prepared outside our firm) where this arrangement has created serious issues for the Fund Manager as the Fund’s portfolio growth requires more infrastructure to operate and thus the G&A expenses rise in conjunction with such expansion.  The issue is most Fund Management Fees are fixed and thus, as the G&A expenses rise, the Fund Manager realizes less net from the Fund Management Fee.  We have seen instances where almost the entire Fund Management Fee was being used to cover G&A expenses.

In our opinion – the Fund Management Fee is compensation to the Fund Manager and, as such, should not be used to cover G&A expenses for the Fund’s operations.

Interested in executing a Regulation D or Regulation A+ Offering to syndicate capital?  Call us today to discuss!  (720) 586-8610

Regulation CF, commonly referred to as “crowdfunding”, recently saw a rule change that increased the annual capital limit to $5,000,000. While many companies may entertain executing a Reg CF to raise funding – Issuers should be aware that Reg CF carries with it exorbitant offering expenses and commissions.

All Reg CF sales must execute through an SEC approved and broker dealer managed Reg CF Portal Platform. These portals typically charge between 8-10% on all capital raised by the Issuer through the Reg CF offering (and that commission does not include offering preparation expenses). Direct sales from the Issuer to investors are not allowed under Reg CF. Thus, even though the Issuer may execute a marketing campaign to their social media base or to the public – any investor leads they generate for the Reg CF Offering must be sent to the CF portal wherein they will be subject to the commissions charged.

So – not only does the Issuer have marketing costs for the offering but all sales will be subject to the portal commission. An Issuer raising $4,000,000, for example, could easily see the overall commissions and expenses for such capital exceed $400,000-$500,000.

That is expensive capital especially for early stage companies that could execute direct sales under Regulation D or Regulation A+ and spare themselves paying those commissions. Many Issuers have the ability to generate their own investor interest in their offering – thus the ability to execute direct sales, commission free, is a massive benefit of Regulation D and Regulation A+ type offerings. Further, a Regulation D or Regulation A+ offering can still be hosted on a crowdfunding type platform if the Issuer desires to have that exposure in addition to their own marketing campaign and direct sales.

While we feel Reg CF can be beneficial for smaller offerings (sub $500,000) – issuers seeking to raise over $500,000 should carefully evaluate the commission impact on their planned raise and consider a Regulation D or Regulation A+ offering as a more cost effective alternative.

Interested in executing a Regulation D or Regulation A+ offering?  Call us today to discuss:  (720) 586-8610.

Please note we will be increasing the fee for our Regulation D Offering Preparation Services from $7,000.00 to $7,500.00 on March 23, 2021.

Any Regulation D Offering Preparation Accounts created after 5pm MST on March 23, 2021 will be instituted at the new services fee rate.

Regulation D 506(c) offerings provide the issuer company with the capability to engage in general solicitation and advertising of the offering and investment opportunity to the public with the qualification that all investors are accredited, provide suitable verification, and that the appropriate legends are deployed in promotional materials.

Here are three ways a Regulation D 506(c) Offering can be promoted to the public:

1.  Press Releases:  A press release is an excellent method of letting the general public know you have an offering in place and an investment opportunity available.  Further, a press release also “seeds” search engines with additional results on the company and the securities offering for when investor prospects research your company.

2.  Social Media Promotion:  Leverage your social media sphere of influence by promoting your offering to those groups.  Many companies that execute a 506(c) offering will have deep social media assets that can be leveraged to gain investor prospects including Linkedin, Facebook, and other social media platforms.

3.  Corporate Website Promotion:  Many companies executing 506(c) offerings will have corporate websites that are attracting thousands if not tens of thousands of visitors each month.  The company’s corporate website can then be used to notify visitors that an investment opportunity is available and direct them on how to evaluate the offering and determine if they qualify to invest.

Most modern securities offerings that allow general advertising, like a Regulation D 506(c), are being administrated using technology.  Using an investor web portal, like the Regulation D Resources Investor Web Portal, to engage your prospects and track them through the investment subscription process is an invaluable tool.

Interested in raising capital via a Regulation D 506(c) offering?  Call us today to discuss: (720) 586-8610.

As we leave 2020 in the rear view mirror we look ahead to 2021 with hopes that we can see a return to normalcy within our business environment.

The combination of record financial stimulus, COVID vaccine dissemination, and a re-opening of state level economies should breathe some life back into the US economy.  While we may see some lingering impacts through mid 2021 our expectation is that the second half of the fiscal year 2021 should start resembling a normal economy again for most industries.

Business executives should be planning ahead for the process of raising funding for expansion or for business opportunities.  Preparing a Regulation D based offering can take 30-60 days depending on the complexity of the company’s operations and the efficiency of the client in providing needed information.  While Regulation D based offerings can be executed fairly quickly and without an SEC qualification process – they do have limitations the primary one being that a 506c based offering can only be sold to accredited investors.

Regulation A+ is a fantastic vehicle for raising funding for many companies.  A company that wants to execute an offering to more closely mimics the promotion benefits of a true public offering should strongly consider Regulation A+ Tier 2 as an option.  The key with Reg A+ is “plan ahead”.  The offering preparation process and SEC qualification can typically take 5 months from start to finish so issuers investigating using Reg A+ should factor in a longer lead time to prepare such an offering for securities sales.

Questions about executing a Regulation D or Regulation A+ offering?  Call us today at (720) 586-8616.

Merry Christmas and Happy Holidays from Regulation D Resources!

Our Denver offices will be closed December 23rd starting at 1pm MST through Friday December 25th.  Our offices will re-open December 28th at 9am MST.

We hope everyone has a happy and safe Holiday season.

Happy thanksgiving!  The Regulation D Resources Denver offices will be closed Thursday Nov. 26, 2020 in observance of the Thanksgiving Holiday.

We will reopen Friday, Nov. 27th at 9am MST.  We wish everyone a happy holiday!

Happy Veterans Day and thank you to all who have served our great country!

Our offices will be closed in observance of Veterans Day.  We will reopen on normal business hours Thursday, Nov. 12.