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Understanding 7e’s Fund Structure

April 3, 2024

chrisseveney

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Creating Wealth Simplified | Fund Structure

 

In this episode, Chris Seveney talks all about 7e’s Fund Structure. He explains the biggest reasons behind its inception why it is a Regulation A+ offering.

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Understanding 7e’s Fund Structure

In this episode, we’re going to be diving into a special topic and talking about the Regulation A offering, which we’ve been successful with. If you missed our last episode, I talked about how to get a regulation A+ offering or a crowdfunding campaign up and running in under six months. I want to talk about the benefits.

Before we get started recording the last episode, about halfway through the episode, I work and record down in my basement. All of a sudden, my son comes running downstairs. I’m sitting there looking at the camera. He’s sitting there looking up and around, trying to get my attention. For anyone who’s in recording space, anytime you have a distraction like that, it’s tough to overcome. Sometimes, you have to pause and get started again, but it completely throws your train of thought off.

I wanted to share that because I like to try and keep things completely real with people and tell it like I see it. Recording is not easy. It’s been several years since I’ve recorded my first episode. I can remember how awful it was. I had a bad microphone and video. Gail Greenberg had her dogs barking in the background. It come a long way.

Accessing Investors

I wanted to talk about the Regulation A+ offering and the benefits and why we went with Regulation A. I talked about what Regulation A is and the process that went through it. I want to talk about the why and share my story of why we did this. The number one reason was access for all investors. With this type of fund, we can accept accredited and non-accredited investors. We want to give everybody the opportunity and inclusivity to invest in an offering typically only available to institutional or accredited investors.

Empowering non-accredited investors and giving them this option to invest also gives them the education to understand as they grow and potentially get to be accredited investors and look at some of these largest indications. It gives them that experience of what to look for and what not to look for. This is something that truly cannot be devalued in the sense of experience.

For example, with our offering, you can start with $5,000 as the minimum investment. If you start a self-directed IRA and have about $6,500 in it, you can invest. That gives you the benefit of understanding all the processes and seeing things you like and you don’t like. How do their investors and the relations team interact with each other?

A great analogy is used a lot for people who golf or play any sport, but golf is a simple one. You can read all the books. You can watch all you want on TV or all the videos on YouTube and TikTok. By watching all those videos, does it give you the equivalent of stepping up the tee and hitting a golf ball off the tee? It’s 100% not. Until you step on that tee and hit the ball, you don’t know what that experience is. Investing in an offering as a non-accredited or still an accredited investor with a lower minimum gives real-life examples and processes that you have to go through.

It’s key for people because, especially as I record this in March of 2024, I’m somebody who’s on BiggerPockets a lot and some of these other websites and forms. It seems like every single day, somebody is posting, “I invested $50,000 into syndication. The sponsor was inexperienced. I’m getting the $50,000. I’m getting $3,500 back.” It’s a 93% loss, and another one is a 60% loss. There’s a sponsor out there who’s well known and has cash calls on some of his offerings, pause distributions, and potentially could lose 60% of investors’ money.

For your first go around, most people have never experienced what it’s like to invest in a syndication. If it’s your first go around, would you rather pay $5,000 or $50,000 to learn how people get your distributions issued and how their investor relations team works? What do you want to see for quarterly or monthly reporting as part of that process? There’s more. Even though it’s passive, there is still a lot of information that can come your way, and you can learn and see how other people do things.

If you had $50,000 and put it with ten sponsors versus one, your risk would go down significantly, but you can see how people do things differently. When you get all that money back and say, “I want to put 50,000 in investment,” you know what questions to ask. How often do you report? What do you provide in reporting? I’ve seen some people who give me a lot of fluff, and other people give me financials. There’s a lot more involved for what it is you’re going to get exposed to and see. For us, we find that critical.

Let’s go back to our point about low minimum and low barrier to entry. It allows for many more people to get involved. The other component is to rewind back for a second to rehash what I was talking about and summarize it as Lauren would say, “Less is more. Keep it simple.” The key part I want to mention is the reason why we wanted to keep it open to accredited and non-accredited investors with a low barrier entry. It allows them to get some additional education for when they look for other investments.

