Her CEO Journey™: The Business Finance Podcast for Mission-Driven Women Entrepreneurs

Weekly show where my featured guests and I explore the financial and business challenges women face on the entrepreneurial journey to success. You'll hear them talk about the money side of their businesses in ways you've always wanted to know about, but wouldn't dare ask. They openly share their disappointments, failures, successes, and everything in-between as they grew sales ranging from 6 to 9 figures. Knowing where your business stands financially helps you make critical decisions with confidence. It's simply the best way to be sure you grow a business that fuels the life you want to live.

https://www.christinasjahli.com/

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episode 120: Special Purpose Vehicles and You: Navigating the Legalities Surrounding SPVs - The Journey of McCall Harris [transcript]


There are lots of benefits to using a special purpose vehicle or SPV to raise capital. However, you undermine these advantages if you don’t familiarize yourself with its legal aspects. Handling legal affairs may be intimidating, but it is a necessary aspect of any business venture. If you want to utilize the full potential of an SPV, you need to know how to navigate its legalities.

In this episode, McCall Harris talks about the legal processes involved with SPVs. She also explains from a legal standpoint why it is a favourable alternative to venture capital funds. In addition, McCall talks about the steps involved in creating and dissolving an SPV. Finally, she provides details behind the legal documents essential in these processes.

If you are a mission-driven founder who wants to try SPVs for your business, this episode is for you!

3 reasons why you should listen to the full episode: 

  1. Understand the step-by-step process of creating an SPV.
  2. Learn the documents you need for an SPV.
  3. Find out more about dissolving an SPV, whether in a successful or unsuccessful exit.

Episode Highlights

  • [05:24] Being a Lawyer and Specializing in SPV
  • [07:43] What Is a Special Purpose Vehicle?
  • [12:09] The Four-Step Process of Creating an SPV
  • [13:47] Benefits of SPVs
  • [15:29] Why Does a Cleaner Cap Table Matter?
  • [17:50] Legal Documents You Need to Know
  • [21:37] Drafting an Operating Agreement
  • [26:01] The Terms Included in an Operating Agreement
  • [28:03] Legal Aspects of Successful Business Exits
  • [34:42] Unsuccessful Business Exits
  • [38:44] Other Considerations

Enjoyed This Podcast?
Write a review and share this with your friends.

Connect With Me
Ready to transform your purpose into an impactful business financial story, profit, and joy? Schedule a chat with me.

Resources

  • Visit Christina Sjahli’s for more insights on raising capital through equity crowdfunding on the Her CEO Journey podcast.
  • Episode 118: Using a Special Purpose Vehicle as an Option for Capital Raising - The Journey of Katie Neilson
  • Episode 119: Ensure Your Startup Growth: Tips on Capital Raising Using Special Purpose Vehicle And Strategic Development 
  • Are you getting ready for capital raising? Identify the financial gaps that can stop you from building a profitable and sustainable business. Download this quiz!
  • Download this Action Guide to help you determine if an SPV is right for your business.
  • Assure — The Special Purpose Vehicle Specialist: Website | LinkedIn


