For centuries, investing as a group has been a key component in building wealth. I recognized early in my journey that earning a college degree, getting a steady W-2 job, and contributing to my 401(k) would only get me so far. I was participating in a vast investing world as an individual – but real investors were “playing” on teams.
More than a decade ago, my three brothers and I came together on a journey where we shared our desire to achieve financial independence for our families and future generations. We knew we couldn’t do it alone. We also knew that combining resources was not a new thing. For the wealthy, outsourcing the administrative process to collect their money can cost thousands. But this is a drop in the bucket when considering the size and scope of these investments for each group.
For my family, we had to struggle to get started in those early days. Like battling over the last piece of cake as kids, we were challenged to get on the same page, navigate things like joint bank accounts, be transparent, manage a cap table, and many other obstacles, twists and turns. turn.
I took it upon myself to do something about it and change the industry. Since founding Trivest in 2018, we’ve solved countless issues to make building an investor community – or what many prefer to call an investor tribe – safe, easy and transparent.
Let’s take a look at the top five ways to invest as a group.
1. investor tribes
Investor Tribes is perfect for anyone from experienced investors to newbies, looking to take advantage of opportunities and grow their knowledge and wealth. If you are interested in investing in anything from real estate to alternative investments together with friends, family or like-minded people, Investor Tribe is a great option.
Let’s say you are looking to partner with friends and family or a business partner to transact in multiple investment opportunities. In that case, a investor tribe The best investment to consider may be the group structure.
Investing tribes get the benefit of simplicity. They are quick to launch and cheap. An investor tribe consists of a founder, or group leader, and members who are equal partners and contributors to the group’s investment efforts.
The primary consideration you want to heed when following the investor tribe is that you can only accept capital from active partners in your LLC. Your tribe may not accept contributions from limited partners or passive investors. If you take money from investors outside of your LLC at any time, you may be subject to SEC regulations.
2. real estate syndication
Another format you can use to structure your investment group is syndication. Syndication involves investors coming together to buy a real estate property and is generally led by professional investors, also known as sponsors, who are assigned to finance a specific project according to a specific timeline. is required to do.
One long-standing barrier to real estate syndication is the minimum limit, which can be $50,000 or $100,000 per investment. Unless you have millions of dollars to invest each year, it can be difficult to diversify your portfolio across different asset types and markets.
Large minimum limits and lack of diversification were additional issues we resolved at TribeVest. If you don’t have millions of dollars to sponsor, you can always use Investor Tribes or SPVs to invest in syndication.
3. Special Purpose Vehicle (SPV)
Special Purpose Vehicles are suitable for professional investors. If you are a professional earning a living through finding, evaluating and participating in private deals for clients and passive investors, then an SPV may be suitable for you.
SPV generally consists of general partners and limited partners. General partners are those parties who play a role in helping manage the SPV. These partners are liable for the debts of the SPV – which means they are at risk. On the other hand, limited partners are silent or passive investors in the deals done by the SPV.
However, SPV also has drawbacks. First, you’ll want to consider the cost: Setting up an SPV can be expensive. There is a standard setup fee for SPV up to 7% over six years,
Another factor to consider when considering an SPV is that you will be subject to SEC rules and regulations. If you do not have the knowledge, expertise or time to meet all appropriate SEC requirements to further your investments, an SPV may not be a good fit for your investment group.
We recently launched TribesVest Pro, which allows an entity to easily form a multi-member LLC with active investors to raise funds for a single transaction. It is a great tool for savvy investors who want to expand their investment business and need a streamlined process. Through the Trivest Pro process, multiple investors can contribute capital to a specific deal under the umbrella of an active multiple-member LLC. Similar to SPV, but with active members.
The tribe will be protected by a ratified operating agreement and provided with the ability to raise capital safely and quickly. Once all funds have been collected from all members of the LLC, the tribe can invest in a specific transaction as a business entity. For example, if a tribe of 10 people contributes $25k each, their LLC may invest $250,000 in a syndication deal and may be subject to special conditions for doing so.
Since the number of members in a pro tribe is limited to 15, and members are active owners with a ratified operating agreement, voting rights, and quarterly meetings, a pro tribe is not required to register with the SEC.
4. crowdfunding
crowdfunding It’s perfect for startup founders who want to fund their growing businesses with friends, family, and employees. If this sounds like you, then crowdfunding may be an option for your investing journey.
Technically speaking, crowdfunding is not the same as an investor pool. However, it is still suitable for some specific cases.
One advantage of crowdfunding is that it can be an incredible way to raise capital without or in addition to traditional financing. If you’re crowdfunding a startup or other business venture, it’s a great way to build a solid base of brand supporters in the early stages of your business. You may even get media exposure if your crowdfunding campaign is a huge hit. This exposure can be through traditional media such as a mention on a news station, trade publication or social media if a popular user shares your crowdfund on their feed.
Crowdfunding can be powerful, but its use cases tend to be more targeted. Similar to an SPV, a crowdfunded venture is subject to SEC regulation. This can make things complicated or stressful to manage.
Crowdfunding can also be expensive, where the platform requires you pay various fees, For example, if you’re using Kickstarter, you’ll pay 5% of your raised capital as a platform fee, then an additional 3-5% fee to process all contribution payments.
5. Fund
If you are a professional investor looking for a long term opportunity then investment funds can be a good option. A fund allows investors to pool capital together to buy securities. An investment fund is a complex investment group structure best reserved for experienced professionals. The advantage of a fund is that each group member controls its own shares, maintaining autonomy while investing as a group.
Typically, investment funds are formed by professional investors who want to create an ongoing investment business that allows them to access more deals and take advantage of the experience of the entire group.
Some of the fund’s benefits include being more diversified, making a wider variety of investments, and formally registering its investment group with the SEC. You can also look for accredited passive investors to further capitalize your investment fund. A fund is a long-term commitment, with an expected holding period of ten years or more.
Another downside of investment funds is that they are often blind pools. This means that passive investors do not always know what assets are included in a portfolio when they sign on to contribute funds.
conclusion
Which investment group structure is best? It depends on your group, your investments and the goals you have for yourself. Each structure has its advantages. If you are considering investing in Tribe or Tribest Pro, please contact me or our team at TribeVest.
This article was presented by Trivest
Trivest makes doing business with partners easy, secure and transparent. Investors use Tribest to build active business partnerships through Tribes and streamline their back-office operations.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
