I was asked the other day how we structured our Reg-D funding(also called a PPM or Private Placement Memorandum). It's a term you don't hear very often I admit. But if you've got a sweet deal and you can prove it, it's a great way to secure a lot of capital. In 2005 we were researching a deal on the East Coast. Beautiful vacation homes priced very reasonably, but it was a complicated deal. There was a privately owned public water company, a restaurant and 5 homes. So, was it commercial or residential? Do we split the deal & swing in the commercial with private money?? It grew complicated very quickly. Then we were offered the chance to do a Reg-D. Maybe you're one of those REI's that gets out there & rubs elbows with the kind of people who do Reg-D's but I wasn't. I didn't have a clue. And so like any good investor...I panicked. No really, I wanted indpendent information that made me feel a little more "educated" going into the process. What I found was that even some real estate attorneys didn't seem to know what I was talking about, like I had made it up to make them look foolish. Sometime that might be fun to do, but it wasn't fun at the time. I felt a bit like a pioneer, trudging into unknow territory with a plan to mine for gold with a toothpick. So I did my own research. I read through legal documents written by the government, (again more fun) on the regulatory standards for Section D funding.
Basically, here is how it works, you will sell shares in your opportunity to U.S investors for a structured return.
But, there are a few things you need to begin funding this type of deal.
First, a good business plan. This needs to be coordinated by a professional. Your local chapter of SCORE with the SBA is a great source of help for this. If at all possible, hire someone that can create a professional marketing plan as well, as you'll be hitting up investors for funds & they may respond better to a power point presentation than a 300 lb. 600 page business plan.
Secondly, you need a C-Corporation with at least 1 Million shares. Nothing else will do, because of the passthrough of funds in an S-Corp, LLC, etc. investors need to know that there is no filtering of profit from the bottom line and this is least likely from a C-Corp.
Thirdly, you'll need a good securities attorney (who I should have asked about Reg-D in the first place). He will be able to properly set up shares and distribute them.
Be aware too that only U.S. citizens can invest in a Reg D. I know right now becuase of the decrease in the U.S. dollar that European investors are increasingly interested in our market.
If you are interested in setting up a Reg-D I would suggest you look into a company that will service you from start to finish. Mike Sochurek and Brian Novak from IRA Network LLC have experience and very affordable services in which they will help you create a business plan, use their securities attorneys to write the Memorandum and market to their investors for placement. They'll take good care of you. Their website is http://www.custombusinessplans.com
Happy investing. And don't forget to give back.
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