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 2021-06-17  46m
 
 
00:03  McCall Harris
It's my
00:03
experience that an SPV is able
00:06
to deliver that investment
00:06
quicker, faster and it's more
00:11
efficient than a VC fund.
00:11
Because as we discussed earlier,
00:15
VC funds are bigger and there's
00:15
a lot more going on with them.
00:21  Christina Sjahli
Over the past
00:21
two weeks, you have joined our
00:23
conversation about the
00:23
capital-raising special purpose
00:26
vehicle. The goal for this
00:26
series is about expanding your
00:30
knowledge of the different
00:30
financing options out there, so
00:35
if you choose to raise capital,
00:35
you know the best funding
00:39
options and be strategic with
00:39
your capital raising. In this
00:43
specific series, we dive into
00:43
details of the differences
00:46
between venture capital and
00:46
special purpose vehicle or SPV.
00:51
What's the benefit of raising
00:51
capital using an SPV, and what
00:55
founders need to know if they
00:55
want to use SPV to raise
00:59
capital?
01:00
The first episode of this series
01:00
was a conversation with Katie
01:04
Neilson, the co-founder and
01:04
Chief Revenue Officer of Assure,
01:08
the special purpose vehicle
01:08
specialists. Then the second
01:11
episode was a conversation with
01:11
Doris Spalding, the managing
01:15
director of BoomStartup, an
01:15
accelerator that utilize a
01:19
special purpose vehicle to raise
01:19
pre-seed funding. If you missed
01:24
these two episodes, episode 118
01:24
and episode 119, I invite you to
01:31
check out these two episodes in
01:31
the podcast series inside
01:35
christinasjahli.com/herceojourneypodcast.
01:40
Today's episode is the third
01:40
part of this series. I am joined
01:43
with McCall Harris, the legal
01:43
counsel at Assure, the special
01:47
purpose vehicle specialists. We
01:47
dive into details about the ins
01:52
and outs of the legal aspect of
01:52
creating to dissolving an SPV.
01:57
Next week, you will also gain
01:57
insight from a female founder's
02:01
perspective who had successfully
02:01
raised capital through a special
02:05
purpose vehicle with Assure.
02:08
You're listening to Her CEO
02:08
Journey, the business finance
02:11
podcast for mission-driven women
02:11
entrepreneurs. I'm your host,
02:14
Christina Sjahli. If you are new
02:14
here, a big warm welcome. If we
02:20
are not connected on LinkedIn,
02:20
please reach out and say hi,
02:23
because that's where I hang out
02:23
and share my business finance
02:27
steps. If you have been
02:27
listening to this podcast for a
02:30
while, and you are a regular
02:30
listener, I want you to know I
02:35
appreciate you. My podcast won't
02:35
be around without your support.
02:39
This is a free weekly show where
02:39
my guests and I want to inspire
02:43
you to balance between mission
02:43
and profit, to create an impact
02:47
in this world, and to achieve
02:47
financial equality through your
02:52
business for good. I always
02:52
believe there are many different
02:56
ways to raise capital, it is
02:56
just a matter of knowing which
03:00
works best for you.
03:00
Understandably, it can be easy
03:04
to get lost because of the
03:04
various options, and increasing
03:08
your knowledge of these various
03:08
options is one piece of the
03:12
puzzle. Most importantly,
03:12
though, you need to know why you
03:17
need access to this extra cash.
03:19
Can you build this access to
03:19
capital organically? What's your
03:23
capital deployment strategy?
03:23
Because your success isn't about
03:28
receiving the capital. Your
03:28
success comes from building a
03:31
sustainable and profitable
03:31
business that is aligned with
03:36
your purpose once you have the
03:36
capital. Before you rush and
03:40
decide to raise capital for the
03:40
first time or for your next
03:44
round, I want to invite you to
03:44
identify the possible financial
03:48
gaps in your business first. I
03:48
understand sometimes it can be
03:54
complicated to identify those
03:54
financial gaps. So I want to
03:58
make it simple for you.
04:00
That's why I have created a quiz
04:00
to help you identify any
04:04
financial gaps you may have and
04:04
stop you from building a
04:08
sustainable and profitable
04:08
purpose-driven business. You can
04:12
find the link to the quiz in the
04:12
show notes. I encourage you to
04:16
take this quiz, then take action
04:16
to fill in the financial gaps.
04:21
We are here to partner with you
04:21
so you can elevate your
04:25
credibility in preparation for
04:25
future growth. We get it: your
04:30
business is your baby. You have
04:30
been building this business with
04:34
blood, sweat and tears. You want
04:34
someone who is as passionate as
04:39
you are and takes your business
04:39
to the next level. We understand
04:43
business finance can be
04:43
confusing, but it doesn't have
04:47
to be complicated.
04:48
We will show it to you. You will
04:48
understand and trust your
04:52
financial numbers and we will
04:52
make sure you are making
04:56
business decisions with your
04:56
purpose front and center.
05:00
Connect with us at
05:00
christinasjahli.com/let-s-chat.
05:05
Now, let's find out McCall's CEO
05:05
journey. McCall Harris, welcome
05:11
to Her CEO Journey. Before we
05:11
start to dive into
05:16
capital-raising special purpose
05:16
vehicle, let's start with your
05:18
journey in becoming a lawyer and
05:18
specialize in this SPV stuff.
05:24  McCall Harris
My journey to
05:24
become a lawyer really started
05:27
when I was young. On my little
05:27
spotlights in kindergarten, when
05:30
they asked "What do you want to
05:30
be when you grow up?" I just
05:32
said, "Attorney." I just ended
05:32
up doing that. So when I
05:36
finished my undergrad, I went to
05:36
Brigham Young University in
05:40
Utah. I graduated in 2018. I
05:40
started working for Assure right
05:46
out of law school. I started out
05:46
really as more of an operational
05:50
associate because I did, I was a
05:50
licensed attorney. They also had
05:54
me doing some fund doc review,
05:54
but it was mainly in the
05:58
trenches of doing these deals.
06:00
Over time, over the next three
06:00
years, I've evolved more into a
06:05
completely legal role. I do a
06:05
lot of compliance work. I do all
06:08
of the fund docs for, custom SPV
06:08
docs that our clients want to
06:12
bring to the table. In the three
06:12
years since I've joined the
06:16
company, we have just
06:16
experienced phenomenal growth.
06:20
I've seen over 3,000 deals come
06:20
through the door, and for deals
06:23
that Assure is being the lead
06:23
administrator on, we're over
06:26
6,000. So I feel like my
06:26
knowledge and my expertise with
06:30
SPVs comes just because I've
06:30
seen a lot.
06:33  Christina Sjahli
Did you know
06:33
about special purpose vehicle
06:36
when you were in law school?
06:36
Have you heard about it?
06:40  McCall Harris
No, I had no
06:40
idea. Honestly, when I was in
06:45
law school, I specialized in I
06:45
was really good at trial work,
06:49
like evidence being in the
06:49
courtroom. I went to a bunch of
06:51
national competitions for and
06:51
that's what I thought. But when
06:54
I saw this posting, it had a lot
06:54
of aspects about the job that I
06:59
liked from a work-life balance
06:59
perspective. I was really drawn
07:04
to Katie and Jeremy. It was one
07:04
of those things where when you
07:08
sign up, it's your first job at
07:08
a law school, you don't really
07:10
know it's going to be a great
07:10
year. And I was looking at
07:13
husband and I've learned it all
07:13
here. I've everything. I didn't
