Getting Started (Legals, Accounting, The Requirements)


Douglas Ruark


Regulation D Resources

Douglas Ruark


Douglas Ruark is Senior Principal for the Denver, Colorado office of Regulation D Resources, Founder and President of Regulation D Resources Enterprises, Inc. Mr. Ruark began his career in corporate finance in 1992 with Heritage Financial, Inc. a company he co-founded that specialized in sourcing commercial real estate and corporate debt financing for commercial borrowers. In 1994 Heritage Financial was merged with InvestCap Partners, a Washington DC based corporate investment banking firm. Mr. Ruark assumed a partnership position in InvestCap Partners and was tasked with managing several areas of corporate finance for the company including real estate syndications, transactional risk assessment, Federal and State securities compliance, and investor relations. In 1999 Mr. Ruark served as a primary founder of Regulation D Resources. The Company was formed for the purpose of providing private placement offering advisory services to corporate clients. Regulation D Resources currently provides SEC Regulation D exempt and Regulation A+ exempt securities offering preparation and execution services. The Company also provides custom software solutions for management of investment compliance processes. Regulation D Resources has provided advisory services for over 5,000 securities offerings since 1999. In 2015 Mr. Ruark was instrumental in leading the team responsible for development of Regulation D Resources Investor Portal Compliance Management application. The web application provides for public promotion of Regulation D 506(c) and Regulation A+ exempt securities offerings and handles all compliance, subscription, and investor verification processes. The critically acclaimed software is now on build v2.3 and has been used to manage compliance processes for hundreds of private placement securities offerings. Mr. Ruark holds a degree in Economics from Elon University in North Carolina. He is regularly scheduled as an expert speaker at various venture capital, real estate and corporate finance conferences with regards to private placement offerings and the syndication of investment capital.

Joel Steinmetz

Co-founder & COO

Rialto Markets

Joel Steinmetz

Co-founder & COO

Joel Steinmetz brings more than 20 years of financial services experience to the Rialto team. Joel has led efforts in building trading platforms, algorithmic systems, as well as new businesses while at Citi, Citadel, Instinet and Liquidnet. He has been involved in numerous transactions in capital markets at Citi and Instinet, and has performed deal flow analysis, structuring, and strategic integration. His experience spans the universe of business strategy, data analysis, and technology. Recognizing the obstacles for issuers and investors in the private placement market, Joel saw an opportunity to leverage the founding team’s collective experience to bring efficiency to inefficient markets, inspiring him to co-found Rialto.

Oscar Jofre  16:29

We’re going to dive in with our other participants this afternoon, that are going to bring a great insight into which you know, Sarah started with is that here is a sector, that’s all great. And here’s the people that need to dissect it. And I’m gonna leave it to them. This is called the preparations. And I’m really excited. I do want to apologize to everyone. He feels horrible this afternoon that we just couldn’t make it. But Marty Tate, our colleague, who you’ve seen on many occasions, unfortunately, was pulled away with a another required meeting that needed his attention. So today, but you get three great individuals that I think you’re gonna have a fun discussion, so I’m gonna leave it to Douglas, have a great discussion on the preparations. 

Douglas Ruark  18:46

All right, thank you, Oscar. Well, my name is Doug Ruark. I’m president of Regulation D Resources. And this segment is going to be on the aspects of preparing a Regulation A plus securities offering for a transaction or issuer that would be in the real estate industry. And we really have a great panel here today. There’s a lot of experience on this panel. I’m excited about it. If you’re if you’re a real estate operator, if you’re a syndicator. If you’re looking to do a RegA plus and raise some money for real estate, you’re definitely gonna want to stick around for this next hour. There’s going to really be some great insight on what it’s going to take to prepare a RegA plus, the information you’re going to need. What does the process look like? We’ve got Nathaniel Dodson with Dodson Robinette, also known as the Crowdfunding Lawyers, bringing a ton of experience into the equation here. We got Joel Steinmetz with Rialto markets, he’s going to be telling us how integral it is to have a broker dealer on board. And obviously the interplay between a broker dealer and the transfer agent and escrow. So we got a really great hour that’s set up here, and why don’t we go ahead Start with some introductions. Nathaniel, please, sir, tell us a bit about yourself your firm, you guys are a leading firm in preparing these securities offerings. So give us s,ome color on you and your firm, and then we’ll move on to Joe and he can tell us about himself and Rialto markets. 

Nathaniel Dodson  20:17

Sounds good. And thank you so much for the introduction. So I am the owner of our main partner, managing partner of crowdfunding lawyers, we do primarily just focus on kind of what can be marketed online and really maximize our client’s opportunities to really have the greatest reach possible. Focusing a lot on Regulation A offerings reg D reg CF. And I truly appreciate having a broker dealer on the panel and involved because it is so unbelievably important to have them as a component of the overall process. It really it kind of keeps everybody safe and in line, they handle a lot of the heavy lifting. But in terms of kind of what we do and our experience, you know, very much so take a team based approach. We’ve represented 1000s of offerings over the years and have helped coach advise and kind of set up the platforms for our clients to raise billions of dollars as well over the years.

