How Single Asset Funds Work

What most people think is there are 2 ways to raise private market capital. Number one, syndications, or number 2, doing a full blind pool fund. But what if I told you there was a strategy that sits right in the middle of these 2 and combines kind of the best of both worlds? That's called a single asset fund. And many people have used these to launch one-off deals to go and raise private market capital. So in this video, we're going to break down what are single asset funds, how they combine the best of syndications and blind pool funds, And how someone like you could go out and build your very own single asset fund. Now, to better understand single asset funds, we need to first break down both syndications and blind pool funds. Now, right now, I actually actively run two blind pool funds. We've raised around fifty million of equity, and combined portfolio AUM is over three hundred million dollars. I've also been a part and pitched on many syndications. I'm going to break down both structures right here. So let's first off start with. Syndications. Syndications are pretty common, especially if you're down here, you're going to buy like a business, a real estate property, etc. Let's go through an example syndication. So, let's say this is a $500,000 deal we're looking to acquire. We don't have $500 grand. So, let's put together a syndication. A lot of guys will do this. They will put together an LLC as pictured here with my beautiful box. Alright, here's your LLC. Me and you are putting this deal together. We're going to reserve 20% of the equity in the deal for us because we're putting it all together. We're the sweat equity. We're going to raise $500,000. So for example, we find a— you got a rich uncle. We go pitch your rich uncle. He brings in $250,000. Okay? Half of the money we need. So your rich uncle that brought in this amount of money gets half of the remaining shares, which would be 40%. It's pro rata. Y'all follow my math there? It's half of the money, half of the remaining shares. So half of 80 would be 40%. We find a few other partners, we bring them in, and the pie gets sliced up accordingly. 10% to this guy, 20% to this person, maybe 30% here. I know my pie chart doesn't really look accurate, but here you get the idea. Okay, so we've got now me and you are here, so 2 of us, and then 1, 2, 3, 4 more. So 6 partners total. Now I use the word partner because these are truly business partners with you. Again, I think I messed up my math here. This is 20. Math is hard when you're Filming a YouTube video. All right, we got six partners. Here's our math. All right, this is all governed, and I'll put it down here by an operating agreement. And what this says is we are business partners. If it says they are investors, you are selling a security and need to register that security with the SEC, the Securities and Exchange Commission. Most people that do syndications say, "Nah, we don't want to do that." We're partners, and we have an operating agreement, and these partners are putting money together. And we're going to go buy this business for $500,000. We now own this business or this real estate property over here. Great. It starts to make money. The profits spin out of this entity. When there's any ever distributions, the distributions flow back. Let's say there was $100,000 we made off of the first year of revenues. We then take this in and everyone gets split pro rata or on a percentage basis of what they own. So— 40K would go to this guy, 20K would go to us, etc. All fine and dandy. Many syndications run this way and actually run well. The problem with syndications is when things start to get hairy or people start to get mad at the process. So for example, let's say this partner right here, your biggest partner, says, Bridger, shoot, I forgot to pay my tax bill last year. And the IRS is after me. I need to get my money out right now. And you're like, well, hold on. We're in the middle of rehab on this real estate project. We can't sell it. He goes, guys, I need to get out right now. I need— the IRS is coming after me. I need my money out now. And I'm the largest shareholder. And our operating agreement, maybe it says 80% vote, but I'm going to start putting my elbows out. I'm going to sue the partnership. And maybe if this is losing money even, maybe losing a little bit of money, it's not doing as well as we thought. Partners can elbow and push their way in and out, sometimes do an aggressive takeover of the company. I've seen some syndications go horrible when things start going bad. Now, I know guys in the comments, I've done syndications my whole life, they've gone— Well, if everyone makes money, it's fine. Especially if it's a small amount of partners, it's fine because you're truly business partners. But do not treat them like investors. These are partners. Lawsuits are way more prevalent. People can put their elbows out. And especially if problems arise, this is what happens in syndications. Now hold that note. We'll come back to this in a second as we talk about single asset funds alongside blind pool funds. So let's go the other side. Syndications are one-on-one deals. Blind pool funds is where you're going to raise a full fund, and I'll share this structure in a second, to go and buy multiple assets. Okay, typically, and here's your structure, you have Maybe me and you were partners, we're the fund managers over here. We own the general partner, which is an LLC. This box represents an LLC. The management company, which represents an LLC as well. The limited partnership is here, it's an entity. And this is quote unquote the fund. And the general partner helps manage the fund. And the fund goes and makes investments into a number of assets. So take, real estate, for example, a blind pool fund is going to buy— these all represent real estate properties. That's a lovely noise from our whiteboard here. But they're going to go buy, you know, 12 real estate properties that flow together into a fund that it's put