07:18
know anything about securities
07:18
law about private equity when I
07:21
started.
07:22  Christina Sjahli
This is going
07:22
to be a great conversation then,
07:24
because a lot of my audience are
07:24
founders and they don't know
07:29
what is special purpose vehicle
07:29
or SPV. So let's start our
07:35
conversation. What is an SPV or
07:35
specifically, capital-raising
07:41
special purpose vehicle?
07:43  McCall Harris
I joke sometimes
07:43
with my analysts or people I'm
07:45
helping train or kind of bring
07:45
into the company that, I know it
07:48
stands for special purpose
07:48
vehicles, it really you should
07:52
think of it as a single purchase
07:52
vehicle, single purchase. I
07:56
think that is an SPV in its
07:56
purest form, you're acquiring
08:00
one asset. So really, when
08:00
you're trying to nail down a
08:04
definition of what this is, I
08:04
think it's easiest to understand
08:08
it when you compare it to its
08:08
predecessor, right, which is
08:12
your typical VC structure of the
08:12
fund, right. When you're looking
08:16
at those funds, they're pretty
08:16
complex. You're usually raising
08:20
quite a bit of money, right? It
08:20
could be a couple million all
08:23
the way up to 2, 3, 4 or $500
08:23
million, right. You're raising
08:27
that capital over time, you're
08:27
deploying that capital over
08:31
time.
08:32
Usually, when you're bringing
08:32
those LPs in initially, you
08:35
might have a couple of those
08:35
investments lined up, you know
08:38
what they are. But for the rest
08:38
of that money that you've
08:40
raised, it's kind of blind pool.
08:40
You're going to go out there,
08:43
you're going to find them,
08:43
you're going to hold your
08:45
manager meetings to decide if
08:45
you really want to invest the
08:48
fund's money in there. But it's
08:48
a much longer, much more complex
08:54
structure. That's what private
08:54
equity used to be, and SPVs came
08:58
along, and what we wanted to do
08:58
with them is water them down,
09:02
simplify the process.
09:04
Hey, instead of raising hundreds
09:04
of millions of dollars, what if
09:08
I just want to buy one asset?
09:08
Like what if I just had an end
09:12
with, let's say, SpaceX, and I
09:12
got an opening and I can invest
09:16
in some common stock with
09:16
SpaceX, and then we're done.
09:19
We're not going to be raising
09:19
capital for five years. We're
09:21
not going to be figuring out all
09:21
these places where we can put
09:24
our money to get the best
09:24
investment. We're not really
09:26
selling a VC fund ability to
09:26
deliver on my investment as a
09:31
GP. You're really just buying
09:31
stock in SpaceX. If you want it
09:35
come into my SPV, and if you
09:35
don't want it, you're going to
09:39
pass and I'll tell you what my
09:39
next SPV is.
09:41
When you're looking at
09:41
investment vehicles, you really
09:44
have two options. You can do a a
09:44
limited liability company, an
09:48
LLC, or you can do a limited
09:48
partnership, LP. But those are
09:53
really the two legal entities
09:53
you're looking at. When you're
09:56
in the LP realm, you're dealing
09:56
with a general partner and an
09:59
LP, a limited partner is going
09:59
to be investor. If you're doing
10:03
the LLC route, you're looking at
10:03
a manager, which typically kind
10:06
of organizes everything and
10:06
fulfilling that traditional GP
10:10
role, and there's members of
10:10
this LLC.
10:14
So just different names for the
10:14
same thing. And there's not a
10:18
lot that's different between an
10:18
LLC and an LP from just a
10:22
functional standpoint. If you're
10:22
wanting to do an SPV, and use an
10:25
investment vehicle, there's
10:25
really, there's no difference
10:29
between an LLC and an LP. You're
10:29
going to be able to accomplish
10:33
the same things in an LLC as you
10:33
would be in an LP. Well, I find
10:38
the differences of well, then
10:38
why would someone picking LP
10:42
versus an LLC? I think that
10:42
comes down to my, again, my
10:47
experience, mainly three things.
10:47
The first one is third-party
10:51
preferences. So Assure, for
10:51
example, we are a fund
10:55
administrator, but we will also
10:55
manage a lot of our SPVs, our
10:58
clients think that's easier, and
10:58
we are able to take that kind of
11:02
administrative burden off of
11:02
them. But Assure is never going
11:06
to be the general partner of a
11:06
limited partnership, because of
11:09
the liability structure in
11:09
partnerships, right.
11:12
General partners have full
11:12
liability, limited partners have
11:16
limited liability. Well, because
11:16
of that, Assure is never going
11:18
to take that role. So if you
11:18
want to Assure to help manage
11:21
your SPVs, we're happy to, you
11:21
just have to be an LLC. The
11:25
second one I see, sometimes
11:25
foreign countries don't always
11:30
accept or understand the concept
11:30
of an LLC. So limited
11:34
partnership is just easier. I'm
11:34
not going to do whatever you
11:36
want. But both entities are
11:36
going to deliver what you need
11:40
them to deliver from an
11:40
investing perspective.
11:43  Christina Sjahli
So let's say a
11:43
founder comes in because
11:47
majority of my audience, as I
11:47
mentioned, are founders. So they
11:52
come in either through an
11:52
organizer or directly to Assure
11:58
and say, "Hey, you know, I heard
11:58
about capital raising SPV. I
12:03
want to know more about it. What
12:03
are the legal steps in creating
12:07
this capital raising SPV?"
12:09  McCall Harris
The first thing
12:09
you need to do is create your
12:09
Those are the first set of steps
12:09
that you honestly don't even
12:12
entity. We got to incorporate
12:12
it, file that Certificate of
12:15
Formation somewhere. I'm talking
12:15
about their SPV. It's an entity
12:19
that we're taking pooled capital
12:19
to acquire a private asset,
12:20
need to have an investment plan
12:20
or strategy in place. Those are
12:23
whatever that private asset is.
12:23
So we got to make sure it exists
12:25
first. We typically do that in
12:25
the United States in Delaware,
12:29
it's just the state where we do
12:29
that, as we incorporate it
12:29
just things that has to happen.
12:29
Then, when you're maybe a little
12:33
there. Then you're going to get
12:33
an EIN, or a tax number,
12:37
whatever your country's
12:37
equivalent is of that tax ID
12:40
number. Then you're going to
12:40
open up a bank account in the
12:43
name of the SPV, it's very
12:43
important, especially when
12:46
you're talking about exit. It's
12:46
the formal name of your SPV,
12:49
then you're gonna get an EIN for
12:49
my SPV.
13:04
bit further down the road,
13:04
you're going to need to get your
13:06
legal docs, which are your
13:06
operating agreement, or a
13:10
limited partnership agreement,
13:10
depending on if you're doing
13:13
that LP or LLC, a subscription
13:13
agreement, and a PPM or a
13:18
private placement memorandum. So
13:18
I like to break it down to those
13:21
four steps, create my entity,
13:21
got to file that and make sure
13:25
it's legally created, I have to
13:25
get a tax ID number. Once I have
13:29
those pieces, I can open up a
13:29
bank account so I can start
13:32
collecting money for investors
13:32
who are ready to sign up. Then
13:36
I'm going to get my legal docs
13:36
ready to go when I'm ready to go
13:39
with more specifics on the
13:39
actual investment.
13:42  Christina Sjahli
Now, what is
13:42
the benefit for founder to
13:45
consider SPV?
13:47  McCall Harris
It's my
13:47
experience that an SPV is able
13:50
to deliver that investment
13:50
