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As the alternatives space continues its upward climb, more sponsors are entering the market, and they are launching an increasing variety of offerings. But there are several types of pitfalls that sponsors of all stripes should take care to avoid.
Andrew Doup, securities counsel at Kegler Brown Hill and Ritter, joins the show to discuss best practices for sponsors who are launching alternative products in today’s changing marketplace.
Watch On YouTube
- The trajectory of Andrew’s career, and the changes he has seen in the alternatives industry in just eight short years.
- A single (but important) mistake that alts sponsors should avoid before launching a new product.
- Best practices that every alts sponsor should consider to tee up a private placement offering for success.
- A key point of differentiation that is common for the largest alternatives sponsors (including the specific type of investors that they tend to target).
- Andrew’s predictions on where the alts market is headed next, and why tax-advantaged products and strategies are likely to remain popular for the foreseeable future.
Featured On This Episode
- Ohio State vs. Notre Dame 2022 (The Columbus Dispatch)
- Rule 506 of Regulation D (Investor.gov)
- Andrew Doup at Kegler Brown Hill + Ritter – AltsDb viewers and listeners can get in touch to set up a free 30 minute strategy call with Andrew.
Today’s Guest: Andrew Doup, Kegler Brown Hill + Ritter
About The Alternative Investment Podcast
The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss tax-advantaged investment strategies to help you grow your wealth.
Andy Hagans: Welcome to the Alternative Investment podcast i’m your host Andy Hagans and today we’re talking about how more and more alt sponsors are entering the markets, with more and more products.
And what are those best practices for alternative sponsors and joining me today I have Andrew Doup securities counsel at Doup, Kegler Brown Hill + Ritter. Andrew welcome to the show.
Andrew Doup: Hey thanks for having me Andy I’m happy to be here.
Andy Hagans: Yeah and you know just just a note to our listeners and viewers, you know this episode it’s a little bit different it’s targeted more towards industry professionals towards sponsors and issuers.
But I think it’s really it’s a good thing for investors and advisors to kind of understand how these products work from the sponsors point of view, to get a little bit more.
in depth, you know understanding of how these products, work and some of the liabilities some of the challenges, some of the best practices so Andrew why don’t we begin by discussing your experience in this field, can you tell us a little bit about your career.
Andrew Doup: yeah sure i’d have to so so I work at a full service law firm in Columbus Ohio my practice areas and private securities.
And so what that means is I work with sponsors fund managers entrepreneurs developers and organizing what’s referred to as an exempt securities offering.
You know, typically if an entrepreneur has a business plan then they’re looking for investment partners to help them capitalize a business plan, and so, and so we do that by organizing the offering.
issuing securities to class of passive investors that are looking for yield.
So i’ve been in this practice now for about eight years, this isn’t my first career though my first career was in in the military after graduation I joined the air force.
was active duty for about seven years, decided that I was getting tired of the point, all the time.
So when it came time to plan some routes for my family.
We decided to move home here to Columbus.
Fortunately, had the GI bill to pay for law school, I went to law school at Ohio State and.
started working at keg of Brown.
Andy Hagans: So when it’s football season, are you rooting for the buckeyes or air force or.
Andrew Doup: You know the primary reason why I wanted to plant roots in Columbus was that I can raise my children to be buckeyes.
Andy Hagans: right on yeah I have family from Columbus actually grew up in Columbus so personally, not a huge buckeye fan, but I got to have a lot of respect for that.
That fan base certainly certainly don’t want to show it and make it an enemy of that fan base, because that buckeye nation boy that’s a.
that’s a big fan base i’m over here West Michigan so we also have that you know University of michigan’s big thing around here.
And big 10 football man, it is just a machine it’s a juggernaut.
Andrew Doup: yeah well look man, we got a big matchup coming up first game of the season osu and Notre Dame.
Andy Hagans: yeah you know.
I gotta say as an Irish fan i’m going to fold even before we begin that conversation.
perennially overrated and over ranked but you know, of course I gotta cheer cheer for my team.
