When syndicating a multifamily deal as a co-sponsor, you want to protect your passive investors’ identities and make their experience as smooth as possible. Your passive investors are an asset, so giving their information away, even partially, wouldn’t be wise. However, it can be challenging because of the various real estate investor portals that syndicators use.
It is not uncommon that co-sponsors end up distributing their investor database across multiple software and tools, jeopardizing their investor relationships and compromising the investor experience.
As a new co-sponsor, you might not have a substantial track record, but you have a solid investor base that you should protect. Even if software X doesn’t share your investors’ email addresses and phone numbers with your lead sponsor A, it may still shares LPs’ names, bank account details, and other information that makes finding investors’ contacts too easy.
This post will show you how to raise capital for a multifamily deal as a co-sponsor using Cash Flow Portal while maintaining the integrity of your passive investor database.
The problem
As a deal co-sponsor, you work with a syndicator A who uses software X to raise equity. Next, you work with a syndicator B who uses software Y. What happens? Your investors use software X & Y to subscribe for deals. As a result, your investor database is fragmented and is no longer entirely yours.
Scary things can happen when you fragment your investors. For example, a lead syndicator accidentally emails your investors. How? Technically, when your investors use the lead syndicators’ software, they can see all your LPs.
The solution
Here is the four-step solution to this problem.
Step 1. Prepare
Before co-sponsoring a deal:
- Decide what software you will use for your investors in the long run.
- Think about five, ten years from now.
- Consider all trade-offs and advantages, including features, robustness, and pricing.
Our article on how to choose real estate syndication software might help you with that.
Let me tell you something about software. It is easy to have the best-looking website, most functionality, and coolest features. It is difficult to execute them in such a way that they help with the core mission of Cash Flow Portal: making passive investors’ experience as smooth and pleasant as humanly possible. Simply put, we are obsessed with the LP experience.
We’re not willing to settle for “good enough”—in fact, we’ve raised the bar on real estate investor portals.
Step 2. Offer your investors a straightforward experience
Cash Flow Portal offers a single login feature to all passive investors. So if you are raising money for several deals, they can subscribe using the same email and password—no need to juggle between many different accounts. The same applies to distributions.
You can send distributions to your investors without ever sharing their personal information with your co-sponsors. What’s more, once your investors register, and add you as their sponsor, they will automatically be notified about your future deals.
Step 3. Raise capital and manage your investors
Let’s imagine that you are co-sponsoring a deal and are responsible for raising $1.5MM. Just log in to Cash Flow Portal, create your deal as you would do it if you were a lead syndicator, and start raising capital. Go through these demos to help you get started:
You are all set!
You can use the same bank account as your co-sponsor, who is using another software X, and you can message your investors using Cash Flow Portal and keep your investors’ data safe.
The trade-off is that the lead sponsor A, using software X, will not be able to see the total number of investors on their dashboard or any information on your LPs.
The pros
Syndicator A, using software X, can never poach your investors because they are on a different platform.
The cons
The lead syndicator A cannot view the entire list of investors, which creates a gap for them. What can you do about it? Well, the best answer would be to tell your lead syndicator to accept it as it is because those are YOUR investors and it is your responsibility to raise equity while protecting your database.
Now, you can start managing your distributions.
Step 4. Manage distributions
Let’s look at the traditional way to manage distributions. Suppose all co-sponsors are using the same software X. In this case, once the lead syndicator initiates the distribution, it gets sent to all passive investors at once, including yours.
Pros of this approach:
The distribution process is straightforward and quick because it happens with a few clicks of a mouse.
Cons of this approach:
Remember that distributions happen once every one-to-three months. Hence, it’s not a daily or even weekly task that needs to be simplified at the cost of your investor database integrity. When a lead syndicator manages distributions using software X, LPs must provide their personal and financial information in order to receive distributions.
As a result, the lead syndicator gains direct access to your contacts. What’s more, the lead GP is responsible for sending distributions to your LPs on your behalf—you have no control over the distribution process for your investors. This may not sit well with you and your investors.
Your solution for managing distributions
Here is a simple solution for taking complete control of investor distributions while offering your passive investors a great experience.
- Use the distribution feature in Cash Flow Portal to populate the distribution amount for each investor.
- Send the distributions from the bank account that is shared with the lead syndicator.
Conclusion
Many co-sponsors forget that their investors’ database is an asset that they need to protect and grow. Giving away your investors is as unwise as giving away your email passwords and bank account access to strangers.
You might be thinking, “how can I convince my lead syndicator that I will use Cash Flow Portal independently from the software X that they use for the raise?”
The answer is simple. Would your lead syndicator protect their investors if they co-sponsored a deal, or would they give them away? Would your lead syndicator want a better, smoother experience for their LPs when raising equity? Most lead syndicators will answer “yes” to these questions.
What’s more, their long-term success as lead syndicators also depends on your reputation and your relationships with your investors too. You might be syndicating more deals in the future together. So it’s in their best interest to give you the freedom to choose how to raise equity for your deal.