quicker, and it's more efficient
13:54
than a VC fund. Because as we
13:54
discussed earlier, VC's funds
13:59
are typically just bigger, and
13:59
there's a lot more going on with
14:02
them. There's a lot more,
14:02
essentially red tape, you're
14:05
gonna have to go through. I
14:05
don't want to say the organizers
14:09
who are writing an SPV don't go
14:09
through as much due diligence as
14:13
someone who's running a VC. I
14:13
don't believe that's the case, I
14:16
just believe they're able to go
14:16
through it quicker, because they
14:19
don't have as many internal
14:19
hoops they have to jump through.
14:22
So I think founders who are
14:22
interested about being quick and
14:27
unintentional in a way about
14:27
their investors, I think SPVs
14:31
have a big draw for them.
14:33
When I say intentional, I mean,
14:33
SPVs are structured to allow
14:40
investors to sort of quickly
14:40
onboard and quickly assess the
14:44
merits of the asset. So I think
14:44
it's helpful when you have a
14:49
group of investors you're
14:49
excited about, you want to pool
14:51
their capital together so
14:51
they're showing up as a single
14:54
investor on your cap table, as
14:54
opposed to four or five
14:58
different people. They can come
14:58
in, they can be in one vehicle,
15:02
directly invest into your
15:02
company, and you cut away all
15:05
that other noise. And I think
15:05
from that perspective, I feel
15:08
like it's very attractive for a
15:08
founder.
15:10  Christina Sjahli
Okay. Let me
15:10
ask you this. Based on your
15:13
experience, why does it matter
15:13
to have one, owners in your cap
15:20
table, one investor versus 5 or
15:20
10 investors? Why does a cleaner
15:27
cap table matter?
15:29  McCall Harris
A cleaner cap
15:29
table matters because all those
15:33
people are now owners along with
15:33
you and your company. A lot of
15:37
the times when there's big,
15:37
major decisions, notifications
15:40
that have to go out, you have to
15:40
hold meetings and get their
15:43
consent because they now own a
15:43
part of your company. And so
15:46
when you have a very, very long
15:46
cap table, it's like herding
15:49
cats. It's like
15:53  Christina Sjahli
I like that.
15:55  McCall Harris
A lot of the
15:55
times, if you're a new founder
15:57
and you're going to this for the
15:57
first time, I don't know if you
16:00
can truly understand the
16:00
complexities and frustrations
16:03
until you go through it the
16:03
first time. So I'm going to do
16:06
myself a favor on the front end,
16:06
and I'm going to try to
16:09
consolidate it as much as
16:09
possible. An SPV offers that for
16:14
you. It also offers to instead
16:14
of dealing with, I don't know
16:18
what anyone's given raise is
16:18
looking like, but maybe I have a
16:22
really great person and as that
16:22
I want on my team with me, I
16:25
want to be married to this
16:25
person, with my company. But
16:29
they can only put in $5,000 and
16:29
I'm looking for more money than
16:33
that.
16:33
Well, I can go out and find a
16:33
couple other people in that same
16:37
boat, people I'm really excited
16:37
about ad they're excited about
16:39
me and my idea. We can pull them
16:39
all together. All of a sudden,
16:43
that $5,000 here, $25,000 here,
16:43
or whatever it is, can roll up
16:48
and look like $250,000. That's a
16:48
lot better. And because they're
16:53
in an SPV is one investor I'm
16:53
dealing with, I get the benefit
16:58
of all the expertise and the
16:58
relationship and the experiences
17:02
these individual investors have.
17:02
But they're only showing up as
17:05
one person on my cap table,
17:05
which is going to make my life
17:07
so much easier down the road.
17:10
Now anytime something happens,
17:10
whether it's an exit event,
17:13
that's the one that's most
17:13
common, they're really only
17:16
dealing with getting that share
17:16
of the distribution to their one
17:20
investor. The SPV then has to
17:20
deal with right on their level,
17:24
divvying out their allotment to
17:24
each of those investors. So the
17:29
portfolio company doesn't really
17:29
look through the SPV. They're
17:34
really dealing with one investor
17:34
on their cap table for purposes
17:38
of notifications, for purposes
17:38
of voting rights and shares and
17:42
stuff.
17:43  Christina Sjahli
What are the
17:43
legal documents or agreement
17:46
needed, that founders should be
17:46
aware of?
17:50  McCall Harris
I think the meat
17:50
and potatoes of an SPV come in
17:54
with the fund documents of the
17:54
SPV. And when I say fund
17:55
documents, I'm referring to an
17:55
operating agreement, whether
18:02
it's a limited liability company
18:02
operating agreement, or a
18:06
limited partnership, those
18:06
agreements are going to be
18:09
having the same terms and then
18:09
just refer to one typically as
18:12
an operating agreement. If it's
18:12
in an LLC, we call it a limited
18:16
partnership agreement. If we're
18:16
talking about an LP, you're also
18:20
going to be dealing with a
18:20
subscription agreement.
18:22
When you're working with Assure
18:22
and a lot of other people in the
18:24
industry, we also have an
18:24
additional document, we call it
18:28
a private placement memorandum
18:28
or PPM. So let's walk through
18:32
each of those documents and what
18:32
you can expect and what they
18:35
are. The operating agreement is
18:35
doing all of the heavy lifting
18:39
of the SPV. Right, when we talk
18:39
about, "Hey, what are terms
18:43
like? How are we going to be
18:43
raising capital over time if I
18:46
want to do capital calls? What's
18:46
my carry gonna be? Is there
18:49
going to be a management fee?
18:49
What are the rights of the
18:52
investors? What are the rights
18:52
of me as the lead or the
18:56
organizer of this deal? How am I
18:56
protected?" All of that is in
19:00
the operating agreement.
19:02
When I'm seeing documents come
19:02
back and forth and people are
19:05
negotiating those terms, it's
19:05
happening in the operating
19:08
agreement. And so it's important
19:08
if you have issues or your
19:11
investors maybe have certain
19:11
concerns that you do address
19:15
them at the beginning because
19:15
once it's all said and done,
19:18
like those are the rules we all
19:18
agreed to play by. So a lot of
19:21
the times I see investors,
19:21
they'll just send it right over
19:24
to their attorney and say, "Hey,
19:24
are we good with this? Am I good
19:26
with this?" And a lot of the
19:26
times it's just attorneys
19:29
talking to one another about
19:29
those terms. That's the
19:32
operating agreement.
19:34
The subscription agreement, it's
19:34
all about collecting information
19:38
from your investor. That's where
19:38
they're gonna say, "Hey, here's
19:41
how much money I want to put in.
19:41
Here's my address. Here's my tax
19:44
ID. Yes, I'm an accredited
19:44
investor. Here's all this
19:48
banking disclosures I'm going to
19:48
do. I am not on a FINRA
19:51
watchlist, right? I am not a
19:51
terrorist," all of those types
19:54
of disclosures you have to do to
19:54
make an investment in private
19:58
equity, all housed in the
19:58
subscription agreement, and it's
20:02
specific per investor. So if
20:02
ever you have to go back and
20:05
look and be like, "Well, what
20:05
did they say? What did they sign
20:08
up for? What information that
20:08
they give us?" It's all housed
20:10
there and you can go back and
20:10
look at it there.
20:13
The PPM, it's not a required
20:13
document, per se, it's usually
20:19
not even signed. But what it is,
20:19
is a document full of
20:22
disclosures. Right? I do
