Terms and Structure for Seed Capital / GP Co-invest
I am putting together a syndication and am early in the capital raising process. Currently speaking with larger check writers within my network, that do not work in real estate, primarily they are VCs, current and former business owners, PMs/HF managers, and are familiar with the private equity/syndication model used in private real estate.
One investor offered to provide up to $500K but they want to have ownership in the operating company so they can have upside as the platform scales. I wasn't aware of these type of investment until looking into GP Stakes and Op Co investments, but they want to be invovled at the deal level and op co level. This aligns with us, since we need the capital for deal pursuit expenses, opco overhead (non-transaction expenses), and gp co-invest. The same investor wants me to draft a term sheet for them and I need recommendations from people with experience negotiating terms with anchor LPs or GP Stake investors.
Ideal structure for me:
$300K op co investment followed by deposit + 70% of coinvest
Investor provides working capital and GP co-invest. Working capital includes deal pursuit capital and operating capital. The GP coinvest includes the deposit.
In return they get 15% of Op Co revenue streams and 10% of performance related fees (promote) on deals where they are investing as LP's or putting up GP Coinvest, done in 24 month window beginning at COE of first deal, and 5% of performance fees in deals where they are not putting up capital as an LP or GP co-invest during same time period.
When they provide capital for deposit which rolls into co-invest they earn a portion of promote pool. ie if they participate at 100% of GP coinvest they will receive 25% of promote pool.
Capital is invested up front for opco investment and GP Coinvest is invested when a target is identified for EMD and then funding the remainng co invest.
Does this make sense?
Is this common?
Does anyone have good references for how to structure this?
Thank you in advance.
Based on the most helpful WSO content, your proposed structure aligns with some common practices in private equity and real estate syndications, but there are nuances to consider:
Op Co Investment and Revenue Sharing:
GP Co-Invest and Promote Pool:
Capital Deployment:
Commonality:
Recommendations:
If you need further insights or examples, reviewing threads on GP/LP structures, co-investments, and GP stake investments on WSO can provide additional context and guidance.
Sources: https://www.wallstreetoasis.com/forums/qa-pevc-fof-principal?customgpt=1, Differences between Co-invest and Secondaries?, Effective LP oversight of GP
I work at an institutional co-GP and it's more like if I'm putting up 80-90% of the GP I'm taking 40-50% of the promote. We also have our operator's fund up to 50% of pursuit / deposits. So your structure may work with high net worth but it is off the market for institutions.
I couldn't imagine finding a good investment, raising the equity, and processing it, only for someone to write a check for 8-9% of the equity and ask for 40-50% of the promote.
On development the promote sharing can make sense because of how big the pre-dev spend can be and the risk the co-GP is taking. But if you are taking all the pre-dev / pursuit risk you may be able to get your LP to size the GP check to what you can afford. There is no sense in sharing any promote if your co-GP is taking the same risk as an LP.
Mollitia voluptas illo eius autem similique. Laudantium mollitia molestiae nesciunt beatae eveniet ut autem nulla. Rerum accusantium qui ullam rem. Doloribus assumenda ipsum rerum consequatur dolorum. Rem ducimus sapiente sed non soluta eveniet distinctio.
Vitae hic amet sint consequatur ducimus ut autem tempore. Accusamus alias maiores sed vero. Corporis ut aspernatur voluptatum alias sequi architecto placeat magnam. Quam laboriosam quia esse sint aut. Consequatur consequuntur delectus aut aut non. Pariatur qui et earum.
Ut sunt ut qui tempore odio voluptate omnis. Tempora unde veniam dolor repudiandae ullam architecto. In et fugiat sit enim.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...