Joel Steinmetz  21:33

I guess I’ll go now. My name is Joel Steinmetz, I’m the CEO and co founder of Rialto markets. Rialto is, is the broker dealer as mentioned, and we have in essence, two lines of business. One is acting as a broker dealer of FINRA registered broker dealer, and the and that’s how we help people raise capital and work with players like like Doug and Nathaniel and figuring out from a legal perspective and from a consultancy perspective, and from the broker dealer perspective, how we can integrate all of the component parts to ensure that you’ve raised your capital in the most efficient way possible. Additionally, we have a second business, which is secondary markets, we are a sec recognized alternative trading system it’s known as an ATS, which allows for secondary trading in those securities. For right now let’s start with the broker dealer side of it, what we really will offer is working with everyone here from a technological perspective, and ensuring that the rules that you have, you must abide by when raising capital are complied with our automated so that we can technologically stay on top of it, are overseen, and are efficient in their distribution. So you need things like anti money laundering, and know your customer sign offs. You need things like oversight of external communications in any capacity, you need to make sure that escrow agents and the escrow accounts are integrated with the transfer agent and integrated with the payment rails and integrated with the banks, the customers banks, having all of that integration to assure that the money goes from where it’s supposed to go to where it’s supposed to land, and that the shares go from where they started to where they’re supposed to land in an efficient way. As the broker dealer, that’s what we do, working with the various parties to assure that technologically that is as smooth and experienced as possible.

Douglas Ruark  23:44

Fantastic. Um, and just as an introduction for myself and my firm. Again, I’m Doug ruark, President of regulation D resources. We are a 22 year old firm that specializes in the preparation of securities offerings, reg CF reg D reg, a plus. And we also have a technology component to the business where we develop investor web portals that then synchronize on the back end with the fantastic technology that companies like KoreConX have. And so that is, that’s my background, and the firm that that I run and we’re located in Golden Colorado. And what I want to start off with, is first of all I want to start off with with just myself talking about, you know why I think I’m such a big fan of RegA plus for real estate. And you know, especially with the streamlining they’ve done that the plus designation. So number one, you know, when you look at going to syndicate capital, usually, when you’re looking to do a real estate type fund, you’re usually looking to raise capital and amounts that are going to be large enough were putting in place the A plus, having the extra time, effort and money to put that in place is really going to pay off big time when you go to market. And you know, obviously the big advantages of tier two RegA plus 75 million in a 12 month period, you get to generally solicit the public, you get to sell to everyone, which is obviously one of the big advantages is you’re not limited to just accredited investors. But the other thing that I think is important is, it is a sophisticated offering, it’s really next level from something like a reg D offering. And obviously, there’s lots of reg D offerings that get prepared for real estate. But at the end of the day, RegA plus really provides some significant benefits over a more simplistic type reg D. I think the other thing that that I find interesting about a plus and its application to real estate, is the fact that when you’re looking at the typical real estate offering, it’s usually going to be a new special purpose entity. So if it’s a real estate fund, for example, it’s going to be a new LLC, or maybe they’re using an LP GP structure, but it’s going to be a new entity. And the benefit of that is that the tier two financial audit is going to be a very simplistic audit, there’s no historical financials to audit. So most of the time, you’re looking at just an audited balance sheet opening balance sheet. So then, you know, the benefit there is that the issuer has less costs on the preparation side, then say a software company that’s been operating for 10 years and has four different subsidiaries, and then they might face a $20,000 financial audit. I think the other thing that I find attractive about applying RegA plus for real estate is the fact that real estate is an asset class that everybody can get their hands around. You know, it’s it’s not like biotechnology, where you might have a business that’s very complex and sophisticated, and people in it may not really be able to get their hands around the investment opportunity or the investment risks, Real Estate’s different people understand real estate, the average investor can really get their arms around it. And again, that’s where then the ability to sell to everyone makes such a big difference. As far as our discussions, you know, I’m going to I’m gonna be chatting with Nathaniel here in a second about entity structures and transaction types. I know he’s gonna have a lot of really good info for people as far as how do I set one of these up? I’m interested in getting into syndicating capital and purchasing real estate and maybe, you know, running a portfolio. Well, what does that look like in terms of the entity structure and the org charts and the interplay between these entities? One of the things I did want to say is that, you know, from my experience, RegA plus works great for like blind poll, real estate funds, where you don’t have a, like a contractual obligation and timeframe issues. Because RegA plus being a more sophisticated offering, and being an offering that has to get qualified through the SEC, it does take a little bit longer to prepare. So you can certainly use one to, for example, raise equity, for a like more significant single asset acquisition. But you would also need to then have a seller that’s willing to sit still for probably a little bit longer than the normal due diligence period, because you’re gonna have a little bit longer of a lead time to prepare it.