20:22
sometimes, like the big boy
20:26
provision, like we're going to
20:26
drop that in there, like, "Yes,
20:28
this is private equity, you
20:28
could lose all your money,
20:30
you're aware of that, you're
20:30
acknowledging that." Sometimes
20:34
when you don't want to put all
20:34
of them, all of those
20:36
disclosures in their own
20:36
document, I see organizers
20:41
divvying them up throughout the
20:41
operating agreement and
20:44
subscription agreement. So they
20:44
only have to deal with two
20:46
documents. So they can kind of
20:46
divide it up, relay the same
20:50
message to people throughout
20:50
those other two agreements.
20:53
So it's really optional, we
20:53
prefer to house them all here at
20:57
Assure in one document. And I
20:57
also see investors and clients
21:02
wanting to put additional ones
21:02
that are maybe industry specific
21:05
or asset specific in the PPM, so
21:05
just want everyone to be very
21:10
clear on what they're signing up
21:10
for. So that's kind of, I think,
21:14
an overview on what those
21:14
documents are. And so again, as
21:16
you see them coming across,
21:16
maybe from a founder's
21:19
perspective, you can orient
21:19
yourself and know, okay,
21:22
operating agreement,
21:22
subscription agreement, PPM.
21:26  Christina Sjahli
What does the
21:26
founder need to care about
21:29
inside of the operating
21:29
agreement? Or the operating
21:33
agreement, it's more for the
21:33
organizers?
21:37  McCall Harris
I think it's
21:37
generally more for the
21:40
organizer, but it could be
21:40
either and this is I think,
21:43
something that I would think is
21:43
important for a founder to know.
21:47
SPVs, from an organizers
21:47
perspective, right? They want to
21:52
do deals as fast as they can,
21:52
efficiently as they can, and as
21:56
most cost-effective as they can.
21:56
And the way to do that is to
22:00
make it so an SPV is ready to go
22:00
essentially off the shelf. And
22:06
so when it comes to fund docs,
22:06
it can get bogged down very,
22:09
very quickly.
22:10
I'm trying to give a good
22:10
example here, I, our CEO, Jeremy
22:14
Neilson, he talks about fund
22:14
docs, and he compares it to
22:17
paint. If you've ever gone into
22:17
like a paint store and watch
22:21
them paint, they start out with
22:21
white paint. And then they like
22:24
go into their computer and they
22:24
hit their codes and like spits
22:27
out the pigments that you need
22:27
to make it the exact color and
22:30
shade that you want. I am not
22:30
giving anybody legal advice by
22:34
saying that, but I think it's
22:34
helpful for a founder to have
22:38
this background. When you're
22:38
looking at legal docs from an
22:41
SPV perspective, I think it
22:41
should be white paint every
22:46
single time.
22:47
So you can come, you have very
22:47
generic, they're legally
22:50
sufficient documents. But it's
22:50
legally sufficient to make this
22:54
investment and I can pull those
22:54
same documents every single time
22:57
for my deals. My legal fees are
22:57
very, very low if not zero,
23:02
because I'm not changing these
23:02
for every single deal I have.
23:05
It's fast, because I don't have
23:05
to worry about fixing terms in
23:09
negotiating terms. But it also
23:09
has to be generic enough that
23:12
someone's okay to sign that,
23:12
right? It can't be very specific
23:16
to a certain asset. And so I
23:16
think founders sometimes will
23:21
look at these operating
23:21
agreements. And it's like, "Oh,
23:22
well, like you're investing in
23:22
common stock in my company. We
23:25
need information here about like
23:25
the price per share, I want that
23:28
in here. I want all these
23:28
specifics about the asset you're
23:31
buying for me here in your
23:31
operating agreement."
23:34
My perspective on that is, those
23:34
are valid things that you want,
23:39
those are valid terms and valid
23:39
things you should be discussing
23:42
and negotiating. Let's house
23:42
that in the stock purchase
23:45
agreement. Let's take it out of
23:45
the operating agreement of my
23:49
SPV and use that for the actual
23:49
asset purchase docs. They're
23:55
important, we're not ignoring
23:55
them, we're just going to house
23:57
them in a different spot so the
23:57
organizer's ability to quickly
24:02
and cost effectively spin up
24:02
SPVs is maintained. And I think
24:07
when a founder knows that, if
24:07
they don't come and look at
24:10
these docs, like, "Oh my gosh,
24:10
this is white paint." And we
24:13
need purple because you are
24:13
buying common stock in my
24:15
company and we need all those
24:15
terms in there.
24:18  Christina Sjahli
My
24:18
understanding is this. There's
24:20
gotta be a template that you use
24:20
over and over again, and if
24:24
there is a special term that you
24:24
want to use specifically for
24:29
your company, set it up in a
24:29
different agreement. That's what
24:34  McCall Harris
Yeah, that's
24:34
exactly what I'm saying. I think
24:34
you're saying?
24:37
sometimes founders look at it
24:37
and they think, "Well, this is
24:39
too generic because it's not
24:39
mentioning any of these
24:42
specifics about my company, and
24:42
like the terms of our
24:45
agreement," and it's like, you
24:45
are correct. We're going to
24:48
house all of those items in a
24:48
different agreement, the actual
24:52
purchase of the document, the
24:52
actual purchase of the asset,
24:56
right, the convertible note
24:56
itself, the stock purchase
24:58
agreement, the safe.
25:00
And when you do that, I think as
25:00
founder, knowing that it's like,
25:04
"Okay, it is okay, when I'm
25:04
seeing these generic docs,
25:06
because my concerns are going to
25:06
be addressed in a different
25:08
document," and the organizer, a
25:08
lead on this SPV is going to be
25:12
able to continue to use this
25:12
template in a way that's helpful
25:16
for them. And I think it's
25:16
important to know, you can still
25:18
do an SPV and not have a
25:18
template, I just think by doing
25:22
that, you kind of undermine a
25:22
lot of the draw and benefit of
25:27
doing an SPV. Because now all of
25:27
a sudden, you're sinking a lot
25:29
of cost into legal fees, a lot
25:29
of time and resources into
25:34
negotiating those terms, when
25:34
it's not necessary. And all of a
25:38
sudden, I'm four months down the
25:38
road and speed went out the
25:42
window, because we're just hung
25:42
up on terms.
25:45  Christina Sjahli
Let me touch
25:45
on a little bit more on this,
25:47
okay. Because if it's a
25:47
template, that means, there are
25:51
terms A, B, C, D, that's always
25:51
going to be on that operating
25:56
agreement, or this fund
25:56
documents. Okay. Now, what are
26:00
those terms?
26:01  McCall Harris
Yeah, a lot of it
26:01
is having to deal with how the
26:05
SPV is going to function. It
26:05
really doesn't matter what asset
26:09
I'm purchasing, you define an
26:09
asset very, very broadly. And so
26:13
every time you're mentioning
26:13
that asset in the document, it's
26:16
going to cover anything under
26:16
that very broad, very umbrella
26:20
definition. You're gonna have
26:20
terms in there that address the
26:24
asset, right, and saying, "Hey,
26:24
your ownership in this asset is
26:27
based on your ownership
26:27
percentage of the SPV." So in
26:31
that, if we have that example of
26:31
five investors in each put a
26:34
million dollars in, just 20% for
26:34
each investor, I have, my
26:38
investor has a 20% ownership
26:38
interest in that asset, whatever
26:43
it is, right? We have terms
26:43
around that you that terms
26:47
around you carry.