So back to alternatives will put football aside for a minute you’ve been in this space for eight years you’ve been working with clients with sponsors.
What are the biggest changes that you’ve seen in those eight years, I mean eight years it’s not that long of a time but but really it was right around a decade ago that we saw the launch of five will succeed.
We also you know, had the opportunity zones program launched in that timeframe, so what would you say, are the biggest changes you’ve seen since you started practicing in this area.
Andrew Doup: yeah you know I would say, you know the general theme that i’ve seen is that the SEC, the Securities and Exchange Commission has.
taken steps in recent years to facilitate capital formation and the middle market by lowering barriers of entry to both entrepreneurs and private investors alike.
And so they’ve done that in a few different ways, one of them was by modifying the rules on how an issue as you were can offer and sell their securities.
You know, for about a generation these private investment opportunities could only be offered insult to people with whom you already had a pre existing self serve relationship which meant advertising and marketing where prohibited.
That real changed and around 2013 2014.
Andy Hagans: lifted that research lesson when that.
When that real change was that, due to legislation or was that at the SEC itself they decided to you know rewrite some of those regulations.
Andrew Doup: That was Congressional legislation, but the jobs act.
Okay yep yeah and and so that change what it lifted the rule that prohibited sponsors and issuers from marketing and advertising they’re offering.
So issuers can do that now, they can market and advertise the public, provided that they satisfy one condition and that’s to take reasonable steps to verify that purchasers are.
what’s referred to as accredited investors and we can get into what that means, but again, you know, the goal being increase participation by buying investors.
There have been a number of changes since then, most recently in 2020 the SEC amended rule to.
What categories are included as an accredited investor and so, for the first time you’re not going to be excluded because you don’t make enough money on an annual basis or your network isn’t high enough.
Now you can be an accredited investor, if you have the right qualifications, so, for example, if you have you know certain licenses in the financial industry, you can be an accredited investor without satisfying either that annual income or net worth threshold.
Andy Hagans: And so what’s the theory behind that just the idea that you know you’ll be more sophisticated as an investor because of those licenses versus just having a particular net worth because I mean, I have to say I don’t know that net worth is really that great of a.
litmus test for to investors sophistication necessarily regardless.
Andrew Doup: yeah yeah I think most people would agree, you know the the commentary about that rule is it was the best you know the SEC could do at the time.
Of course, you know the the annual income and network thresholds, have not been index for inflation, so they were quite high at the time that those rules were promulgated.
But you know to your point, you can make a poor investment decision notwithstanding your annual income or net worth.
From the SEC perspective, the logic was well you know if they hit either those two thresholds and they have enough, they can bear the risk of total loss which you know again isn’t a great standard.
Especially you know for sophisticated investors folks that may not qualify for either of those standards but are still quite capable of evaluating the merits and risks of an alternative investment.
Andy Hagans: Okay, so since you’ve entered the field.
have most of your clients been issuing five or six be offerings or five or 60 offerings is that is that mix changed over time.
Andrew Doup: You know I would say, you know it’s about 5050.
You know, there were pool of clients who already have a you know pre existing well established network of prospective investors.
And so they don’t need to market and advertise the offering to the general public, because they don’t really need to verify that those investors are accredited since they have those relationships and a pattern for some time.
But you know, then, again, you know more and more beginning to see the value of issuers organizing an offering and reliance on this Rule five or 60 exemption.
Especially since coven you know people stopped going out and meeting each other face to face, and you know we’re in the information age now so.
You know issuers have had success and casting the widest net possible whether it’s by establishing an online presence or you know conducting a social media campaign, you know that information technology is building bridges between sponsors and investors.
Andy Hagans: Okay that’s interesting, so you mentioned about 5050 and is that mix stay constant or is it is it now leaning more in the direction of you’re seeing more and more 506 C offerings are those now outnumbering the 506 B offerings.
Andrew Doup: yeah it’s definitely trending that way Andy I mean, especially since coven you know.