Nathaniel Dodson  28:11

You know, what could I can I cut you off real quick, because we’ve kind of solved that problem. Sure. And it is relatively unique to the industry of kind of how we approached it. We’ve just gotten through the qualification process with one of our clients Grant Cardone, he’s doing exactly this. And so kind of the way that we’ve solved the Hey, you have a starting out client, he’s looking at, what am I going to do with $70 million, I’m used to raising 5, 10 million dollars for the single property. Also, there’s always kind of that headache and issues about trying to raise $70 million. Again, with a blind pool. Everybody wants to be the last dollar in the Fund, which is a big part of the reason why and you know this as well, syndicating a particular property oftentimes is way easier to capitalize than that blind pool. And now you’re talking about a RegA with a $70 million blind pool. Sometimes it’s not well, it’s not easy. But so we’ve come up with a really good solution here and got it through with the SEC qualify, no comments back, really got it done in really a couple of months, which is pretty unheard of. But hey, we’re there. So what we’re doing is setting them up as series series LLC, and as REITs and with the RegA funds, we are able to kind of once the fund is set up, and we generally have kind of that first class and first asset figured out. And you’re absolutely correct that you want to have some additional timeframe there. But so there’s some ways and structures to get around that delay. But setting it up as a series, and then you have the issue of taxes and partnerships, and you’ve got a massive fund and all these series, and that can be a complete pain as well. There’s a solution there also, we’re doing a mass REITs. So kind of throwing it out there as, as what our big focus has been is the reg a series REIT, The REIT really, really simplifies the taxes, there’s not the K-1s going all over the place, you’re just sending out the 1099 to the investors. And all of a sudden it goes from, hey, we’re just trying to raise blind pool $70 million to we can keep creating separate series for individual properties. We’ve already gone through the qualification process, so we can make it happen faster. And so it’s kind of like, Hey, we’re setting up your business for success, not just for this one project. But for your your future as well. Yeah, so we’ve we’ve kind of taken a different spin to it. We’ve made it through successfully, as I just noted with a recent client and we have quite a few more that are lining up. And it’s just like that alternative to the individual reg D syndications. There’s over and over and over and over. So we’ve got a solution there. Also, I’m sure everybody’s kind of aware of the Congress is talking about changing some of these self directed IRA rules, with a major major deviation of not allowing for self directed investments into the private placements into the private offerings, really, and I understand this, they don’t want the the private real estate deals to be so exclusive, that you’ve got to be accredited investor to even participate in your IRA. I see it as a congress is trying to open up the opportunities to the masses, which also gives anybody that’s listening in and interested in RegA offerings as well. Here’s the way that you can offer your investments to the masses. And so if that Congress changes to the self directed IRAs, which we all know can be a huge portion of a lot of people’s business, all of a sudden, you’re set up to not care if those self directed IRA changes come into place either.

Douglas Ruark  32:57

It’s good point. Yeah, you know, one of the things we’ve done too is is and one of the things I’ll tell operators is if you do have a single asset acquisition, go ahead and get a firm that’s going to be doing your prep work, get them started early, you know, you can actually pre build a lot of these filings just based on asset class market, you know, management team special purpose entities in place, and you can then kind of fill in then the specific asset once it’s under contract, you know, a lot of times you have out real estate operators, they’ve got three or four assets are evaluating, but they know the market y’all it’s, hey, we’re looking at, you know, 50 to 70 unit multifamily properties in Austin, Texas, we’ve got four we’re evaluating, we know we’re going to be doing an offering to syndicate the capital to purchase one, we’ll go ahead and get started on the prep work, there’s a lot that can be done on these filings to get a head start on that. And that obviously can also cut down on the timing. So So Nathaniel, I wanted to ask you to kind of talk about you know, obviously a lot of the the people listening to this right now, you know, we’re gonna have so obviously some people that are sophisticated in these processes, they probably done offerings before. And we’re also gonna have some people that have never been through this before, and maybe have never even set up any kind of syndication. So let’s, let’s get your feedback. If we can, Nathaniel on things like entity structure, if I let’s say I wanted to put together a small real estate fund, I want to raise maybe 20 million in capital, I want to go buy some assets, will tell us about what would the typical structures look like? Like, you know, what would the org chart look like? What type of entity would I use? Because I think that’ll kind of help prime the pump for the balance of this conversation, which is, okay, the entities are in place. Now, what do I need to get Nathaniel to get us through this process? What kind of information is he going to need? What’s the granularity is going to need? So let’s start with that give us a little bit of color on, you know, what are the typical entity structures look like for these real estate deals? And what’s the interplay between those entities?

Nathaniel Dodson  34:58

Sounds good, and please Call me Nate, Nathaniel is only when I’m in trouble with the wife. I’m not in trouble yet. So thank you. But I do for anybody that’s listening, if you’re thinking about a Regulation A offering, and there’s a lot of great reasons why to, you better know already how the entities are come together and the org charts. And if you don’t, don’t do RegA, there’s other great strategies and options under the regulation CF. And as well as regulation D. But that is kind of your, you know, training wheels, learning to get through the process, learning how these structures work. But it is truly as simple as at least when we’re working with somebody that is to the level and expecting to do a Regulation A offering. We’re generally kind of using LLC, limited liability companies throughout the board. And there are certain states that are more favorable to organize and in other states, but it’s always kind of it’s unique to who the client is and what they’re expecting. But we always have kind of a management entity that’s sitting on top of the fund that is the manager. And with a limited liability company, the managers like the president of the corporation, it’s the top dog. And so we generally will have a management entity, why they’re kind of like a GP in the the old fashioned LP GP sense of the words that there’s liabilities that are there, that don’t really affect or apply to the individual limited liability investors, the LPS or the passive members. So generally, we have that then we’ll use a LLC most often will use other types of entities when it makes sense, but for the fund itself using an LLC. And then with that, all of the investors are coming into the LLC, whether it’s by class, or as a generalized blind pool fund, or individual syndication, they’re coming into the fund itself, they may have a one or multiple classes of interest, kind of just based on how it is overall setup. And then the fund if it’s doing multiple properties and multiple transactions, it generally has a wholly owned subsidiary, underneath the fund itself, for every property. And the reason why you would want to do that. It’s been called an spe, single purpose entity or special purpose entity where it is wholly owned, and then it becomes the borrower, of whatever the real estate that is getting acquired in two reasons why we’re generally using these SPE’s. It’s asset protection to begin with, and asset protection for the fund level. kind of the way that I’ve always seen it is if you had a fund and all the real estate is owned directly by the funds, then all of a sudden you’ve got a problem at one of those properties and all of the properties become at risk that you’re using these separate SPEs separate wholly owned subsidiary entities, it can protect one property from the next so if there are problems at one of the assets, it doesn’t cause that contagion of affecting all of the assets and frankly a lot of the borrowers require that as well. And in addition you’re really focused on the securities I do have another law firm that we do kind of the beginning to end on the transactions as well from the finance the contracting and we do a lot of on that side also and can tell you most lenders don’t really want to loan to a fund either because it really puts them at risk also. So more than anything, it’s also a lender demands Alright,