26:48
If there's a management fee,
26:48
right, those are big terms that
26:52
you see people wanting to
26:52
negotiate and wanting them in.
26:55
And it can be asset, sort of
26:55
agnostic. I'm going to make sure
26:59
on all my SPVs I'm taking no
26:59
carry or no management fee, or
27:05
every single one, it's going to
27:05
be 2%. And here's how it's going
27:07
to work every single time.
27:07
Right? We talk about
27:10
distributions, we talk about
27:10
membership transfers, say,
27:13
"Yeah, I came into the SPV but I
27:13
want out now." Whether something
27:17
happened with this investor and
27:17
their personal setting or
27:20
something happened, and they no
27:20
longer want to be a part of it.
27:23
In the SPV, we always, in those
27:23
operating agreements, have a
27:26
mechanism to transfer somebody
27:26
out with having an investor
27:30
being able to remove themselves
27:30
and another one come in. Talk
27:33
about taxes, very broad level of
27:33
how they're going to be run. If
27:37
you want to amend the operating
27:37
agreement, what happens if a
27:40
manager, we can't contact them?
27:40
Or what happens if I can't meet
27:46
my investment? If we're doing a
27:46
capital call, right? You're
27:48
going to have those very
27:48
important or key aspects in your
27:52
operating agreement and you're
27:52
going to keep them in there for
27:55
every single deal you have.
27:58  Christina Sjahli
Now what about
27:58
the legal process when an
28:01
exit happens?
28:03  McCall Harris
Yeah. So that an
28:03
exit and an SPV, we're usua
28:07
ly talking a merger and acqu
28:07
sition, M&A or an IPO? Usua
28:11
ly the first thing when that
28:11
s happening, the SPV is goin
28:15
to get notified. Usually it's
28:15
the founders, general coun
28:18
el, right? The founder's lega
28:18
is sending out a very deta
28:21
led letter and very deta
28:21
led email. This will happen ever
28:23
time. Like they are proa
28:23
tive in that. And you
28:27  Christina Sjahli
Yes, because
28:27
it's successful. It's a happy
28:31
news for the investors.
28:33  McCall Harris
And usually we
28:33
see it in Assure's perspective.
28:36
We get it, we notify immediately
28:36
if the underlying investors
28:40
don't already know, usually,
28:40
they already know. And the next
28:43
thing we do from Assure, and if
28:43
you're not looking for this, or
28:46
something you need to do on your
28:46
own is set up a brokerage
28:48
account, just like how in the
28:48
beginning, we set up a bank
28:51
account to be able to accept
28:51
money into the fund, and then we
28:54
send it back to the portfolio
28:54
company. It's the same thing
28:58
just in reverse order. We have
28:58
set up a brokerage account in
29:01
the name of the fund so we do
29:01
not have to worry about doing a
29:04
medallion guarantee. And then
29:04
that whether those stocks are
29:08
going to be distributed there
29:08
into the brokerage account, and
29:10
then we can get them out to the
29:10
investors.
29:13
Typically in an SPV setting,
29:13
once you have put your money in,
29:16
unless you're dealing with a
29:16
capital call situation, you're
29:20
just going to shove the bank
29:20
account down. If you're
29:23
expecting to do capital calls
29:23
over time, you're going to keep
29:26
it open, but you might have to
29:26
let this investment, sort of
29:30
marinate and bake for a couple
29:30
of years. And you just have a
29:33
bank account sitting open, and
29:33
it's empty, right? Because I
29:37
raised my $500,000 and I wired
29:37
out my $500,000 to the company
29:40
and now it's done. And
29:40
especially in an IPO setting, or
29:44
if it's a merger and
29:44
acquisition, like, your
29:46
underlying shares in that
29:46
company, are now becoming like
29:49  Christina Sjahli
I just want to
29:49
be clear, because we keep
29:50
underlying shares into a
29:50
different company in that M&A
29:53
situation. So you need to set up
29:53
a brokerage account to accept
29:56
the shares, because that's a
29:56
brokerage account. That's right.
30:01
repeating, saying capital call.
30:01
I understand what is the capital
30:04
call. So just want to clarify
30:04
this for my audience. Capital
30:08
call is basically you don't
30:08
receive the funds all in once,
30:11
there is like a schedule a
30:11
board, you're going to receive
30:15
the funds in portion, like the
30:15
example that I was giving maybe,
30:17
you know, 500,000 in front, and
30:17
then another 500,000 later on,
30:22
if my investment is a million
30:22
dollars. Just want to be clear
30:25
on that.
30:25  McCall Harris
Correct. And you
30:25
can see this sort of on two
30:27
different levels. We have some
30:27
where the SPV has sign up, say
30:32
it's like a million dollar
30:32
investment into a company. And
30:37
that company is like awesome,
30:37
you have subscribed, you've
30:39
committed down for a million.
30:39
I'm not going to ask for you to
30:42
give me that million up front, I
30:42
want 250 on the day we sign and
30:46
then I want another 250 here,
30:46
and then we'll just grab up the
30:50
last 500, 6 months down the
30:50
road, according to whatever
30:54
schedule they have. And then an
30:54
SPV has the flexibility to say,
30:57
okay, that's great. I don't want
30:57
to mess with that and worry
31:01
about calculating all of that or
31:01
my investors, so I am just going
31:05
to put an operating agreement
31:05
that all your money that you're
31:08
subscribing for is due upfront.
31:10
So the SPV will slowly deploy it
31:10
but the organizer doesn't have
31:14
to worry about collecting that
31:14
money slowly. They can do that
31:18
if they want. I usually see
31:18
investors push back and they're
31:20
like, "Well, no, like, time
31:20
value of money, I want my money
31:24
sitting in an interest accruing
31:24
account, I don't want to just
31:27
send it to you." And so we have
31:27
that ability. SPVs have that
31:31
flexibility to say, "Hey, okay,
31:31
I'm going to make a schedule.
31:34
And here's when we're going to
31:34
ask you to send money in." And
31:37
typically, it's my experience
31:37
that organizers and people in
31:41
this industry don't mess around
31:41
and it's pretty like, draconian
31:45
consequences if you miss the
31:45
capital call.
31:47  Christina Sjahli
And then what
31:47
you said is that if there is no
31:51
capital call, the fund is
31:51
received by the SPV and
31:54
distributed to the asset. It's
31:54
all done, and the bank account
31:59
is closed. That's what you're
31:59
saying. So that's why when
32:02
merger and acquisition or IPO
32:02
happen, there is no bank
32:06
account, and then you need to
32:06
set up a brokerage account, am I
32:09
right on that?
32:09  McCall Harris
Yeah, because
32:09
typically brokerage accounts,
32:12
they handle stock, right?
32:12
Whereas a bank account handles
32:15
cash? So it really depends on
32:15
what's happening, like, what are
32:18
you being distributed? Are you
32:18
being distributed stock? Or are
32:21
you being distributed cash from
32:21
your company? And so on the back
32:26
end, it's typically a brokerage
32:26
account, but it could be cash
32:30
and some brokerage accounts can
32:30
handle both, right, but a
32:34
typical bank account, you can't
32:34
just like receive stock into it.
32:38
That's why on the back end, just
32:38
make sure that's done.
32:40
And you make sure it's done in
32:40
the name of the fund for ease of
32:42
that transfer and so you don't
32:42
have the attorneys over at the
32:46
portfolio companies saying,
32:46
"Hey, the SPV is called this,
32:49
but you're wanting me to send it
32:49
to a brokerage account and some
32:52
