Do This Before You Meet With A Lawyer for your Investment Fund

Hey, welcome back to the show. Today, we're gonna walk through what things you need to have prepared before you actually go and meet with a lawyer. It's actually interesting. I was talking to one of my mentors in the fund space, started multiple funds before, and he said, Bridger, you don't want your lawyer to be your teacher. I was like, what do you mean? He goes, well, when you get into a legal office, you don't want to sit down and have your lawyer start to teach you about funds. About this is what an LPA is and this is what carried interest means or catch-up or clawbacks or equity versus debt positions or price per unit, all this stuff. He said, you want to have that figured out beforehand. Because guess what? Lawyers, they love to teach you about funds and about anything and they love to bill by the hour. Lawyers are great at billing by the hour. They love to get that time clock going. So, if they sit down for 45 minutes and teach you about stuff we've talked about in this podcast, they're gonna bill you, right? And that's why a lot of funds, They get charged— it's charged $30 grand, $40 grand, $50 grand to set up fund docs is because a lot of the time the lawyers are teaching you or educating you or asking you questions about your fund. It's actually very rare for a lawyer to have someone like me walk in or you to walk in and say, hey, I want XYZ with this cap rate and this pref and all this stuff figured out inside of your fund. So today I want to walk you through a checklist that will walk you through what's going to go inside of your PPM. And to do this before you walk into a lawyer's office, it'll save you a lot of time and hopefully your lawyer a lot of time and you a lot of money in your pocket. Now, a lot of you know my story. I have an incredible family of fund managers. My dad started deca-billion-dollar funds. My brother works at a $500 million real estate fund, chief compliance officer, in-house legal. Then I've started 2 funds, looking to launch my 3rd fund. So my brother is a securities attorney in New York, and I actually brought him in. You've probably heard him on the podcast before. I brought him in before to ask him About what it looks like when you set up a fund. And he said the same thing, a lot of people walk in, they don't know what they want. So he helped put together this questionnaire of things and questions to ask yourself before you step into a lawyer's office. Now, if you've been watching the show for a while, this can almost be like a quiz day for you a little bit, to quiz, to see how much you know and how much you don't know maybe. Maybe you need to go back and research a little bit more. But if you can walk through each one of these line items I'm about to walk you through And answer confidently or have that figured out or at least know what I'm talking about. That'll help you a lot when pitching this to a lawyer and getting a rate or a quote on how much it'll take to put together your legal docs. The reason we have this show is to walk you through these points, okay? So treat today as a quiz day. Alright, question number 1 on here, what type of interest are you offering, equity or debt? Are you gonna have just equity players? You're gonna have just debt players or a mix of both? Number 2, what rights will that interest carry? I.e., debt with right to conversion, equity with or without voting rights, etc. What is the value of the interest price per unit? Are you gonna sell units? One guy just pitched his fund to me today. They're selling one unit for $25,000 or one share, you could call it that way. So, for an investor coming in, they have to put in at least $25,000 and they can buy a share. Sometimes you can do half a share and they're trying to sell 2,000 shares which I believe totals up to $50 million for their fund. How much cash do you tend to raise both maximum and minimum? What is the timeline for your offering? How long do you want to be raising money. What will the money be used for broken out into categories by amount? Are you gonna be investing in one asset class or multiple things? Will the money be paying employees sometimes or paying for legal fees? In addition to this, what will your pref, your catch-up, your carried interest be? Are you gonna charge a management fee? All the stuff we talk on this show about goes right into your PPM. It goes right into your legal docs. There's a reason I keep pounding on these kinds of things. These are things you need to decide for your fund. This next section goes into the company. What state do you want to have be formed in? What problem does the company solve? What is the market opportunity of this company? What are the company's goals for the next few years? These are all the things relating to the company. Below now, description of the executive team. You've heard me hound on this before, right? The 3 circles. You have your expert investor, you have your fund manager, and your money raiser. Who are those pieces of your fund? What are their bios? How can you make them look a little bit better? A lot of times investors are betting on the jockey, not just the horse. Who are you going to bring into your executive team that you can put on your legal docs that's going to make investors feel more confident about investing in you? Description of risks. Now, LPAs, PPMs— these are the 2 governing documents of a fund, okay? They're, they're thick, all right? These are 100-page Documents each minimum why they cost so much money, and they go through every shape and form of risk that is out there. And essentially, most of the document is describing how the investor can lose money. So on here, your lawyer wants you to think through what types of risks are out there. Now there's obviously the common general risk, but what types of risks do you face specifically? And if your investors lose money because of those risks, well, hey, we we told you up front in the documents. We said we could lose risk if the U.S. prints six trillion dollars of money and and the U.S. dollar gets deflated. Okay, that could be in your PPM to inform investors of that potential risk. On here has example, for example, any supply chain risk, development risk, competitor risks, market risk, economic risks. Now on here on the show notes, I'll give you guys a link to where you guys can look at this yourself and use this as a guide. But I've talked to multiple lawyers and very rarely do people think through their funds in this detail before they step into a lawyer's office. That's how for myself and a lot of our students actually, we negotiate these prices down to instead of spending $30 grand for a fund docs, we spend, I don't know, $5 to $8 grand for a similar fund docs. Because we make lawyers' jobs so easy because everything is planned out and ready to go. So if you're getting to that point, if you're like, Bridger, I'm getting there, I want to go start a fund, make sure to do this questionnaire first before you contact a lawyer. Treat this as a quiz to see your knowledge of the fund space and what you want to do inside of your fund, especially in relation to what kind of pref do you want? What kind of management fees do you want? What kind of carried interest do you want? Clawbacks do you want? How often are you going to distribute to your investors? Is it going to be every 6 months, every year? How long are their funds going to be locked up? Are they— they put their money in, is it locked up for 1 year or 3 years or 10 years? Can they pull their money out? What kind of penalty do you have if they want to pull their money out? What happens if you or your partner die in the next couple years? What's the succession planning look like? These are all things you got to think through a little bit. Now, if you're like, Bridger, this went way over my head, go back and watch our show. This is the purpose of our show is to help you figure out and think through these answers. And in our mastermind program, we actually go very deep into help people actually do this with them and to help them get this on a more accelerated pace. And actually can learn from lawyers on how to put this together. I want to make today's video though to give you as a little bit of a quiz that I thought would be kind of fun, and also to give you this as a reference guide. Hopefully we'll put this below in the show notes where you guys can reference this guide. One of our students actually in our mastermind program, he just launched his first fund, got $2.5 million of commitments with about $5 million additionally in soft commitments for his fund doing this. And he followed the same questionnaire, got his fund set up for relatively low cost, and now he's out raising money looking to grab investors' money and put into his fund and get off to the races. This works. There are regular people like me and you every day launching and scaling funds. Yes, it's complex. Yes, you need to think through a few things, but it's not as crazy as you think. I'd love to hear about your guys' wins. What's going on inside your fund? Let me know if you have any questions on Instagram. Send me a message. I want to get back to you guys, and I'll see you on the next episode. Peace.