Douglas Ruark  39:24

so Nate I, I’ve done a couple small syndications got a couple funds running. I come to you and let let’s kind of, I want to give the viewers here kind of a 40,000 foot view of the RegA process which is you know, ultimately there’s going to be entities formed there’s going to be a form one a drafted there’s going to be the exhibits put in place that file is going to get you know, obviously converted you get the opinion letter in you get that sent to the SEC. They’re going to do their review, they’ll probably be made some comments back and forth there’ll be qualification ultimately along the way there’s going to be decisions made as far as you know getting Rialto markets on board for example in the transfer agents I let’s let’s talk about I’m coming to you Nate, I want to do a real estate fund tell everyone as far as your ideal client what kind of information are you going to be looking from me for I what kind of information do I need to provide you to make your job easy, as easy as it can be obviously these are sophisticated filings but but to get this put in place like it’s for me coming to you, as an ideal client, what information do I need to show up at your doorstep with so that you can do your job properly,

Nathaniel Dodson  40:46

Honestly, an idea and a dream. So and I say that with the most sincerity because people aren’t organized they don’t have all the information so we’ve kind of just set up our process where we don’t expect anybody to come to the table with any predefined This is exactly what we’re going to do. And there’s no deviation we really no matter where they’re at, or where they’re in their business starting point new have done this 1000 times we always have people start with going through kind of our comprehensive questionnaires not because hey, this is the final information and this is definitely what we’re going to do but more so get your ideas and get your thoughts down on paper. And our first step is always to review that and there’s always additional information requests, we have a due diligence checklist that is so unbelievably comprehensive that nobody ever has all of the information and we work around what we can when we can there’s of course as you know, lots of things that there’s no working around and you know broker dealers they they look under the skirt as much as anybody so it is kind of coaching and setting up the client for their success to know what’s going to be asked of them but we’re there to kind of our first part of the process is going over What’s your thoughts and dreams based on that? Here’s the due diligence that we need. Here’s the documentation and information that we need. Let’s talk about who are your team what transfer agent Do you plan to use the accountants the broker dealers and everybody and most of the time people haven’t figured all that out either. And so then it’s up to us to say hey, here are the right guys to work with go talk to him and so it’s all kind of part of that front end process of the information gathering before we ever start working on a single document or form a single entity

Douglas Ruark  43:03

Perfect , Joel, let’s talk about you know when as as the as the client starts getting to the point where the form one a is getting drafted it’s it’s starting to kind of reach a point where it’s maybe you know 70% complete time to start getting some you know, the the other vendors involved you know, look we’re huge fans of KoreConX the technology that they’ve developed is fantastic you know, it’s going to launch one of these offerings one of the things that you want is you want to manage this with high technology you want the best in class technology and I think part of it comes down to number one the ability to get a lot of exposure for these offerings very quickly I mean you got social media you have LinkedIn I mean there’s there’s there’s things that can be done to get a significant amount of exposure for one of these offerings and then you’re going to want to use technology to manage that you want to use technology to engage the investor prospects take and track them through all the processes and so that’s one of the reasons why we’re you know huge fans of KoreConX is that they’ve really you know, they’ve really done a great job of developing that technology and being able to get investors through the investment subscription process properly. Let’s talk about Joel with with the with an administrative broker dealer on board with Rialto. Rialto class leading broker dealer here in the industry. You know, why the tell us why it’s important first of all, to have an administrative broker dealer on board not only from the compliance standpoint, there’s obviously also some problem states where you’ve got additional filings made. So if you can give the viewers here a little bit of color on that, why it’s important to have a broker dealer on board and then if you can also chat about the interaction between transfer agent broker dealer and also escrow because usually on the Real Estate funds or even no single asset acquisition type deals, there’s going to be a minimum offering amount, there’s a minimum amount of capital needed to be syndicated for that offering to be viable. So Joel, if you could give us some color on that, that’ll that’ll probably, obviously, really help the people viewing this. This segment understand the interplay, first of all the importance of that administrative broker dealer, but also the interplay between the transfer agent, the broker dealer and the escrow because that I think is an important dynamic on this process as well.