individuals name like that's
32:52
gonna raise a flag." That's why
32:56
it's very important to set it up
32:56
in the name of the fund. If it's
33:00
an M&A situation, typically,
33:00
something you need to consider
33:03
is you have stock certificates,
33:03
right already. And so with M&A,
33:07
you're gonna have to surrender
33:07
those stock certificates. So
33:09
being able to kind of
33:09
logistically make sure you know,
33:12
where they're being housed and
33:12
surrender those.
33:15
In an IPO situation. After we've
33:15
set up that brokerage account,
33:18
there's usually a transfer
33:18
agency involved. And there's two
33:21
big ones in the United States.
33:21
And they function as digitizing
33:25
those shares and restricting
33:25
them, right, lockup, we can't
33:28
move those shares until this
33:28
whole checklist of items and the
33:32
wait period ends. And so you
33:32
don't have to worry about that
33:36
as a founder or as an SPV
33:36
organizer, the transfer agency
33:40
does all that for you. And you
33:40
just have to work with them to
33:43
sort of check everything off
33:43
their list to unrestricted those
33:46
shares so you then can
33:46
distribute them to your
33:48
investors within the SPV.
33:50
And from a founder's
33:50
perspective, they can check it
33:53
off their list like "Awesome, I
33:53
sent the $1 million to the SPV."
33:58
But then the SPV has to
33:58
distribute those to their
34:01
investors. So you have to look
34:01
at their personal ownership in
34:04
the SPV and make sure it's
34:04
getting passed through to the
34:07
investors. After that it's
34:07
usually carry as any right
34:11
making sure all those
34:11
distributions go out and then
34:13
just shutting it all down.
34:13
Because you made your investment
34:17
it was successful and that's
34:17
great. So stop paying almost
34:20
$400 every year to Delaware and
34:20
like, just make sure
34:23
everything's shut down properly,
34:23
because sometimes people can
34:26
lose a couple hundred, a couple
34:26
thousand if they forget to do
34:29
that, because they're still
34:29
paying for something that they
34:32
don't need to anymore. So that's
34:32
successful bucket. It's pretty
34:36
like those same steps every
34:36
time.
34:38  Christina Sjahli
So that is
34:38
successful exit. What about
34:41
unsuccessful exit?
34:42  McCall Harris
The unsuccessful
34:42
side? It's more flexible in a
34:46
way, because you have a range of
34:46
options. And usually there's not
34:50
as much communication going on,
34:50
the big one
34:55  Christina Sjahli
It's a sad
34:55
event.
34:56  McCall Harris
No one wants to
34:56
talk about that. So we're
34:58
talking bankruptcy. Yeah, we're
34:58
talking to solution. We're
35:01
talking maybe a fire sale M&A,
35:01
right? Where, "Okay, this isn't
35:06
working, but I'm at least gonna
35:06
maybe merge with this company to
35:08
do like pennies on the dollar
35:08
return for my investors," right.
35:11
So sometimes you see that. So in
35:11
the bankruptcy setting, when you
35:15
kind of know it's going
35:15
downhill, and you're trying to
35:17
just get some type of return,
35:17
you've got to file a claim. And
35:21
so that gets more complex,
35:21
filing, and then just waiting to
35:26
see if there's going to be any
35:26
payout for equity owners in the
35:29
company. And usually not,
35:29
because they're going to be at
35:32
the bottom of the priority list
35:32
for any payouts.
35:34
And so bankruptcy is usually the
35:34
most sad because it takes the
35:37
most work from a legal
35:37
perspective to file and like,
35:40
keep up with where it's at, and
35:40
the courts, and usually you're
35:43
not gonna get hardly anything
35:43
like pennies on the dollar. And
35:46
so I think you have to kind of
35:46
weigh is it worth the legal fees
35:49
to do this, and we're probably
35:49
not going to get anything back.
35:51
But those that's really the step
35:51
involved from claiming, waiting
35:55
and seeing.
35:55
In a fire sale situation, it's
35:55
gonna be the same as a
35:58
successful merger and
35:58
acquisition, right, you're still
36:00
setting up the brokerage
36:00
account, you're still doing all
36:02
of that, just getting a lot less
36:02
money. So it's just not quite as
36:06
fun. But those steps are the
36:06
same. The one I think we see the
36:09
most in the unsuccessful
36:09
category here and Assure, is
36:12
like the ghosted category. And
36:12
what I mean by that is we just
36:15
don't hear anything from them.
36:15
We made the investment and we're
36:18
waiting and a note comes along,
36:18
and we hit the maturity date.
36:21
And so we're reaching out to the
36:21
company to say like, "Hey, what
36:24
are our next steps?" And we get
36:24
the email or phone call back
36:27
saying, "Oh, we shut our doors,
36:27
like, we went under."
36:31
I would say, the most common,
36:31
unsuccessful situation wherein,
36:36
or like a bankruptcy. And when
36:36
the SPV just opposite, we're not
36:39
even gonna pursue this, just
36:39
shut it down. And in those
36:43
situations, we just shut the
36:43
entity down. So again, we're not
36:47
continuing to pay those annual
36:47
fees, and everyone goes home
36:51
empty-handed. I think in those
36:51
situations, again, you just you
36:55
have that communication with
36:55
elite SPV organizers saying
36:58
like, "Hey, there's essentially,
36:58
there's going to be no return on
37:01
this." When it's here this year,
37:01
we just ask, "We think the best
37:05
thing for you to do is shut it
37:05
down. Well, what would you like
37:07
us to do?" And we just shut it
37:07
down.
37:09  Christina Sjahli
In a public
37:09
market, my experience working
37:12
for public companies, when we
37:12
had investor calls, and I think
37:17
investor, they were more
37:17
appreciative, if you are being
37:23
truthful about what is going on.
37:23
And you know, some in a public
37:28
market, the investor can reach
37:28
out to you and then if you are
37:31
trying to avoid the call, and
37:31
then not giving them the
37:35
straight answer, it can be a
37:35
media chaos, to tell you the
37:39
truth, because the investor can
37:39
write something, an article, and
37:44
it becomes a chaos. And then
37:44
your brand, as a company, is not
37:49
going to have a good image with
37:49
the public. That's just been my
37:53
experience. So that's why being
37:53
honest and being truthful,
37:58
providing solution.
37:59
You may say, I know it's hard in
37:59
a public market to say that, "I
38:03
don't know the answer right
38:03
now." But when an investor
38:07
reaches out to you trying to
38:07
find out more, you better be
38:09
honest. And you better say,
38:09
either say, "Not at this moment,
38:14
but we are working on a
38:14
solution, we will reach out back
38:18
to you and tell you what we come
38:18
up with, instead of going
38:22
silent, and not answering at
38:22
all.
38:24  McCall Harris
A truthful
38:24
answer, even if it's not
38:27
popular, what they want to hear,
38:27
better than a non answer.
38:30  Christina Sjahli
Yeah, goes a
38:30
long way. That's just my
38:32
experience. Now, I'm curious, do
38:32
you, Assure, involve in any due
38:39
diligence steps between the
38:39
founders and the investors?
38:44  McCall Harris
No. So Assure,
38:44
we're completely removed from
38:48
that process. Our clients come
38:48
to us, usually with all of that
38:53
in place. If not, they're
38:53
starting that process, like,
38:55
"Hey, here's what we want to do.
38:55
Start spitting up those bank
38:59
accounts, start making the
38:59
entities, if you have those
39:01
legal, off-the shelf-templates.
39:01