Andy Hagans: Prior to that, I wouldn’t have I wouldn’t have thought that that would necessarily.
be the catalyst, I mean is that is it is it like the perception that you know there’s there’s fewer like lunch meetings between an advisor and clients, or just more investors are at home on the Internet, you know googling.
Different offerings why, why would that be such a catalyst, I know i’m kind of theorizing here but give me your best guesses.
Andrew Doup: yeah I think those are all contributing factors, and you know I also think that social media has a huge influence on what people think.
You know about things, and about the world and about you know prospective alternative investment deals.
Andy Hagans: So you’re saying social media has contributed at least one good thing to the world.
In the space i’m kidding.
So let’s talk about.
Andrew Doup: depends on the sponsor so.
Andy Hagans: I want to move on to the kind of the meat of today’s episode, so we want to talk about best practices for all sponsors.
You know, but I like Charlie munger is maximum invert always invert so when i’m thinking about a topic.
let’s start with the inversion what’s a major pitfall or a mistake that you see alternative sponsors make that you know it’s pretty common and something that they could avoid if they only knew about it.
Andrew Doup: yeah you know this is kind of an amateur mistake but you know for first time issuers, it is you know not appreciating the risk of securities liability.
And so just for general background that in passive equity interests are regulated securities by Federal and State governments.
And you know the reason why clients care is because if you don’t do it correctly, then you’re not only going to be subject to civil liability, but you can also be subject to criminal prosecution.
And so securities liability is pretty onerous but the good news is that there is a well established pathway to organizing and offering.
Securities to prospective investors.
Andy Hagans: And that’s a that pathways is what you specialize in so so let’s get to the best practices now.
let’s say i’m a new sponsor not necessarily new to alternatives for new to real estate, but this is maybe going to be my first issuance and I want to you know raise 20 or 30 million.
In capital to pursue my project in my fund So what are those keys and best practices that you know I need to keep in mind as i’m you know preparing to launch a new offering.
Andrew Doup: yeah so you know if if you and I were to have a strategy call and how to organize and conduct your offering and he had probably ask you a few questions so that I could assess your business objectives to properly scope.
The offering and then recommend.
An exemption that would best position you to achieve those objectives.
Aside from that, it would be you know where I can tell you where we would probably end up is you know if you if your intent was to raise.
You know you’re fond from investors, regardless of what state they reside in, then you know, then I can tell you, you know right away that we’re probably going to look at.
Regulation D, which is an exemption that enables issuers to raise as much money as they need to capitalize their business plan from as many as investors.
That are willing to participate, the primary benefit of a REG D exemption is that it preempts state.
Securities registration requirements, so I mentioned at the beginning securities laws are regulated by both Federal and State governments.
The REG D exemption preempts state registration requirements, and so what that means is you can raise you know you can raise cash from investors, regardless of which state they reside in provided you make a what’s called a blue sky notice filing in that state.
Okay, so that’s probably the first line of questions that I would I would want to learn from you is you know where where do you intend to raise your cash from what are.
Andy Hagans: We gonna be would there be like an exception there like i’m thinking of like California, so if i’m a sponsoring in California.
You know, due to the the tax law in California, you know I might be thinking well shoot Maybe my entire investor capital base will be located in California, would there ever be a circumstance, where you advise a client.
To file outside of reggie reggie.
Right absolutely I.
T REG D.
Andrew Doup: REG D yeah.
yeah absolutely well let’s use Ohio as our example.
Okay, so So if you were to you know if you wanted to.
raise around of equity from family and friends all residing in the State of Ohio, in other words, no, there was no elements of you know, in her state.
Offering and selling of securities, we could rely on on a separate exemption because we wouldn’t need to preempt Ohio State securities law under Ohio State securities law there’s an exemption from registration available if you’re offering is limited to 10 investors or less.
Andy Hagans: I see.
Andrew Doup: So in that case you know we wouldn’t need to rely on the REG D exemption, you know we can rely on this Ohio State securities exemption, coupled with a you know federal.
Statute called a statutory private placement exemption under section for a two of the securities act.
