From: David Haig <dh@davidhaig.ca>
Date: Jul 4, 2019 at 10:37 AM
Subject: LP Overview
As we discussed previously, please find below a brief overview of the information we discussed regarding the Limited Partnership. The concept is to raise capital (usually an amount between $10M and $15M), using a Limited Partnership (LP) vehicle separate and apart from the companies you now own; for the stated purpose of investing in, on a project by project basis, those projects that you intend to undertake in the coming months. The terms of these investments / participation, into each of the individual projects, could be in the form of debt or equity, convertible or otherwise, as well as certain royalty models. The LP investors would typically receive a 6–8% cumulative interest rate, payable quarterly starting 12–18 months following its launch, and a significant portion of the asset gains (of the LP) once the initial capital had been returned, usually 5 years. The General Partner and Fund Manager (if one is designated) would also share in the distributions at this point.The estimated costs to set up the Fund, mostly documentation, legal etc. is typically $14K, all of which goes towards preparing the LP / Fund documentation. My colleague will split up this fee into two payments, if that helps with your cash-flow. Alternatively, if it’s paid upfront, he will reduce the cost to $12K. These costs can be repaid to the sponsor (or whomever pays the upfront) once the first investment is received. I will work with you and pitch it on a success-fee and approved expenses only basis, to both my network, and those others that you think might be worthy candidates. It usually takes approx. 2.5 weeks to complete the preparation of the LP documentation (Offering memorandum, limited partnership agreement, SUB agreements etc.) Using the LP Model1. The LP’s management, specifically the General Partner, which can be yourself (individual or corporate) or someone you appoint and has a knowledge of your company and the industry in which it operates, approves the transactions, on a case by case basis. When establishing the LP, the LP agreement lays out the broad industry and investment criteria that it intends to follow, both of which are favorable to your existing business strategy, as it is defined by us in the initial preparation of the documentation. 2. The investors are the Limited partners of the Fund. The General Partner can be a company that you or an associate control. 3. Once the limited partners receive the return of their capital, they remain entitled to receive a pro-rata distribution of future gains / returns, comprising 50% - 70% of the LP assets. This is not to be confused however with equity in your company or those companies / assets / projects into which you invest. (e.g If the LP invests $3million into a project you develop, in exchange for a 20% stake, then it is the proceeds of that 20% that they retain the share of, not the remaining 80% that you and your partners would own or control). Typically, the General Partner (GP) is entitled to receive compensation in three different ways: The GP receives an annual management fee of 2% of the assets / value of the assets of the Limited Partnership. For an LP with underlying assets of $10 million, the GP would receive $200K per year or $1.0 million over the 5 year life of the Fund.The GP receives a carried interest of between 20 - 30% on the profits/ proceeds of the Limited Partnership once the Limited Partners have received a return of their capital. This carried interest is perpetual and continues until all assets have been monetized and / or all royalties etc. have ceased.The GP receives reimbursement of all expenses paid on behalf of the LP, including start-up legal fees, ongoing accounting, consultant’s time etc.Next Steps (if you’re interested)Get the legal docs started. Schedule a call to discuss structure of future operations.Identify initial 2-3 investment opportunities for the L.P.
Best regards,
David Haig DAVID J. HAIG | Managing Director | davidhaig.ca
Entrepreneurship and Investment
B +1 613.288.9200 M +1 310.870.1677 | Ottawa, Ontario, Canada |
www.davidhaig.ca
https://www.linkedin.com/in/david-haig-3145b842/
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