Pooled four of us into one 310k commitment and got a side letter out of it

The hold expectation gap is the part I'd want more on. What were the two numbers, and how did you resolve it, or did you just paper over it and defer the argument to year five? Because a four member LLC with split views on when to sell is a governance problem sitting inside a passive position.

6,800 across four people is 1,700 each. On a 60k check that's nearly 3% before anything happens. Did the smallest member think it was worth it?

@marlow that math depends entirely on the hold. Over seven years 1,700 on 60k is a rounding error. Over eighteen months it's most of a year's preferred return.

@warrant, what does your LLC agreement say about one of the four wanting out mid-hold? You now have two layers of illiquidity stacked on each other and the inner one is the homemade layer.

The lender compliance certificate is the detail I'm stealing. Never occurred to me to ask for a document the sponsor is already producing for someone else. What did they say when you asked, and did they redact anything?

The mechanism worth separating out here, since people will read this and copy it: a side letter is a bilateral agreement between the sponsor and one investor that modifies or supplements the terms of the main documents for that investor only. Sponsors gate them by commitment size because each one creates an administrative obligation that has to be tracked for the life of the fund or deal. Information rights are the cheapest thing to grant, which is why they're the most winnable. Economics are the hardest, because they show up in every other investor's MFN analysis.

The most favored nation clause matters more than it looks. An unrestricted MFN gives you the benefit of terms granted to later investors. Sponsors routinely limit MFN by category, by commitment threshold, or exclude it entirely. @warrant got it limited to information only, which is a normal outcome and worth naming as the likely ceiling for anyone trying this.

On the aggregation vehicle, @warrant is right to leave it with counsel. Whether pooling several people into an entity to make one investment constitutes its own securities offering turns on the facts, the number and type of participants, and applicable federal and state law, which varies by state. It is not a structural fact that can be settled in a forum, and the answer changes the documents.

The practical point for anyone using an aggregator: the sponsor's fund documents often restrict whether an investor entity may itself have multiple beneficial owners, and may require look-through for investor qualification purposes. Read the subscription agreement's representations before you form anything, because the eligibility language there frequently decides the question before your own structure does.

Eleven weeks. Was the deal's closing date moving during that? I've hit the ceiling on my own deals partly because I can't hold a seller for eleven weeks while a partner's counsel works something out, and I'm curious whether the sponsor was just patient or whether the timing happened to be loose.

Reading this from the other side. If I were the sponsor, four people in a homemade LLC asking for quarterly reporting and lender documents is more work than a single 310k check, and I'd be weighing whether I want the precedent. What made them say yes? Was it that you were replacing capital they'd otherwise have had to find, or did you already have a relationship?

The 45 day quarterly capital account is only useful if it's prepared on a consistent basis and someone reconciles it to the annual. Ask now what basis the quarterly is on and whether it gets restated at year end after the accountant closes the books. I've seen quarterlies that were manager estimates and then moved 6 to 9% at the annual true-up, which makes the whole exercise theater. If it does get restated, at least you'll know to read it as a directional number rather than a balance.