Joel Steinmetz  45:29

Yeah, absolutely. So So we really approach this in maybe from a different angle, then what is normally approached by you and Nate, in that we look at it and say the key component from a broker dealers perspective, is how do we make sure you get your money. So it’s not just setting up the entity. But once all of that is set up, which is not what we do. Once all of that is set up, we then have to figure out well, what’s going to get you the money. And there are going to be a whole bunch of different things that you have to do both from a legal and regulatory perspective, as well as a sales perspective, to make sure that you can attract the most amount of potential funds that you can cast the widest net. So let’s just start right, right from the beginning, there are a whole bunch of ways that this is going to be set up. But ultimately, there’s got to be some AML and KYC type of vetting that goes into play. And that’s not only for the issuer, for the company looking to raise the capital, but every investor that comes in is going to have to be vetted to make sure that they comply. And they’re not one of the people that you can’t have on your cap table. Doing that manually. In a retail type environment like RegA, when you’re getting potentially 1000s of investors coming in, and a multiple of that seeking to come in or requesting it. Doing that manually is virtually impossible. You need to create the technology that as Doug said, connects with the transfer agent connects with the escrow agent connects to payment rails, whether that’s payments through wires, or AC H’s or credit cards, or what have you. And the banks of the of the ultimate investors, making sure all of that is unified into a singular technology that connects all those pieces of the puzzle. So we look at it and say, how are you going to be able to raise your money, we’re going to have to go through those stages. We work with attorneys like Nate and others who well, and with the consultants and attorneys like Doug and others, in order to make sure that all the filings have been done correctly, the company has been set up properly made, by the way thrilled with the idea of doing that as a REIT. And one of the main reasons is because we have to create an environment that is going to make these types of investors feel comfortable with their investment. In real estate, as was stated earlier, its people can get their hands around that people understand what it means to own something in real estate. But then when you get to the nitty gritty, a lot of investors are, are lost, because there are so many things debt in and any kind of borrowing and loans in real estate is different than borrowing in any other industry. So because of that having the understanding is kind of difficult. And that complexity can be reduced if not eliminated, but certainly mitigated with the right structure of the deal. So getting into something like a REIT makes it a lot easier for a regular investor investor once in $2,000. To say I know what I’m getting into, it’s a lot different than before, we want to be able to create that environment so that you can go out spread the widest net, get the most interest from a retail type of environment, which like I said, is going to require a significant technology to integrate. We we work also we’re very big fans of KoreConX, they have a great technology that allows not only for the smoothness of the experience, but the scale of the experience so that you can get multiple players coming in. Now just to touch on Doug’s last point. Now the money comes in what we what we do, when you come into the system is you click the button on your website, the issuers website, you click the button there, the investor clicks the button that says invest now and then they fill out whatever subscription at the end of that subscription, they get one or two messages. Either you were rejected, because maybe you’re a terrorist, or you were accepted and you’re now the proud owner of X amount of shares of such and such now, that X amount of shares doesn’t mean you have it doesn’t mean It’s there, it just means your process has been completed. The money then goes into the escrow account and waits there, the issuer determines when they’re going to take their money out, what’s the minimum that they put down before they can take the money, when they’ll do it, let’s say once a month, and once that happens, we are going to allow that transfer of the money in escrow account to go to the issuers account. At the same time, we’ll be talking to the transfer agent to let them know here are new members of the cap table, here’s when they’re going to be put onto the cap table, here’s the amount of shares that they have, etc. All of that happens behind the scenes, the investor just hit the invest now button and filled out the form. And then it’s done. That kind of smooth experience at scale will allow you to start getting potentially 1000s of investors. Now the advantage of getting 1000s of investors not only allows you to democratize your offering and reaching an investor base, you never could before, it also allows you to start building brand. And when you build brand name, your next project, the next 10 million, the next 70 million that you’re looking to raise now has a customer base you can go to, to start with it’s not cold, but warm, to be able to begin those investments.

Douglas Ruark  51:20

Yeah, actually, you know, it’s interesting. I mean, Nate had mentioned Grant cardones, I mean, look, look at look at the strategy that grants us and obviously, you know, the guy’s a bit of an anomaly. I mean, he’s a he’s a dynamo, as far as his social media stuff goes, he’s got massive followings. But what I always tell people is, is that you can replicate what he’s done on a smaller scale and be very successful. And I think one of the benefits of of a vehicle like a RegA plus is allowing you to get out, get exposure to the entire market, as far as investors go, and then you build those relationships, you know, if they’re in a deal with you, and they’re getting the returns, they expected and they’ve enjoyed the relationship and you launched deal number two, they’re probably going to invest, but not only that, they’re also probably going to be bringing their golfing buddies and, you know, friends and family and cousins with them. I mean, I’ve seen that dynamic myself, where I do private investing, I get someone that calls me and says, Hey, I put money in with this guy’s real estate developer, he’s got a new project, and, you know, you really ought to take a look at investing. So So what Nate had said with with grant, I mean, you know, obviously grants doing fantastic, but you know, when you look at what he’s done, I mean, he really has been able to leverage that social media base, and he has a built in investor base. Now, I mean, that’s just really what it is, when he launches an offering, it’s, it’s pretty much pre syndicated in a way because he has such a massive following of people.

Joel Steinmetz  52:46

So if I can jump in there for just a second, and that’s a really important point when, when you’re looking to raise capital, you have to have that base. Either you have people that know who you are in a warm institutional players, what have you. Maybe it’s retail players that know your company. If not, you need to be able to go and find marketing, you need to be able to find I know there’s a session on this a little bit later, in order to grab that universe in. But what what you what’s very important is to work. And this is why we think this solution that is offered within this group that allows you to keep everything within your website within your area allows you to keep all that data. So that means the next as you build on this, you need the marketing, potentially a little bit less, because now you have 5000 people to go to and after your next offering, maybe you have 8000 people to go to. And you can keep building that world up. That allows you to say before I even go to the external world that I’ve never touched to the cold calls, I have 1000s of potential warm calls, who have experienced what I’ve delivered, and are usually very happy to invest again.