Which is, which is not the REG D safe harbor that you would have otherwise, but you know again here, you know, given the fact that you’re limiting your offering and you intend to raise from no more than 10 Ohio residents, you know I might instead recommend you know this other exception.
Andy Hagans: Right so back to my sort of prototypical example if i’m a sponsor looking to raise 20 or 30 million.
Obviously, like in Ohio securities law I don’t want to limit myself to only having 10 potential investors so REG D sounds like that’s just the default choice, and you know 90 90% odd cases.
Okay, so so you’ve pointed me in the direction of REG D and then what are, what are the options, then within REG D is you know is that is it REG D, whether it’s five or six year 506 B or.
heck even a crowdfunded offering are we going to go there, I mean what am I option what’s on the menu here.
Andrew Doup: yeah yeah it depends, so if we’re in REG D world there are two rules that you could position yourself for depending on what your goals are and you mentioned them already.
he’s referred to as real five or six b and enroll 506 C so rule 506 B is what we refer to as a private placement exemption, and you know I would say about 95% of private money is raised in reliance on REG D.
In you know most of that on 506 B because it’s been around for so much longer than than 516 which we’ll get into in a minute.
But in order to organize your offering and reliance on Rule 506 B, there are really four things you need to do, you need to satisfy in order to rely on that exemption The first one is that you can’t be what’s called a bad actor, so you and.
You know any other of your co founders that organized and issuer or fond.
You know, really anyone who’s involved in the offering must have a clean securities record and so an issue or with a history of bad actions involving violations of the securities laws is generally going to be disqualified from relying on the private placement exemption.
Okay, so you know, not everyone is aware of that, at the outset, when they come in and talk to me so just, you know as a matter of course.
You know our practices to run a bad actor disqualification check on on our clients, so that we know whether or not this is something they could even pursue.
Andy Hagans: So what if what if one of your business partners was Nicolas cage.
Andrew Doup: Nicolas cage.
Is a great actor.
Actually, with several great movies.
So you would be fortuitous.
Andy Hagans: I got five kids Andrew you got bear with me I got I have a whole list of dad jokes so i’m going to cut myself off with one okay so.
Andrew Doup: Oh jeez well you guys are gonna have to start watching some Nick cage movies together, then.
Andy Hagans: absa well, maybe when they’re a little or some of those get pretty pretty violent but definitely entertaining and yeah I mean what is a good accurate really you know, is it someone who entertained you or is it someone has more than one facial expression.
Alright, so so a bad actor that’s that’s your first check to sort of see if your group here would qualify under REG D.
Andrew Doup: Right right yeah and then the second one we mentioned already as well and that said there would be no public advertising under Rule five or six be.
Okay, so, so the sponsor would need to limit the offering to its network of substantive pre existing relationships.
Since public advertising and marketing is strictly prohibited, you know some clients asked about whether or not they could make a public announcement about their fund or their capital raise.
The short answer is no se has some some guidance about how you know those types of activities could condition the market and so they’re at risk of busking that rule.
Andy Hagans: Are they are they able to even advertise you know to financial advisors like let’s say with you know industry media industry conferences that are not open to individual investors but that are you know professional only or financial advisor only type events.
Andrew Doup: yeah that’s a good question because there’s really no bright line.
And so the the general you know my general guidance is you know consider this no public advertising role of sliding scale.
You know the further away, you know, the more degrees of separation, you have from your pre existing network.
You know, the higher the risk.
violating that rule.
Andy Hagans: understood okay.
Andrew Doup: yeah so so, then the third element is that these securities that are issued there what’s referred to as restricted securities, that means they’re not fully transferable when there are issues, in other words investors must purchase for a long term investment and not have you to resell.
Andy Hagans: But then the sponsor than they’re not precluded from you know, having some sort of.
liquidity or buy back or something program it’s just that more speaks to the intent, I mean, because I know some of these programs will have like very limited options for liquidity, but they’re usually.
You know they’re not that desirable and usually there’s some sort of penalty or fee and so investor wouldn’t really go into it with that intention, you know, like if i’m investing in an ozone fund for instance and qof.
