What a 1 percent fee for introducing 40 investors is actually worth

Before deciding between a fee and a GP seat, ask for the co-GP operating agreement he would use, not a term sheet. That document is where the real offer shows up. Things worth reading for: whether the co-GP entity carries any capital account or just a promote strip, whether that share is subordinated to the lead's, whether the position is admitted as a member with information rights or as a profits interest holder with none, and whether a clawback reaches back if the deal has to return distributions. Co-GP agreements exist where the junior member takes promote pro rata on the way up and full clawback exposure on the way down, which is not a symmetric trade. Also check who signs the loan. Lenders often want anyone with more than a threshold interest in the GP to sign the carve-out guaranty. If a 20% co-GP position drags someone onto a bad boy guaranty on a 9m raise with debt on top, the 30k fee comparison stops being the relevant number.

Warrant's point about the guaranty is the one to chase first. On agency and most bridge debt there's a threshold, often 10% or 20% of the GP, where the lender requires the person to be a guarantor and to show net worth and liquidity. The thresholds and the language vary by lender and by loan program, so get the actual loan term sheet and read the guarantor definition in writing. What that means practically: the fee version of this deal has a ceiling on the downside and the GP version might not. If he's got a bridge loan with a rate cap that expires in 24 months and an extension test he has to hit, the guaranty is live risk, not paperwork.

Naive question from someone still learning how this moves. Why is a list of 40 names worth anything at all if the sponsor could just find those people himself? What's the thing being paid for?

@chriswalton8 it's the warm intro. Cold LP acquisition is brutally slow and most first-time commitments come off someone the investor already trusts. Thicket has spent six years earning that.

Which is exactly why I'd flag the other side, thicket. I'm on the LP end of these and if I found out later that the person who brought me the deal was being paid a percentage of my check and didn't say so, that person is done with me. Not angry, just done. Whatever you take, put it in writing to your people before they wire, in plain language, and let them decide with the fee in front of them. If the deal can't survive your investors knowing what you're paid, it isn't a deal you want to bring them.

The two structures you're weighing are economically different in three ways worth pricing separately.

Timing. A placement fee is paid at close out of the acquisition budget, so it's cash in month one and it's basis the property has to earn back. A promote share pays only after the pref and the return of capital, which on a value-add multifamily hold is typically year four or five, and pays zero if the business plan misses.

Magnitude. At 1% of 3m you're at 30k. A co-GP promote share is a percentage of the sponsor's carry, so its value is the product of your GP percentage, the promote tier, and the deal's actual profit. Model it at the base case and at a flat exit cap. On most value-add deals the gap between those two outcomes is several multiples, and the exit cap assumption is the least defensible input in the model.

Liability. A fee for an introduction, if it's permissible at all, generally carries no ongoing obligation. A GP seat can carry guaranty exposure, clawback, and a duty to the investors you brought. Warrant and tender have the specific documents right.

On getting paid for introducing investors: transaction-based compensation for raising capital from investors is regulated, and whether a given arrangement requires registration depends on facts about your role, your compensation, and the offering. That's a question for your securities attorney, which you have booked.

The part you can settle without a lawyer is disclosure. Meridian is describing the actual failure mode. Investors who learn about your compensation after they wire treat it as concealment regardless of what the documents said.

1% because it's what he paid someone last time is the whole tell. He hasn't priced you, he's repeating a number.

Go back with the GP ask and watch what he does. If he counters seriously you learn he values the capital. If he gets vague about the operating agreement you learned something better and it cost you a phone call.