Nathaniel Dodson  54:05

Yeah, if I could, before we move on, I know we’re trying to move on. So I apologize. I’d love to throw in my own two cents. And Joel 1,000%. Correct, Doug, absolutely. But something to really think about is in here is kind of the Hey, get started now to the anybody that’s listening. It’s not just simply about pitching your deal pitching your funds, talking only about the investment. What the secret of the social media influencers is they have these massive audiences. And frankly, the audiences aren’t just showing up because hey, guess what I’m pitching that. They’re showing up because the client, the people are engaging. They’re providing information, education or Entertainment in areas that are getting people’s attention. So that doesn’t require you to, I’m going to start this RegA, I’m going to start this fund right now. And I’m going to get out there and start pitching it. It’s all about pitching something that really gets people interested coming back and engaged as a general audience. And then when you’re ready for the Regulation A offering, it makes it a lot easier to already have the masses already have the audience to put it out to. And at the same time, if you are out there and providing the information, kind of testing the waters, as they say, which anything that you put out there to test the waters basically advertising before you can actually accept any money still gets filed with the SEC. So at the end of the day, kind of a best option is not to wait, but to start today, not worrying about what’s this RegA gonna do. But what do I need to do? And what’s interesting about me to create an audience, so when I hit that point of having the qualification, start sending out the test the waters, you’ve already got the audience to talk to.

Douglas Ruark  56:19

Good point, Nate. Yeah, yeah, I mean, one of the other things too, and it’s funny, because I bet Nate probably run into this is, you know, you’ll get old school kind of real estate guys, where, you know, the last time they did an offering was 2003, they did a 506 b offering, they had a minimum subscription amount of $200,000. Because they didn’t, they don’t want to deal with a lot of investors. And what I think’s interesting is is when they come in and do a modern securities offering, that first of all allows you to generally solicit the public which is a complete revelation to a lot of these guys but the second thing is the technology that’s available now to not only process people through the subscription process efficiently track them all the way through, but to then manage them as an investor and manage your cap table when you’re using this you know, these this fantastic new technology. I say new it’s been around but I mean, it’s it’s being refined every year. It’s a whole different ballgame. And it is interesting some of the discussions with some of the older school like real estate guys where you tell them hey, look, the average RegA investments like $2500, and they look at you, you know, kind of odd like Well, well, I don’t want to manage that many investors, but it’s like, Look, the game has changed and the technology has made it a lot easier obviously to do that. Nate, I want to drive back to some of the little more kind of granular details on RegA plus, and kind of tap your experience. So I’ve put my RegA plus in place on out raising money or I have raised money. Let’s chat about especially for people may be coming out of a reg D that are that are more used to just a notice filing. What tell us about the filing differences. I’ve got my RegA in place. What are the filings now on an annual basis that are going to go in what do they constitute and then also let’s talk about my requirements on the financial side as far as audits

Nathaniel Dodson  58:11

You do have to go through your annual audits and there are filings that take place with the SEC and you know we kind of we don’t take a different approach if somebody is doing a reg D fund or a RegA fund other than kind of the changes in the audit but really providing the the filings with the SEC with what’s happened with the fund it has there been any changes or any amendments required the 10 ks 10 Q’s and getting all the information to the SEC getting the annual audited financials, it is well not the quarterly filings that have to take place but you do have to do it annually to keep the whole process moving forward.

Douglas Ruark  59:04

Let’s talk liquidity and you know I’ve got my fund in place I’ve bought some assets and and this is where I want to bring Joel back in because that ATS system that Rialto’s got is really interesting. Nate, let’s start with you. Um, well you know, as far as liquidity options go what what are the liquidity options? There’s let’s just call it a multi asset real estate fund. I’m invested in the fund, what tends to be the exits that a lot of these real estate operators tend to have I mean, obviously one would be just you know, liquidating the portfolio, but let’s talk about how do you how do you set up the gating around the fact that you’re going to hold the portfolio and there may be either redemptions happening and then we can also then drive over to Joel and talk about the fact that obviously, with RegA plus securities, they are you know, they’re freely trading out of the gate and then you know, being able to maybe put something you know, Put these securities up on an ATS. Let’s start with you, Nate, Can Can you describe what are some of the typical liquidity options someone might have in one of these funds?

Nathaniel Dodson  1:00:09

Sure, well selling it onto the market through the ATS, I think it’s great to have that you do have to have both the buyer and the seller. So there’s kind of that ongoing interplay of, you can leverage and put your offer onto the interest onto the ATS, but you also have to have the other side you have to have the buyers. So we are still experiencing that having the redemption policies and strategies are more what people are leaning on. And as long as it is a multi asset fund, there is generally refinances happening, sales happening. And because there are annual audits, you do have kind of an updated valuation of the interest of the fund itself. So kind of what we coach people on is, hey, there’s going to be a financial audit, there’s going to be a valuation of each of the assets, open up a window during the year where people can exit or elect to have a redemption of a small amount on an ongoing basis. So you don’t have a run on the bank. But then you’re opening up the opportunities to Okay, now I’ve got to figure out where I’m going to find one $5 million. Hopefully, you’re not liquidating assets, but maybe there, it takes selling one of the assets or potentially refinancing one of the assets to create sufficient liquidity to take out the investors that want to redeem some portion. And even if that’s taking place, they’re removing their interest from the fund anyways. So it’s kind of that difference between if you own 1% of a $10 million fund or 10%, of a $1 million fund, it’s all about the same.

