Prospective Entrepreneur Questions

Dear Tim,

I am vaguely familiar with limited partnerships, but have no direct experience. I know that Warren Buffett first set up limited partnerships when he was starting on the career of investing on behalf of others.

I've chosen to do this by setting up a private company instead, and issuing shares to shareholders. One possibility is that you could set up a private company, but a limited partnership structure would probably be as effective. Besides, being in partnership sounds much more friendly. :)

In regards to advertising publically for investors, I believe US law is similar to Australian law in that it restricts private companies and limited partnerships from raising money from the public. What this generally means is that you can only raise money from:

(1) People you know, and/or

(2) Sophisticated investors. Or accredited investors. Or whatever terminology your law uses. These are people that meet certain asset and/or income tests (>$1,000,000 assets or >$250,000 income in Australia I believe) and these people are allowed to invest in such ventures, and you may legally approach. Presumably the reason for this is the assumption that richer people have access to more sophisticated advisors who can advise them on potential investments.

If you have established that you can raise money from these people in particular, then you have the job of contacting them and making your pitch.

I'm not really sure how you would do this. Perhaps you can buy a mailing list somewhere?

And from there, it's basically a job of selling yourself, your skills, experience, credentials, and so forth. To convince others that they should entrust their money to you.

Good luck to you! I hope it works out well.

- Thomas.

> I'd appreciate thoughts on the following. I
> got the idea for this from a book called
> "The Secrets
> of Syndication" by Richard Beguelin
> ©1985. The basic premise is to buy
> businesses or
> income-producing real-estate such as office
> buildings by forming limited partnerships.
> The two types of partners are limited
> partners (invest money and do not manage)
> and general partner(s) who manage the
> business and may or may not invest also.

> The job of the general partner is to
> research and find projects that will pay a
> high enough return on investment (ROI) to
> attract limited partners. Mr. Beguelin lists
> several projects in his book that he did.
> The general partner makes money by 1)
> charging an upfront fee for finding,
> structuring and closing the deal, and 2)
> gets a cut of the profits, usually AFTER the
> investors have been paid back 100% of the
> initial investment.

> I know this basic business set-up is sound.
> It just depends on the project. I understand
> that a lot of commercial real-estate is done
> this way. I have done much research into
> this and am actually looking at some
> specific beach property that I think can pay
> back 30% - 40% ROI per year. My biggest
> hurdle and it's due to the fact that I am
> not really a salesman (but I'm not worried
> about that because I will put together a
> prospectus that must sell itself) is this: I
> cannot advertise publicly for investors -
> all states have laws that prohibit
> advertising to locate partners for a limited
> partnership. And I live in Maryland, which
> limits the number of limited partners to 35.
> I need to know how to find people with money
> to invest! And basically by word of mouth.

> My two specific questions are:

> 1. Have you done this sort of thing; or do
> you know someone who has? If so, I'd
> appreciate input on how to locate investors.

> 2. Has anybody read the aforementioned book?
> Tried it? What do you think?

> Thanks,

> Tim Spencer

> P.S. Does anyone know why the links to
> "BYBA" were taken down on the main
> SOWPub.com page?