Debt-Free Approach

Another component of why we did this is it is a debt-free approach. What I mean by that is I’ve been in real estate since the mid-‘90s and the early 2000s. There were some challenges in real estate because of the tech bubble. In 2004, 2005, 2006, and up until 2008, we started to see a run-up. I was working for a large general contractor, Suffolk Construction, out of Boston. It’s an excellent company. They have some of the smartest people I’ve ever worked with.

I recall the story of the owner mentioning that we’re no longer bidding on condo buildings in Florida. They had a Florida office, which was booming at the time. The question he got asked was, “Why?” He shared a story about how he walked a project site or walked a job for several plus years. The full details might be a little fuzzy, but two people who are completely out of college, have no real estate experience, and could easily get 100% financing from the bank. He realized, “If it’s that easy for people to get the money to build these things, these are going to turn into a disaster because not only is managing this type of building a challenge with no experience, but building one is even harder.”

What happened with real estate? We all know Florida also got hit hard, but part of the reason was a lot of people without experience were taking on so much debt. When you take on all this debt, it can be challenging, especially if you’re not good at managing. Let’s fast forward. What are you seeing with some operators? They’re inexperienced. They weren’t getting 100% financing from the bank. They were getting 65% from the bank but 35% from investors. Their money in the deal was our management fees, which are our contribution to the deal. They have no money in the deal. What’s happening is they’re struggling.

I’m going to pat myself on the back for this because I thought this was easy to see. I say that because the government printed so much money. Anytime they do that, that leads to an inflationary period. Can I say, “Yes, I expected rates to skyrocket fast?” I had no idea, but I knew they were going to go up. I’m a risk-averse person. I always like to try to play things to the safer side. With our mortgage note fund, we don’t have any debt. Those in a debt-free approach are not worrying about cash calls or some of the other challenges others are seeing at this point in time.

Every time the government prints so much money, it leads to an inflationary period. Click To Tweet

Education And Community Building

The third I want to talk about is the community and the education component. We have well over 500 investors in our fund. We’ve got a significant following within our fund. We’re paying our distributions on a monthly basis. We have not missed a distribution since we got started. As part of this, we’re building this community and trying to educate investors because we do have a lot of investors who have not invested in syndications in the past. We have some who have invested heavily in syndications in the past. We’ve got a broad mix.

A lot of times, people are looking to pay for education or learning. That’s okay. I’m not going to tell people they should not. People should get educated as much as possible on their investment strategy or what they want to invest in. There are a lot of free tools out there, but as I mentioned earlier about that golf ball scenario, you step up and hit.

Creating Wealth Simplified | Fund Structure

Fund Structure: Investors should get educated as much as possible about their investment strategies and what they want to invest in.

 

As part of our providing this and having these 500 investors, we would like to share our insights but also hear the feedback from our investors on how we can improve on what we provide for context. One, for example, was minor, but in some of our newsletters, we were technical in regards to some of the acronyms and terms we’re using. We’re realizing, “This person doesn’t do what we do for a living.”

How can we simplify that so they understand UPB and the payoff for reinstatement on loans? How can we simplify things for the investors? That is an area that we adjusted and changed to give them a better understanding. When you have your investors understand what you’re doing and the journey they’re on, they participate in that journey, but they also feel a better sense of that community because knowledge is the key.

For anybody who’s out there who has investors, if you ask every single general partner out there, “What would you rather have?” An investor who has no knowledge or an investor with a lot of knowledge, every single one of them would raise their hand and say, “I want my investors to have as much knowledge as possible.” It’s a simple fact. What people want is those investors with that knowledge.

Closing Words

I want to say and finalize to wrap up this episode. I’m hoping that you’ve gained insights into why we chose Regulation A and how it aligns with our mission to make investing accessible and community-focused. I hope you’ll continue to join us on our journey through the show as we want to continue to grow our community of savvy investors. From those who read our blog and those who invest and follow us on Facebook, LinkedIn, and other social media where we share our stories, we want to give you that additional education.

I hope you enjoyed this episode. If you’ve missed our prior episode, where we talked about how we launched Regulation A in under six months, make sure to go back and check it. I want to thank you for reading and remember that part of creating wealth, the journey is best traveled with knowledge and strategy. I’ll be signing off on another episode of Creating Wealth Simplified.

 

Important Links

  • Last Episode – Setting Up A Crowdfunding Campaign In 6 Months
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