Douglas Ruark  1:02:08

Joel, that ATS system Rialto has, pretty fantastic and I the reason why I’m touching upon this, we’re obviously this segment is on, you know, the preparation aspects. But in a way, this is something that people should be thinking about, which is if they’re going to run a fund, or they’ve got an asset acquisition, that they’re going to maybe hold long term, they do need to think about that, which is, you know, at what point do you want to have some options for people to gain liquidity from their interests in the the entity? Job? Can you tell us about Rialto’s ATS? Because obviously, that is an option?

Joel Steinmetz  1:02:39

Yeah, absolutely. Actually, just to start on that, when you talk about liquidity, you need something from liquidity, even from the earliest stages, which is how are you getting the money in in the primary market just to get those investors. And one of the things that has to be considered is just keep in mind is you have to get to all 50 states, right? The wider the net you have to be able to raise money and raise capital and all those 50 states is, is going to help you and the eight problem states that are referred to are not the small ones, they’re usually some of the bigger ones that you that you really need to make sure you can get that primary liquidity from. So make sure when you’re dealing with a broker dealer, Rialto happens to be registered in all 50 states, but make sure the broker dealer you’re dealing with is registered in all 50 states so they can help you. When you get into the secondary market. There are a couple of things to realize, generally, and it’s not the real estate market specifically. But generally companies about 10 years ago, stayed private for about an average a little more than four years. Now, the company stayed private for approximately 13 years. So when you have investors that come in, in the earliest stages, and they are saying to themselves, what am I getting my money, and it’s going to be 8, 10, 12 years from now, that’s hard for them to swallow when they’re getting involved in the market. So giving them an option to get out earlier, sometimes it’s the redemption. But sometimes it’s also to find other liquidity within the marketplace. That helps both the investor feel comfortable that there might be another place to be able to sell that security, not go through a redemption process, but simply putting an order that says I want to sell X to Nate’s point, you need a buyer. But it does give you the opportunity on an ATS, for example, an alternative trading system to place your order and advertise that to 10s. if not hundreds of 1000s of people that might have an interest in getting involved in that security. That means you don’t have to just go back to the company, you can actually just see if you can find another buyer. That’s what an ATS does that provides that liquidity for you. That will enable you as the issuer to give Comfort, even in the primary raise that someone can get out of that. And second, when you’re, instead of dealing with all of the redemptions and what the process of that, it might enable you to eliminate that administrative experience and deal with and sort of hand it off or outsource it to an ATS that does it for you. So instead of going through the whole redemption process, someone can in essence, redeem their ownership by just selling it to someone else. Getting back to our original point from earlier, it also builds brand recognition, you’re now advertised on an ATS. 1000s of people who never heard of you before and aren’t invested in your company, now know who you are, perhaps they get interested, and you’ve now expanded your reach to people who you never even knew before. All of that is is enabled through a secondary market. That’s what our, our ATS and an ATS will deliver.

Douglas Ruark  1:06:03

They related party transactions, we see a ton of them with real estate stuff, you know, hey, we’re running a fund. The manager or sponsor also owns the property management company, or we happen to own the construction company that’s doing rehab on the assets. Let’s chat about that for a second. How important are those disclosures? What what a real estate operators need to understand as it relates to the fact that so many of these deals have related party transactions happening? What’s the importance of that as far as our disclosures in these in the form one a any kind of management agreements that need to be disclosed? Can you give us some color on that?

Nathaniel Dodson  1:06:43

Absolutely. And when it comes to we call conflicts of interest, and that has such a negative connotation, a conflict, but really, it is that related party transaction. And with any offering, especially the form one a the Regulation A offerings, full disclosure is important. And if there are any related material related party, third party companies that there’s an affiliated ownership, it should always be disclosed. those documents are available for anybody to review, they get filed with the SEC. So it is a transparency and it’s not only to protect the investors is to protect the sponsors and the operators as well. Because all you need is one guy yelling and screaming, you didn’t disclose that these massive fees, we’re gonna go over to your other company. right there that’s a lawsuit waiting to happen. So conflict of interest is not bad, as long as you’re disclosing it. And of course, those agreements always have to be fair and reasonable and equitable across the board.

Douglas Ruark  1:08:03

So gentlemen, we got about about seven minutes left. I want to go to Joel real quick, Joel. Do words of wisdom for someone contemplating doing a RegA plus anything that you think our listeners and viewers here should know I’m getting ready to do a RegA plus, what are some things I ought to know words of wisdom from someone in the industry that might help me through this process.

Joel Steinmetz  1:08:30

Number one, make sure you have good lawyers who really understand a good lawyer is not just a good lawyer, a good lawyer is a good lawyer who knows RegA. It’s very important to know RegA, make sure you have someone who’s going to walk you through that process. Number two, make sure your marketing is in line, make sure you have a way to get to a customer base. And number three, recognize that this doesn’t happen in a week. It takes time to go through the process. And when you’re looking to raise capital, it takes time until the capital is actually raised moving money is not easy.  And the last point is get all of the parties involved. The parties might be lawyers, and auditors and broker dealers, and technology systems and transfer agents. Make sure that’s all lined up a singular entry point that’s a smooth experience is best. What make sure all the parties are in place when you’re getting ready to go.

