Welcome to the EN Capital newsletter where we promote different capital sources such as private lenders, family offices and equity funds in addition to general capital markets news. We’re also promoting the alternative investment conference series called Uncorrelated, EN Capital is a partner in certain Uncorrelated events.

Sent this by a friend? Click here to subscribe.

What Equity Structure is Right for Your Deal?

Most sponsors choose their equity the way they did last time. The better way is to start with one number — how much equity you need — and then look at the deal.

Under about $5 million of equity, most JV partners won’t take the meeting, and syndication is usually the answer. Above that, JV equity opens up. But the difference that matters most to you as the sponsor isn’t size. It’s who sets the terms. A joint venture is negotiated; a syndication is offered. In a JV, your partner sets the terms with you. In a syndication, you set the terms and investors take them or they don’t.

Syndication: your terms, your risk

A syndication pools equity from individual accredited investors, typically in checks of $25,000 to $250,000, through an offering you write. It fits best when:

• The raise is roughly $1M to $5M — below the floor of most JV equity partners

What it gives you: control and economics. Your investors are passive, the fees and promote are the ones you set — commonly 70/30 or 80/20 over an 8% pref, plus acquisition and asset-management fees — and every investor you add is a prospect for your next deal.

What it costs you: the fundraising risk is yours. Your deposit often goes hard before you know whether the raise will fill, and if you advertise the raise it has to be a 506(c) offering in which every investor is verified as accredited.

What it takes: syndication is a machine, not a one-off. Even $5M at an average check of $50,000 is 100 investors to find, close and report to. Successful syndicators run two systems:

• A reliable system for running ads and generating investor leads

• The operational infrastructure to work those leads as they come in, close them, and then manage that many investors — subscriptions, distributions, K-1s and reporting

Built well, it is an excellent way to raise capital over time: every deal adds investors, and each raise gets easier than the last. But it takes time and real investment to build, and it isn’t something you stand up during a 60-day escrow.

Joint venture: one partner, negotiated terms

In a JV, one equity partner funds most of the equity — typically 80–95% — and the sponsor funds the rest. For most real estate deals, that partner is a real estate focused private equity fund or a sophisticated family office. Pension funds, insurance companies and other institutional capital do come in as JV partners, but typically only on larger deals. A JV fits when:

• The equity need is roughly $5M and up

• The deal is ground-up development, heavy value-add, or a larger, higher-quality asset

• Certainty and speed of close matter more than keeping every point of promote

What it gives you: one counterparty and one check — and, done right, a relationship. JV equity partners would much rather do several deals over time with sponsors they know and like than underwrite a new sponsor on every deal. Execute well on the first one and you have capital you can go back to for the next, far more easily than you raised it the first time.

What it costs you: everything is on the table, and the partner holding the capital holds the leverage. Expect consent rights over major decisions, removal and buy-sell provisions, fees negotiated down, and a promote you earn through tiered IRR hurdles rather than one you are simply paid. And you still have to fund your own commitment — usually 5–10% of the equity, often more for a newer sponsor.

Co-GP: when the GP check is the problem

The most common reason a JV stalls isn’t the JV partner. It’s the sponsor’s own commitment. On $25M of equity, a 10% GP commitment is $2.5M.

A Co-GP partner funds part or all of that commitment and can bring the track record the JV partner wants to see. It can also help with the lender. A JV partner generally won’t sign loan guarantees; a Co-GP will sometimes co-sign completion guarantees alongside the sponsor, and in some cases even full recourse. In return it typically takes 30–50% of the promote and a voice in major decisions.

It fits when you have the deal and the ability to execute it, but not the cash or the balance sheet — your first deal with a JV partner, or a project that has outgrown what you can guarantee. You give up part of the upside; you keep the deal.

The in-between: side letters and sidecars

An offering is take-it-or-leave-it until someone wants to write a check big enough to change that. An anchor investor taking a meaningful share of a syndication can negotiate reduced fees, a share of the promote or extra information rights by side letter, while everyone else invests on standard terms.

A sidecar is a separate vehicle that invests alongside the main one. The most useful version: the sponsor raises its GP commitment from individual investors through a sidecar LLC that sits next to a JV. The syndication funds the GP side; the JV partner funds the rest.

Why raise a fund instead

Syndications and JVs are raised one deal at a time. A fund is raised once and deployed across deals. Sponsors usually make the move for one of two reasons:

• Scale. You’re doing enough deals that discretionary capital on hand is worth more than raising for each one. You can go hard on a deposit knowing the equity is there, move faster than buyers who still have to raise, and stop restarting the fundraise every time you find a deal.

• To fund the GP side. This is more common than most people realize. The sponsor raises a GP fund that covers its GP commitments across deals, then brings in a separate JV partner for the rest of the equity, deal by deal. It’s the sidecar idea at scale, and it takes the co-invest problem off the table for every deal the fund touches.

The trade: a fund is the hardest raise of all. Investors are underwriting you and your track record rather than a specific building, and the buyers are allocators — a different market from the one you’ve been raising deals in. Like a syndication platform, you need to build infrastructure to support this fundraising effort. Having a dedicated investor relations / capital formation person, or even a team, is critical for this effort.

Whichever one fits, we can help

• EN Capital — JV and co-GP equity. We take your deal to real estate private equity funds, family offices and co-GP partners as your advisor, negotiate the terms with you, and arrange the debt, mezz or pref equity around it. A JV is a negotiation; it helps to have someone at the table who’s been doing this for 20 years.

• Capital Advisory AI — Syndication. If syndication is the right answer, Capital Advisory AI builds the capital raising machine you run it on: creating targeted outreach and ad systems that consistently generate new investor relationships - the landing pages, the CRM and follow up that carry those leads through closing capital - all of it. They partner with 506(c) offerings to create and manage a scalable system to raise capital.

• U-Alts — for Fund Managers. If you’re raising a fund — a blind pool or a GP fund — Uncorrelated, just launched U-Alts, a platform where fund managers meet investors in between our conferences. Every manager on it goes through independent investment and operational due diligence by the Uncorrelated team and receives a standardized, investor-facing report and the U-Alts Listed mark. Access is free for allocators. Fund managers can apply at u-alts.com.

• Uncorrelated — the Network Behind It. Over the last two years Uncorrelated has held conferences in Miami, Puerto Rico, Beverly Hills, New York, Newport RI and Grand Cayman, drawing 200 to 1,000 attendees depending on the location. U-Alts keeps those managers and investors connected year-round. uncorrelatedalts.com

Tell us what you’re building and how much equity you need. We’ll tell you which structure fits and who should see it.

• We’ve been building this email list since 2017 and we’re up to 49,000+ professionals focused on the capital markets for alternative investments such as commercial real estate, the space industry, renewable energy, LATAM deals and utilizing Data-as-an-Asset. So you’re in good company.

• Sponsors make this newsletter possible! Want to sponsor this newsletter? Click here.

• EN Capital is NOT a broker dealer and does not sell securities

• EN Capital is capital advisory firm / intermediary and NOT a direct capital source. Seriously, every time we sent out an email someone replies and gets pissy when they realize we’re intermediaries and not direct lenders. It’s clear on our website, LinkedIn and emails. We don’t know how to make it more obvious. Don’t be that guy.

Be sure to connect with EN Capital on Linkedin. and visit our website here.

Nathan Whigham
President
CA DRE Broker License: 01793655

EN Capital Contact Info:
www.encapital.com
[email protected]
Direct Line: 310-465-9253