together. This is how the largest funds in the world run. They all run through mostly through GPLP structure. You then bring in your investors. I'll put them in blue here. Your investors invest as limited partners. Okay? So I'll put them as LPs here. These are limited partners. And this person put in $100,000 and this person put in $500,000. Now, they are limited partners. They are limited on their liability. They're also limited on their control. When you compare back to our syndication model, If this investor has a tax problem and says, Bridger, I got to get out of the fund, there's a tax problem, you go, sorry, the assets are not ready to sell yet per our— and the 2 governing documents are over here, we'll write them right here— LPA and PPM. I don't serve individual investors. I have a fiduciary responsibility to do what's best for the fund, the limited partnership Not individual investors. And so what you say is, sorry, the assets aren't ready to sell yet. It would hurt the portfolio to sell them early. Now, if you want, you can pull your money out. There's a penalty and we have that written in our LP and PPM. Maybe there's a 50% penalty. Usually it's a high penalty. This is how the largest funds in the world run. Furthermore, it protects LPs from each other. It protects the GPs from the LPs and the LPs from the GPs. This is why all these Sequoia, I mean, you name the fund, KKR, Blackstone, primarily use blind pool funds. The reason it's called blind pool is because when you're investing, you generally— the assets aren't bought yet. They have a thesis, they're going to go buy 12 assets, you invest somewhat blindly. Over the next 18 months, they go acquire 12 assets in this fund. Give you a little crash course. We got more videos on our channel that talk about this. So, We've now discussed syndications. We've also discussed blind pool funds. And as you can see, most people are like, wow, I'm not ready for a full-out fund. Maybe I'll just do a syndication. Well, the beautiful thing is, is this vehicle called single asset funds. And this marries, I think, the best of both worlds. Because there's all those problems in syndications where lawsuits are prevalent. They're not really investors. They're partners with you. A single asset fund solves that. So what a single asset fund does is it uses the same structure as a blind pool fund like we just talked about. So you see here, you have a general partner, you have a management company, you have a limited partnership, a fund. But instead of buying 12 assets, a single asset fund, it's in the name, just buys one asset. So back to our example a few minutes ago, we were going to buy a $500,000 business. Okay? Instead of using the syndication model with an LLC that's buying this, you use a limited partnership. LPs, limited partners, come into the fund. They would sign the documents again are in— I'll put it down here. Let's change colors. Are the LPA and PPM. They're a more simplified version. They're not as expensive. You know, this will run you anywhere from $5,000 to $10,000 to set up, and then you go buy the asset. This structure is way more compliant and scalable compared to the LLC structure where you're all in a, you know, a syndication, you're all chunking out revenue and shares, and you're all partners. And business partners oftentimes fight, and you can sue each other and fight with one another. This is a clean break and divide. Now, one crucial thing thing about single asset funds that's so compelling and cool about single asset funds compared to syndications is they are scalable. So again, what makes single asset funds so cool is the scalability of this. So if you have your management company and you had your general partner and we just did our first deal and it was $500,000 like I just talked about, and you got your limited partnership. Well, if you're doing another deal, You just set up another general partner and another limited partnership. And you can keep doing this into perpetuity. Now, what I shared earlier was the first setup is usually $5,000 to $10,000. But after this first setup is done with these 3 entities, additional setups, we've seen the cost around, depending on which lawyers you use, around $2,500. And we actually help people at Fund Launch do this. And that's around the cost for multiple So you're buying another property 6 months later, use the same management company, new GP, new LP. 6 months later, same thing, you set up another one. What's cool is this becomes the entity that builds a track record. The problem with a lot of syndicators is they do all these syndications and they don't have something to point to as the source of truth of a track record. What happens is you have a management co that's gonna survive you on every deal. And be the management company on all these deals. And this will build a track record for you. Furthermore, you can get audits done on this and your GPs here. And this sets you up eventually to do a transition into a full blind pool fund, which is what most people eventually want to do. They do a bunch of syndications or single asset funds, and one day they want to be a blind pool fund. This, number one, gets you in the habit of it. Your limited partners in the habit of it. Build you a tracker, you get audits done on these financials, and it's an easy transition into a much bigger blind pool fund. And furthermore, you can just keep that same management company even when you're running blind pool funds. What we've seen is when people use single asset funds, it's an amazing marriage between these two, allows them to scale, to have protections that blind pool funds provide that syndications don't have, and allows them to build a brand and a firm that eventually can become a blind pool fund. Now we help people do this all the time at Fund Launch. You can check us out at fundlaunch.com and follow along, comment, like, subscribe. Let's— message us down below if there's other videos we should make on single asset funds. With that, I'll see y'all later. Bye-bye. Bye.