Page 15 - Venture - State of the Market 2020

3. ARE DISCLOSURES COMPREHENSIVE

Another key element in a properly structured syndication is the need to disclose to investors all the infor-
mation that a “reasonably prudent” investor would want to know before making the investment. This in-
cludes disclosures about the project itself, as well as the legal, financing and business risks associated with
the project. Typically a sponsor will prepare a detailed set of written disclosures (sometimes referred to as
a private placement memorandum or PPM) that is provided to investors. For smaller projects, a subscription
agreement with disclosures attached as an exhibit may be sufficient.

4. HAVE ALL FEDERAL AND STATE FILINGS BEEN DONE?

Before a sponsor raises capital and accepts money from investors, they are required to make certain
notice filings with the federal and state securities regulators to qualify their offering for the specific securi-
ties exemptions they are seeking. This step is often missed or forgotten by new syndicators and can again
invalidate the securities offering and expose the sponsor to personal liability.

5. HOW ARE INVESTORS BEING SOLICITED?

One of the most important rules around syndications focuses on how the sponsor finds investors. The tra-
ditional rule is that a sponsor cannot advertise or publicly solicit for investors. However in recent years this
rule has been relaxed some and now there are options to solicit investors through databases like LinkedIn
or other social media, through online platforms and similar avenues, but the rules around this kind of public
solicitation are complex and require additional disclosures to investors and put additional responsibilities
on the sponsor that require careful planning and documentation before embarking on this kind of solicita-
tion.

Greg Russell is the founding partner of Peterson Russell Kelly Livengood PLLC, a 26 lawyer firm with offices
in Bellevue and Kirkland. Greg has over 30 years of experience advising clients on real estate and business
transactions.

“A MAN COMPLAINED THAT [ON] HIS WAY
HOME TO DINNER HE HAD EVERY DAY TO PASS
THROUGH THAT LONG FIELD OF HIS NEIGHBOR’S.
I ADVISED HIM TO BUY IT, AND IT WOULD NEVER
SEEM LONG AGAIN.” - RALPH WALDO EMERSON
VENTURE | 2020 STATE OF THE MARKET 13