Obviously i’m intending for that money to be locked up for that 10 year life cycle.
So our sponsors still able to offer you know limited liquidity or is that, like a hard hard rule there.
Andrew Doup: No, no it’s not a hard rule, I mean the general hard rule is you know one year lockup period.
Okay, and that’s, not just for security purposes, but you know for for tax planning as well.
But in there were different mechanisms that an issue or or a sponsor could offer to investors to provide liquidity if the investor need that.
Andy Hagans: yeah because I know a lot of alternatives, and you know, putting aside five or six be versus 506 C for a minute, but you know kind of the idea of.
liquidity intervals, I interval funds, for instance, or some of these different kinds of.
Alternatives they’re not liquid alternatives, but they’re not necessarily at that other extreme of like a totally illiquid 1010 to 20 year holding period.
Type products i’ve just seen more and more of those types of products gain traction in the marketplace where there’s you know, rather than being from one extreme to the other it’s kind of in the middle, where there’s a little bit of liquidity, but it’s not totally liquid either side.
So I was.:
Andrew Doup: Sure, no, no, I think, I think, to your point, you know, one of the advantages of offering an exit path for prospective investors is that.
You know just gives them some assurance that you know if, for whatever reason, they need liquidity and they have a mechanism to achieve it, notwithstanding that they decided to invest in all, you know as opposed to publicly traded stock.
Andy Hagans: Sure sure okay so let’s see we cover everything that that a sponsor their checklist under REG D.
Andrew Doup: Just about so we mentioned this requirement for the investors to be accredited already so I don’t think we need to revisit that one.
Item that i’ll add to that discussion, though, is that, under Rule five or six be the offering securities may be sold up to 35 non accredited investors.
The issue, though with that approach is that it requires the issue or to deliver a higher standard of disclosures and that higher standard of disclosures in and of itself, often makes you know, an enabling non accredited investor entry into a five or six be offering cost prohibitive.
So some examples would include audited financials annual or interim balance sheets.
Those types of disclosures.
Andy Hagans: it’s like why, why would you want to invest in that overhead, given that the non accredited investors would would be likely investing relatively small amounts of capital anyway just financially doesn’t make sense to do that so practically practically speaking, then.
pretty much no alternative sponsors take advantage of that you know potential ability.
Andrew Doup: But not if they’re not if they’re doing it right, not if they’re satisfying that higher standard of disclosures because, again, it just gets cost prohibitive the juice isn’t quite worth the squeeze.
Now you know if your intent is to enable participation by non accredited investors REG D is probably not the best place for you, instead, we may be having conversation about regulation crowdfunding, also known as REG cf.
Andy Hagans: And so just briefly talk about REG cf versus REG D.
So a sponsor I guess in your experience sponsors coming to you for your services if they want to be able to directly sell individual investors, they can do that under REG D 506 C, which would be accredited only or they can go the crowdfunding route.
Has that mix changed over let’s say the past, you know, several years, is it is, is this kind of a constant proportion of folks going the crowdfunding route or.
Have you seen that grow or shrink.
Andrew Doup: yeah you know I mentioned at the beginning that the SEC has taken steps to lower barriers of entry and facilitate capital formation in the middle market.
One of those changes that were made was to REG cf pay increase mx offering them out from about 1 million to up to 5 million.
So for sponsors that have a project that requires 5 million or less REG cf you know if raising from non accredited investors is part of your investment strategy, then REG cf may may be a good place to look.
However, REG cf has its own set of rules and hurdles that you would also need to navigate one of them is is that you would need to conduct the offering through crowdfunding intermediary or a funding portal.
So if you’re able to find a funding portal to partner with, then that would be your platform to offer and sell to non accredited investors via REG cf and then to answer your question Andy because that increased from one to 5 million, I have seen an increase in REG cf offerings.
And you know for those crowdfunding platforms that base their business on REG cf there there certainly there certainly, you know as busy as ever.
