Learn The Circumstances Where Private Syndications Will Compete For Capital With The Sale Of Your Business.
Private syndications is a term used to describe many investments where funds from many investors are pooled together. They can be investments in real estate, oil and gas, businesses, or anything imaginable. They are alike in that they benefit from little or no regulatory oversight. They frequently promise high returns.
There are private syndications targeting high net worth investors. These frequently seek investors from all across the country. These investors are frequently recruited through law firms. The lawyers in these firms are usually familiar with the various securities regulations and the related exemptions for high net worth investors.
Due to the lack of regulatory oversight, these types of investors have little or no legal requirement to provide investors with regular financial statements. Investors are frequently ignorant of the progress of the underlying business activity. These investors are completely dependent on the skills of the management team for success. However, that is less important than it first appears.
Private syndications provide few opportunities for liquidity for investors. There is frequently a future date when the project or projects will be wound up, and the proceeds distributed among the investors in accordance with their ownership. Until then there is little liquidity, and little information on which to base any valuation of an investor's interest.
That is most of the bad news, excepting that these investment types are frequently breeding grounds for fraud. However, there is plenty of good news as well. Investors in private syndications are frequently made up of friends and business associates of the promoters. And the promoters themselves are frequently accomplished managers, with considerable experience and success in the targeted industry.
Investors are being invited to invest in known quantities. The track records of the promotional team or management team are known to them. They know the characters of the individuals involved. The management team have had success in the industry they are targeting. This type of investment has a much greater chance of success than many other private syndications, because investors know more before investing. Investment is based on knowledge, rather than blind faith and promises of extraordinary returns.
Investments like this are largely passive. Which many investors prefer. Properly chosen they can provide investors with superior returns. Largely because the management team are also owners. Frequently with skin in the game. So they are in it for more than a salary. And the overhead of a private business should be lower than in a public company.
They lack the liquidity provided by equity investment in a public company. So they have little advantage over an investment in your business in terms of liquidity. They are passive, so require little or no time commitment. They may provide returns that will be comparable to an investment in your business. However, for those investors also wanting to manage a business, they will not satisfy that requirement. So from your perspective, as someone wishing to sell a business, they may or may not be in competition for the needed capital.
It all comes down to the real needs and wants of the individual prospective buyer. You need to determine his motivation and proceed accordingly. You will not want to waste time with someone really seeking to make a passive investment. Or with someone seeking a passive investment, combined with a job in an unrelated industry.
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