Where do people find investors for... ya know... company things?

March 17, 2023 1:41 PM

I was given a project. Go find investors for syndication.

My firm has a department which does Mechant Cash Advances. This specific department is very different from the other branches of Insurance they sell. Apparently quite a few of our prospects for MCA get declined for whatever reason.
So, they are now looking for investors for MCA company syndication. Ok... how do I find these people?

Before I post in generic job sites, I figure there must be a better way?

posted by fantasticness to Work & Money (13 answers total)

That's a weird request to drop on someone outside the department.

You want to raise a pool of capital to loan to merchants backed by the merchant's credit card receivables? A lot of companies do stuff like that, usually calling themselves factoring or asset-based lenders.

Your firm probably has an attorney who helps them document the advances that are accepted. Talk to that person. There are investors and lenders who fund these type of structured finance deals but it involves some detailed documentation and possibly a regulated securities offering.
posted by mullacc at 1:55 PM on March 17, 2023 [3 favorites]

Response by poster: So our MCA department actually funds a lot of different businesses, but also quite a few don't get any Merchant Cash Advances because they aren't eligible due to various factors (credit score might be a tad too low or high credit score but their business only just started 3 months ago, etc..) They want investors who are willing to fund these types and get high returns for it.

Have NO IDEA where to post ads for this kind of thing. Do I just go the route of Indeed?
posted by fantasticness at 2:01 PM on March 17, 2023

I don’t think Indeed is the right place for this, since it’s not really a job (if I understand the question correctly). You’re trying to find investors for a deal that is too risky for your company to take on, for a higher rate of return and presumably some kind of cut for your company for putting the deal together and managing the syndicate?

You’re looking for people or other entities with money that are willing to take on risky investments. So I’m guessing you’re looking for rich individuals or businesses or funds that can support risky investment. I feel like this is a smallish group that is going to be hard to identify without any edge or in or other kind of related knowledge or experience!
posted by MadamM at 2:19 PM on March 17, 2023

Response by poster: "for investment partners to come in on the syndication end of deals so we can fund some of the riskier ones instead of declining them. He's asked if you can look into places where we can solicit them. Ads or posts would be along the lines of investor wanted for MCA company syndication—high rate of return, blah blah. "

Well, I'm just being asked to find the AVENUE of where to find these folks. Like they want to know if there's something better than a jobs site like indeed to post for this sort of thing... but I don't think there is.
posted by fantasticness at 2:22 PM on March 17, 2023

Maybe finance podcasts, some of them definitely have ads for investment opportunities....
posted by 12%juicepulp at 2:38 PM on March 17, 2023 [1 favorite]

Know any mortgage brokers? They know people who are willing to lend money for slightly riskier ventures than banks will for somewhat higher returns. You can't offer the same kind of asset as surety, but they might know people or know people who know people.
posted by kate4914 at 2:42 PM on March 17, 2023 [2 favorites]

looking for investors

Be careful. There are legal hurdles .
You do not want to get your wrist or worse slapped by a regulator.
There are legal hoops to jump through and rules to be followed.
Even solicitation, including ads may be regulated/
Do not do anything before finding out what the legal requirements are.
mullacc has hinted at it:
it involves some detailed documentation and possibly a regulated securities offering.
and he's nailed it. Talk to your firm's lawyer first. You should know what you can or cannot do.
--
Assume that if you are raising money from the public a prospectus is required.
Now that is a daunting proposition and nothing would get done so there are exemptions to that rule.
You can raise money that is prospectus exempt but you have to know how you are exempt.
Forms might have to be filed.

For instance you might be able to raise money from accredited investors. That's people who can afford the loss.
You might be able to take large amounts of money from a so called angel investor.

You will have to be careful about how many investors you take in before you become a reporting issuer.
Soliciting money may also be regulated so be careful. Get the legal advice first.
posted by yyz at 2:43 PM on March 17, 2023 [5 favorites]

Maybe what you're looking for is referral partners? A lot of lenders take on low credit / start-up type risk.

Anyway, the avenue to find these sort of investors is the network of professional relationships that the people who run your MCA department must have.

Maybe look into the Secured Finance Network? As far as I know, that's the primary industry organization for these kind of lenders.
posted by mullacc at 2:46 PM on March 17, 2023 [1 favorite]

Here's an example of what I meant about solicting money;

Companies conducting an offering under Rule 506(b) can raise an unlimited amount of money and can sell securities to an unlimited number of accredited investors. An offering under Rule 506(b), however, is subject to the following requirements:

no general solicitation or advertising to market the securities
securities may not be sold to more than 35 non-accredited investors
---
But fortunately for you;
Rule506(c)
permits issuers to broadly solicit and generally advertise an offering, provided that:

all purchasers in the offering are accredited investors
the issuer takes reasonable steps to verify purchasers’ accredited investor status
posted by yyz at 4:01 PM on March 17, 2023 [1 favorite]

Syndicated loans aren't securities, but I agree that this requires regulatory advice.
posted by praemunire at 4:51 PM on March 17, 2023 [1 favorite]

The US definition of security is very broad. It's surprising. It's not just bonds or stocks or options
The loan itself is an asset backed security. Which they are selling shares in.

The SEC refers to the Howey Test to determine whether an investment contract exists and a security is being sold. According to this test, an investment contract exists if 1) there’s an investment of money, 2) in a joint enterprise, 3) with the expectation of a profit, 4) which is obtained through the efforts of others.

This really requires legal advice before proceeding.
posted by yyz at 5:50 PM on March 17, 2023 [2 favorites]

Nthing you really need legal hand-holding from your employer’s lawyers who are familiar with exactly what you are doing.
posted by rustcellar at 6:01 PM on March 17, 2023 [1 favorite]

There are many investment banking firms which fundraise for MCA originators. Some MCA originators place directly to retail investors but it is a very complex thing to do effectively and legally, costing millions a year.
posted by MattD at 6:41 PM on March 17, 2023 [1 favorite]