Andy Hagans: yeah you know it, and those are interesting to me because, on the one hand, you know I like the democratization aspect of that, but on the other hand, at a certain point.
A structure is just no longer efficient right like I like i’m thinking you know there’s probably a number I don’t know exactly what it is probably different for every sponsor.
But it’s probably like worst worst possible amount of capital, the race where it’s like it’s enough that I have to.
You know, do all of these things for securities law and structure my entity in a certain way, but it’s not enough to give me an economy of scale.
To you know because, like some of these things to to as a sponsor or at the offering level are going to be more or less fixed costs right.
terms of you know, legal assistance and paperwork and you know regulatory stuff and then also just normal overhead of any business and then other things are going to be variable costs, and so I don’t know personally I kind of question.
You know if you have a real estate asset that’s I don’t know a $4 million dollar asset, with a $2 million equity raise and you fractionalized it for 100 different investors.
that’s so much overhead you know for this one asset that, on the other side of the alternatives world wouldn’t even be fractionalized and just be like a single owner asset, do you have any thoughts on that on.
Andrew Doup: yeah yeah no that’s that’s a great point great point Andy I mean.
You know the larger the number of your investors, the greater your administrative burden, you know, so if you’re.
organized as a you know multi Member llc with a partnership election or a limited partnership, you know you’re looking at 100 plus schedule K ones that you got to prepare and deliver.
So, certainly, you know administrative burden as a as part of the equation as well.
Andy Hagans: Are there any you know practices that a sponsor can take you know when they’re thinking about setting up entities.
or just sort of at that strategy level to to minimize that administrative burden to you know you know beyond even just the liability, but just to sort of minimize the man hours and cost.
Sure cycle of their fun.
Andrew Doup: yeah absolutely you know best practices would include developing your.
business plan before he started designing your offering because you need to know how much you need to raise you know, in order to capitalize that plan.
And so you know if you’ve got that figure, you know you can then you know tried to negotiate with who you would consider a strategic lead investor.
Some of that you can get in the door, you know right away, this would be someone that you already have a stuffs The pre existing relationship with.
But if you can do that, and you know it’s certainly would make closing the remaining amount of your offering you know much less burdensome if you’ve already got some cash in the door, and can have keep that momentum going with additional prospective investors.
Andy Hagans: start with the ball in the 50 yard line right, not for.
Andrew Doup: got it.
You got it.
Andy Hagans: What about on the marketing side of me I know that you know you’re you’re on the legal and liability side but.
You know you work with a lot of different sponsors, you know what our sponsors doing a sort of to you know the job of raising capital, the sales and marketing that entails.
What is what are some things they can do early on at that strategy level, you know the planning level to make those things easier and also to where you know they have less legal headaches, can I say legal headaches later in the sales process.
Andrew Doup: yeah right no I think your question is, you know how do I make an ounce of prevention, you know worth a pound of remedy.
Yes, in the answer is, you know again making sure that you’ve developed your business plan up front.
You know in bonus points, if you have a perspective strategic lead investor that you can bounce that off of.
Because again, you know if that lead investor finds your offering appealing enough for them to participate in then it’s going to make a lot easier for you to sell subsequent investors on your offering as well.
Andy Hagans: understood so let’s talk a little bit about the documents associated with an offering.
You know, realistically, are you finding that yeah and I know you work with investors as well right actually why don’t we start with that some of your clients are coming to you from the investor side is that correct.
Andrew Doup: yeah yeah that’s right yep so you know these are going to be folks who were presented you know with maybe a pitch deck or business plan by somebody that they know because you know they have deep pockets and you know, maybe they are known in the Community for making private equity investments.
So if they have you know if they’re considering participation in an equity offering.
Then you know my first piece of advice is you know well you know, ask for the offering documents.
Because a pitch deck may look great, but you don’t really know what’s legally enforceable until you’ve reviewed the offering documents, which would include a private placement memorandum.
subscription agreement, an operating agreement or a limited partnership agreement in the case of an LP.
