How cost effective are CFC management services?
Let’s compare costs to FundersClub.com, a leading system that syndicates early-stage start-ups. FundersClub takes 10% of the amount funded and puts it aside for formation and ongoing management of the syndicate LLC. If they raise $500,000 for the syndicate, $450,000 goes to the company and $50,000 is put aside for fund administration costs.
With CannaFundr.com syndicates managed by CFC, the cost to set up the fund is fixed at $2,000, so the company would receive $498,000. The issuer receives more capital, and the investors receive more equity without dilution of their initial investment—definitely a winning combination!
Each year, the issuing company pays a guaranteed minimum dividend (or royalty), to the syndicate, of $2,000, or a percentage of fund revenues (whichever is greater), enough to cover all the services needed to administrate the syndicate. CFC has a minimum charge of $2,000 to make sure the syndicate LLC is registered properly and provides ongoing shareholder management services to the syndicate LLC and their shareholders, including, but not limited to, annual federal tax filings and appropriate K-1 for the limited partners.
CFC does not take carried interest, which increases the overall value for the syndicate lead and the investors in the syndicate LLC.
When do investors get their profits?
Each year the royalty payments will be disbursed to the members of the LLC based upon their prorated ownership after administration costs are deducted.
When an exit opportunity arises, the lead will advise the fund when to sell the syndicates’ shares. If there are any profits, they are then distributed to the syndicate investors.
In the case of an exit, CrowdFundConnect will only receive a percentage of fees for their administration services only after the investors have recouped their initial investment.
For example, if the company IPOs, the lead will decide when to sell the shares. If the company is sold for cash, CrowdFundConnect (CFC) would distribute any profits to the syndicate investors. If the initial amount invested by investors was $1 million, and the total distribution was $2 million, CFC would only receive a percentage for administration on $1 million ($2 million total less the original investment amount of $1 million). CFC would handle all administrative functions for closing including escrow services, preparation of tax forms, creation of closing statements and distribution of capital.
There are many other situations that are not considered here—in any case, the Canna Champion / fund lead advises the fund when to sell.
The syndicate fund, like all investors, is bound by restrictions with the company and can only sell shares in certain situations.
Can my company be syndicated?
Your company must be a US-based corporation and have a syndicate lead that is an approved CannaFundr marketing partner.
Sometimes other entity types can also be syndicated. Contact syndicates@cannafundr.com to discuss any exceptions.
How do I become a Syndicate Lead?
Partners of hedge funds, venture capital firms, real estate syndication and equity funds have long enjoyed a share in the net profits known as carried interest. Now, you can also if you have the right connections and business acumen to identify and mentor winning companies in the cannabis industry.
If you are willing to perform diligence, structure deal terms, and act as an investment advisor you can become one of our Syndicate Leads. Syndicate Leads also co-invest in the funds they lead, and you will be eligible to receive a portion of the carried interest for the fund you create to invest in the company.
Only Members of CannaFundr have the ability to share in carried interest on investment funds and become a Syndicate Lead. Click here to join the community or log in.
1. Must be accredited investors looking to invest a minimum of $50K per year into private equity companies in the cannabis industry.
2. Should have executive level business management experience.
3. Have experience in entrepreneurial endeavors.
4. Have a network of accredited investors that would be willing to back them.
For more information, you can download a copy of our marketing partner agreement.
To contact us directly about your interest in becoming a Syndicate Lead and one of our marketing partners, please email us at admin@cannafundr.com
Do I have to deal with a million investors?
No. The investors invest in a fund which then invests in the startup. Only the fund is listed on the startup’s cap table—the individual investors in the fund are not.
The fund (Delaware LLC) is advised by the marketing partner / lead who has the responsibility to sign documents and makes decisions on behalf of the LLC.
This is equivalent to adding a single large investor to the round which keeps your legal costs down and administrative time to a minimum.
Who handles tax documentation?
Taxes for the companies are required to be completed by a registered CPA and paid for by the company.
CFC will prepare the Form 1065 for federal taxes for the syndicate LLC annually, generate and issue K1s for electronic delivery, and distribute all dividends via electronic check payment or ACH deposit to all shareholders within the LLC after receipt of distributions from the issuer.
