Three ways that investment sponsors can leverage technology in their syndication efforts

By Brad Blazar, Director of National Accounts

It should be no surprise that leading wealth advisers, including Charles Schwab, Vanguard and others, have taken their advisory platforms online. Betterment, an online robo-advisor, has only been in existence since 2008 but now manages $16.4 Billion in assets under management. How can an online advisory provider like Betterment attain considerably more AUM than many “brick and mortar” advisory firms that have been around for 50 years or more? The answer: effective technology and an online presence. 

The SEC reports that there were 37,785 Regulation D offerings reported on Form D filings in 2017, related to the raising of $1.8 trillion in capital. Since the JOBS Act of 2012, when the SEC lifted the ban on general solicitation – a technical term for publicly advertising a security – created the option for a general solicitation offering meeting the conditions spelled out in the new exemption, 506(c). Only 4% of capital raised in Regulation D offerings was done under rule 506(c). Yet, some online platforms – such as iCapital, Artivest and ­– are raising considerably more capital online than some leading sponsors in the traditional broker-dealer and/or advisory space. What is it that these guys know about raising capital through the 506(c) exemption that many sponsors don’t? The answer: by using technology you can accelerate the process of raising capital and get in front of a much larger audience. Sponsors working to raise institutional capital can benefit from the efficiency and organizational advantages of raising funds online, but they can usefully employ a FINRA-member broker-dealer to manage the process, offer credibility, and leverage their network of relationships.

Sponsor syndication efforts can be faster and more efficient than traditional syndication by exploiting new technology—making your capital raising process smarter and potentially more rewarding than ever before. By using subscription and syndicate management technology, a sponsor can effectively leverage the same tools a crowdfunding site uses to get in front of a much broader and larger audience of suitable investors. Here are three reasons to leverage technology to raise money. 

1. Greater diversity of broker-dealer and advisory firms 
As technology platforms work on simplifying investing by making it faster and easier, they’ve managed to attract and retain a large audience of broker-dealers and advisory groups from all over the country.  The “general solicitation” feature offered under Reg. D exemption 506(c) (made possible by the JOBS Act of 2012) provides this opportunity.   Similar to traditional syndicate management in public markets, a technology-enabled private placement syndicate can leverage the investor networks of selling broker-dealer and RIA firms. Only by leveraging technology can an invitation be sent to hundreds of broker/dealer decision makers at once, across a wide variety of industry, geography, and market focus. That interest can be tracked and reported back to the sponsor in real time. By exposing your offerings to a broader audience, the sponsor or manager may get introduced to new firms they may not have had a prior existing relationship with – or may not have known existed before. New introductions lead to new selling relationships, and in today’s world of institutional investment specialization, the process of general solicitation can help to create suitable channels for new products. 

2. Greater diversity of products for the selling broker-dealer to review 
A complement to the benefit to syndicate managers is that selling brokerages now have access to greater diversity and quantity of products to sell. Selling brokerage due diligence officers and executives can review a wide range of products by sorting through debt or equity, corporate structure, industry, geography, sponsor tract record, minimum investment size, and more. As selling brokerage and RIA firms become more specialized to offer higher relational services to their specific clients, they look for products in line with their investment goals, whether they be high growth, income producing, ESG focused, or regional. 

3. Efficiency without sacrificing relationship-building activities 
On the registered rep side, advisors can choose a deal they want to discuss with a client, evaluate offering materials, and subscribe to the opportunity — and do it all online, 24/7. Traditional paper processing of subscription docs is eliminated, meaning client social security numbers and personal information is safely delivered and stored from one encrypted entry point. As a sponsor, you can expect a smoother, faster, safer process, because technology can streamline both the fundraising and reporting aspects of your deal, not to mention long-term organized retention and retrieval in the event of litigation or audit. 

In conclusion, leveraging technology has undoubtedly changed the way sponsors can raise capital. By exposing an offering to selling broker-dealers and inviting them to view the due diligence materials in a virtual data room, sponsors can reduce administrative time, thereby lowering costs, accelerating the raise, and building a larger and more far-reaching selling group.  

This publication is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. It does not provide that necessary customization of  advice, tailored to a client, which would be provided by an accountant or tax lawyer.  The views and opinions expressed in this article are those of the author’s and do not necessarily reflect the official policy or position of Holdings, Inc.

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