So there’s no, you know predefined set of you know what constitute offering documents, but what we’re looking for are the legal instruments that are enforceable.
Andy Hagans: And so, in your view that you know due diligence it’s actually getting to due diligence for a SEC here, you have the due diligence on the project level which that’s more financial and that takes more if someone with financial.
Real Estate experience for talking to real estate all you know to.
You know, look into the model and kind of check those financial and business assumptions and then there’s also that legal end of going through the offering docs the ppm the subscription agreement are you know if i’m an investor, you know, is there.
I guess in your mind is every accredited investor need to have like a structured due diligence process, or is this is this more important when we’re talking, you know lps who are making seven figure investments, because.
I mean realistically most accredited investors are not reading, you know, an entire ppm or subscription agreement, nor are they you know, employing.
someone like yourself, you know, to return.
For them, and realistically if they’re working through an advisor you know, realistically, the advisor probably doesn’t have the time to read every single word and ppm.
You know so kind of knowing you know, knowing the realism of that would you would you would you say that it doesn’t really matter what amount of capital you’re investing you basically need to go go through all of those you know yeah.
Andrew Doup: hundred percent yeah doesn’t matter how much or how little you’re investing into private offering you need to make an informed investment decision is the bottom line.
Or at least you know that would be my advice to a client and I think most clients would agree.
You know that there are some you know, there might be some exceptions, if you just if you’re investing in the person and not the business plan.
You know I typically see That being the case, for yeah you know serial entrepreneurs and venture capital deals, but I mean look, you know for a lot of folks participating in all.
This is your cash right so nobody’s going to care about your cash more than you do, and the way to protect your investment is you know, is by conducting your due diligence up front make making sure that you understand what it is you’re buying.
Andy Hagans: gotcha okay well I you know, speaking as an LP you know it’s one of those things it’s a it’s like homework.
You know it’s it’s maybe it’s not fun, but the long term payoff if you do your homework and.
You know, obviously the the investment world is no different but it truly is amazing to me, though, when in the investment, research and selection process.
You know a lot of investors follow their passion and that’s great, but then, when it comes to that you know the last mile or switching analogies you know you get the ball down to the two yard line.
And then they they sort of just skip over that process, and they just say hey look send me the docusign and they sign and.
and move forward so I want to shift gears We talked a little bit about you know I guess startups sponsors or sponsors with you know smaller offering you know I say smaller you know all in context of some of the largest sponsors and alternatives.
You know, managing billions.
let’s talk about the bigger players in the alternative space, you know that you know the the the sponsors that you know have different products that are managing you know, half a billion, a billion or more in equity.
What are the kinds of things that they’re doing to differentiate themselves or you know you don’t have to name any names, but you know what is it that some of those players that are doing really well and having a lot of success What are they doing to differentiate themselves.
Andrew Doup: yeah you know I guess depends on on how you measure success, you know if you measure it in terms of assets under management.
You know I think a big part of it is the relationships that you’ve developed over the course of a career, so your investors aren’t going to be, you know you know accredited investors that you know that are individuals are.
You know, high net worth people in your local community, these are going to be institutional investors pension funds endowments etc.
And in in these are going to be, you know some of the most demanding investors in a scrutinize your deals in for good reason, because they’re on their part, managing a lot of a lot of cash themselves and and you know, placing it with you as a sponsor.
So I would say number one.
You know it’s establishing that network of institutional investors and it takes a lot of time because you know a lot of their decision making is going to be on.
Your past performance, whether or not you have had a successful track record and you know track record is something that takes you know decades to develop.
But if your metric is you know return on investment, then it may be a project in your local town in your own city.
It may be finding a you know, an emerging real estate developer or an emerging entrepreneur who’s got a great business idea that will disrupt.
An industry and finding that finding that relationship and investing into it early, so there are you know, there are a range of approaches that you can take define success in this space.
Andy Hagans: yeah you know it’s it’s a that’s very true of all the track record, by definition, a track record can be built overnight right it’s going to take time.