Douglas Ruark  1:09:25

Nate, words of wisdom

Nathaniel Dodson  1:09:28

I make sure that you you’re you nailed it. But the broker dealers i think is one of the most important things in the world to have to stay safe. KoreConX to really help manage and maintain the cap tables and what’s going on with everything. I mean, it is about the team. At the end of the day. Most people don’t know who the right people to work with. If you’re listening here, you’re seeing some of the right people right here on the screen, which is It’s kind of the the first go round, that it does take a little longer in, there are the different team members that you have to put together and work with. But at the end of the day, this is setting up a business. It’s not like I just have one idea for some small property or small with some small funds. Ultimately, this is an ongoing platform, you need the right people, because you’re going to be working with them, hopefully for years.

Douglas Ruark  1:10:33

Yeah, I think it’s it, you know, for me, kind of the words of wisdom are number one, it looked as a sophisticated offering, in a good way. But you want the right team, you want good legal, you want a broker dealer on board, you want to have good technology, I mean, you’re getting ready to execute what amounts to a public offering. You’re getting ready to to solicit people to purchase securities, you’re going to probably be dealing with a lot of people buying securities in your company, hopefully company hopefully, if you’re successful, and so you really want to make sure you’ve got a good team there because you can quickly become overwhelmed. And so having a proper team on board, having good experience people to help you through the process is huge. And then I think the other thing is is being able to offload a lot of the administrative part of this on to technology like KoreConX to have the broker dealer there backstopping you and having Rialto’s compliance department, backstopping you in 50, state licensed FINRA broker dealer, that the sales are going through, I mean, these things are huge. And I think part of what what I would say is, you know, don’t, don’t try and bootstrap putting one of these in place, come in with a good budget, come in with a mentality that you’re going to spend some dollars to put this in place, but you’re putting something in place that’s sophisticated. And the other thing that I try and get people to look at as well is that ultimately, your time and effort matters. If you’re a syndicator, you’re going to go raise capital on the public, you know, out in the public, what type of vehicle Do you want to use? And what type of vehicle Do you want to have? Because you’re gonna spend time and effort either way, you know, yes, there’s reg D offerings that fit well with what a client may be doing, you know, you might have a client that’s got, you know, some accredited investors lined up or they got a family office lined up, great dual reg d, 506. c, you know, it’s a more simplistic offering. But I think when you start looking at people that need to get public exposure that are going to be raising larger amounts of money, the extra time and effort to get through a process like RegA plus, and have that kind of vehicle that is going to maximize your ability to raise money, and maximize your time and effort that you’re putting in that matters. So I think for me, the words of wisdom are come in well capitalized, pick the right team. Again, there’s there’s a lot of talent right here on this, this board right here as far as the presenters go, and, and make sure that you’re coming in with the mentality that this isn’t a 30 day process. It’s not a process, you should be bootstrapping. But it is something that if you’re ready for it, it’s a fantastic vehicle. And I think with the changes that have been made visa via the SEC on these programs, I think with the fact that the emergence of social media, obviously over the last 10 to 15 years, and then combine that with the technology that’s available. It’s really made a fertile environment to go raise money, and it’s just an exciting time to be in this business.

Oscar Jofre  1:13:27

Wow. Agreed, agreed, agreed. We do have one person that I’m gonna give them that shot to come in [uncertain]. He’s got a question for you, gentlemen. Nick, you’re on? Yeah, I said a brief

Attendee 1  1:13:39

question on the cap tables. Could you elaborate on the cap tables?

Oscar Jofre  1:13:46

You mentioned?

Joel Steinmetz  1:13:48

As far as for you?

Oscar Jofre  1:13:52

Oh, for me, Well, listen, I think what they’re saying, Nick, is that, um, you know, you have to have your Book of Records well prepared. Having your cap table well, organized, when you’re doing an offering is critical, because you need to disclose that to the SEC, they need to understand the capital structure, what security you’ve issued, what kind of securities you’re legally allowed to issue. One of the things that they mentioned, they don’t want to hear about surprise agreements. Well, same thing here. What if you have a promissory note that doesn’t get disclosed. So having that organized, there are tools now today, and thank you to my colleagues here today for mentioning us but there are many others as well, that provide the ability for you to manage your securities, shares, options, warrants, on all that so you can start making that journey. And that’s just getting the preparation. And then afterwards, well, that’s a totally different game, because now you may have 1000s and 1000s of shareholders, which when you’re successful, now you need to look at this arena a little bit differently. You’re still managing your cap table, but now you’re managing it alongside with 1000s, which So you need to think of a solution that combines those two together. So the good thing is those solutions have been built. You don’t have to. It’s not something that wasn’t there. Otherwise RegA and reg CF would not be successful as it is today. So, Douglas, thank you today for coming in. I really appreciate this. Joel, always good to see you. Nate. You looking good. Thank you so much for the preview. great insight for this afternoon. You know, it, the preparations are so important. Sometimes they’re overlooked. And there’s good guidance here from each of them, giving you all the things you need to do to prepare. But one of the things that when you are ready, and you are have all of the elements combined, it is an amazing ride that you will have Regulation A and thing with real estate.

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