You know, and on that note, I wanted to ask, because you know I look at someone like you and what you do really it’s a little bit of a leading indicator, like the things you see.
You know these you’re talking with sponsors in the planning stages before they actually launch a new private placement offering so a little bit of a leading indicator of where things are going.
So, you know as we enter the second half of 2022 or even thinking ahead to 2023 and beyond what are some of the trends that you’re seeing you know, this could be in terms of sectors that you think are likely to grow, or in terms of different rappers.
You know that you see a lot of interest in, but you know take out your crystal ball and make us a couple predictions Andrew.
Andrew Doup: Now sure yeah so you know the the investor economy and July 22 very different than the investor economy and in January of 22.
So if you were to ask me.
You know, seven months ago I probably would have had a very different answer, but you know what i’m seeing now is you know you know investors are are looking for yield right and they’re not getting it and in stocks, they are not getting it in crypto assets.
So they’re looking for for real estate.
And so you know i’m seeing.
You know kind of a surge in you know real estate development projects multi asset funds.
Primarily being driven by taxpayers who are looking to optimize tax yield, along with their return on investment so.
You know whether it’s through a qualified opportunity fund, as you mentioned, investing into opportunities on property and getting those special federal income tax incentives or investing into non opportunities own property and still getting the benefit of.
You know bonus depreciation and pass through tax losses.
That you know I would say that that is a if there’s a trend, you know that’s that’s where I see it.
Now you can ask me again in six months, I may have a completely different answer for you.
Andy Hagans: Well yeah you know I mean you touched on triple net returns, I mean that’s a huge theme honestly of our show here at the Alternative Investment podcast I mean.
When you’re talking about high net worth investors very high net worth you know family offices almost by definition, you have to you know take you know tax advantage investing into account, obviously, that can change a little bit for institutional.
You know, depending on if they’re not for profit, you know that consideration is not as important.
But I think you’re exactly right investors are looking for yield.
And we’re seeing you know negative real yields after inflation and all sorts of asset classes so it’s.
I don’t know if it’s would you even call it a choice it’s almost it’s just investors are are forced to look for yield so in terms of rappers is there anything, then beyond qualified opportunity funds that you think could be you know the next big thing.
Andrew Doup: um.
I don’t know.
i’m seeing a lot of interesting things in you know in in financial technology.
And in prop tech as well.
Decentralized autonomous organizations i’ve been having conversations seems like more and more with with clients about how to use Dallas to launch a web three strategy for a new business or pre existing business.
So that’s been super interesting as well, and you know I don’t know if that’s something you spent any any amount of time, in the end, but.
You know the the world of doubt in their interface with making web three a reality if you’re interested in emerging.
Land landscapes that might be one where where you could spend some time.
Andy Hagans: yeah absolutely I mean fintech is just is fascinating and.
it’s interesting because as we’ve talked about today, you know, on the regulatory side, the trend has been towards opening things up.
To more and more investors right whether it’s crowdfunding or 506 C under REG D, but then you also have that technological side, which is moving independently of regulators in many cases, but following that same path of you know democratizing things a little bit, but.
probably a little less predictable than the regulatory side of things, but nevertheless very interesting.
So Andrew I know we’re running short on time, but I wanted to ask where can our viewers and listeners go to learn more about you and all the services that you offer for investors and sponsors.
Andrew Doup: Sure you can find me online or email me at a doubt at cagle brown calm and you know tell you what Andy for any of your listeners.
i’d be happy to provide a scope of work proposal, together with an estimate of legal fees, I can do this in as little as 30 minutes, and we can do that off the clock.
Andy Hagans: Absolutely will be sure to note that and link that in the show notes, and I think that’s all the time we have today.
For our listeners, if you want links to everything we mentioned, including a link to that special offer from Andrew be sure to go to our show notes page at all to be comm slash podcast.
And don’t forget to subscribe to our show on YouTube and your favorite podcast listening platform, so you can be sure to receive our new episodes as we release them Andrew thanks again for coming on the show today.
Andrew Doup: Hey thanks for having me Andy. Go Bucks.