Sure. We'd love to use them. I'm
39:05
doing my due diligence right
39:05
now." And we say okay. So we
39:07
don't get involved with that at
39:07
all.
39:09  Christina Sjahli
Can an LLC or
39:09
can an SPV invest in a foreign
39:15
asset?
39:16  McCall Harris
Yeah.
39:16  Christina Sjahli
Is there any
39:16
complexity to it?
39:18  McCall Harris
I think the
39:18
complexity comes with, again,
39:22
having that foresight on like
39:22
the front end of like making
39:25
sure that company is like, aware
39:25
of like U.S. security laws, and
39:30
they're okay with that, like,
39:30
especially with the structure
39:33
like, "Is it going to be easier
39:33
for this company if we structure
39:36
this as an LLC, or an LP?" Those
39:36
types of things on the front
39:39
end, I think having that open
39:39
communication with that foreign
39:43
company, also, just considering
39:43
the actual transfer of money. I
39:48
think from a legal perspective,
39:48
I don't really think there's
39:52
that many that you need to
39:52
really worry about, if any, it
39:55
really comes down to like, "Hey,
39:55
is this foreign company okay,
39:58
with this being a foreign SPV?"
39:58
Right, from their eyes, it's a
40:01
U.S.-based entity. And like the
40:01
docs, we're going to be giving
40:05
over them and having that, I
40:05
think it's more of a casual
40:07
conversation. And then when they
40:07
come over with certain
40:10
requirements, we're able to
40:10
deliver them.
40:12
A lot of ones I see is that they
40:12
want things like notarized and
40:16
apostilled, right, I find that
40:16
they're not asking for new
40:19
documents. It's, they call them
40:19
different things in that
40:23
country. And they want certain,
40:23
like, assurances around them.
40:27
And that's where things get
40:27
confusing. So you, you'll get an
40:30
email being like, "Oh, I want a
40:30
certificate of incumbency, or I
40:34
want something," and like, I've
40:34
never even heard of that. And
40:37
then when you get on the phone,
40:37
you're talking about, like, "Oh,
40:40
you just want a list of my
40:40
owners, and who's in this SPV, I
40:43
can get that." Or, "You're
40:43
talking about a Certificate of
40:46
Formation, we call it something
40:46
different in the United States.
40:49
Here you go." That's what I
40:49
usually see happening here.
40:53
So it can get confusing, because
40:53
when you initially get the
40:57
request, you're like, "I've
40:57
never heard of that, what is
40:59
going on?" But then you have to
40:59
kind of say, "Hey, here's what
41:03
we, here's what I think you
41:03
might be getting at, is that
41:06
what your counsel's talking
41:06
about, let's hop on the phone,
41:08
and have a discussion about what
41:08
you need." But I've done lens or
41:12
done stock and a stock option.
41:12
It was one of these clients that
41:16
kind of had more complex needs
41:16
doing their SPV. And they were
41:20
investing in a Swiss company.
41:22
And so making sure, we're making
41:22
sure the currency rates were
41:25
what we wanted them to be when
41:25
we transferred over the Swiss
41:28
francs, making sure we're
41:28
working with the Swiss
41:30
attorney's office, making sure
41:30
that the documents were exactly
41:34
what they wanted to be and what
41:34
they needed and nothing was out
41:37
of the blue, it's just, you have
41:37
to consider what their their
41:42
experience in private equity is
41:42
in Switzerland. And it's
41:45
different than how we do it in
41:45
the United States.
41:47
Suddenly, I wanted to add to
41:47
this kind of foreign investor
41:51
for an SPV discussion is, so
41:51
from an SPV standpoint, there's
41:56
not a lot that is going to
41:56
prohibit someone from investing
42:00
in a foreign company, or from
42:00
having foreign investors in
42:04
their SPV. That said, I see
42:04
things from an operational
42:09
standpoint that creates hiccups,
42:09
and sometimes it can leave a
42:12
really bad taste in an
42:12
investor's mouth in particular.
42:16
And so I think being aware of
42:16
them on the front end can be
42:19
very helpful for someone who's
42:19
trying to organize and run an
42:21
SPV.
42:23
And the first one I see is, if
42:23
you're doing a 506(b), or 506(b)
42:27
deal, especially in those 506(b)
42:27
situations, the investors who
42:30
are being asked to provide
42:30
certain documents, pass those
42:34
checks, they get very confused,
42:34
because it's all framed in U.S.
42:38
finance terms, like a lot of
42:38
countries don't have a credit
42:42
report, a lot of countries don't
42:42
have the equivalent of what
42:45
we're asking for. So the
42:45
investors get very confused and
42:49
then they start to say they
42:49
can't make those
42:52
representations. And so I think
42:52
having that discussion of, "Hey,
42:56
here are all the different ways
42:56
you can accredit that completely
43:00
work with a foreign investor,"
43:00
goes a long way for having a
43:04
good investor experience for
43:04
someone coming out of the United
43:07
States.
43:08  Christina Sjahli
Okay, you
43:08
mentioned a few times about 506
43:11
D?
43:12  McCall Harris
So it's rule 506.
43:12
So it's like deal 506. And it's
43:18
one of the big exemptions that I
43:18
think probably 90% of the
43:22
private equity funds rely on to
43:22
be able to do their deals that
43:26
prevents them from having to
43:26
register and do a lot of
43:29
disclosures with the SEC. Doing
43:29
a 506(b) raise, in a 506(b)
43:35
raise, you're essentially saying
43:35
that all of your investors are
43:37
accredited investors in order to
43:37
be able to participate. And so
43:42
the 506(b), it's more that
43:42
you're dealing with your own
43:46
personal network and investors
43:46
are able to just fill out a
43:49
questionnaire and say like,
43:49
"Yes, I'm accredited," and they
43:52
have a series of options saying
43:52
like, "Yes, my net worth is over
43:54
a million," or "Yes, I have
43:54
income over 200,000 every year
43:58
for the previous two tax years,"
43:58
right. That's what they're
44:00
filling out.
44:01
If you're doing a 506(b) raise,
44:01
or a 560(c) raise, that comes
44:07
into play when you're doing
44:07
general solicitation. So a lot
44:10
of people who are sourcing their
44:10
deals are trying to find
44:13
investors on the internet or
44:13
they don't really know them,
44:16
right. They're sending out ads
44:16
and They have to actually check
44:21
that these guys are accredited.
44:21
You can't just have them sort of
44:24
self-certify. So these
44:24
investors, they have to send in
44:27
either documents showing that
44:27
they have made over $200,000 in
44:32
the year, they have to show that
44:32
their net worth is over a
44:36
million dollars, which means
44:36
they have to send in their
44:38
credit report your, it's a
44:38
manual process, and it's a lot
44:42
more intensive and like hands
44:42
on.
44:45
When you introduce a foreign
44:45
investor, yes, they can
44:47
participate. But they quickly
44:47
get confused, just because some
44:52
of those things and these
44:52
concepts don't exist in their
44:54
country. Walking them through
44:54
what their options are, goes a
44:58
long way I feel and helping them
44:58
understand and not just
45:02
completely walk away from the
45:02
investment.
45:05  Christina Sjahli
hanks for
45:05
larifying. We call it the
45:07
xemption schedule over here in
45:07
anada. So where can people find
45:13
ssure and can find you, McCall
45:13
arris?
45:17  McCall Harris
You can just go
45:17
to assure.co, assure.co on the
45:19
internet. We have a website, and
45:19
it has so many materials on
45:23
there, you can learn more about
45:23
what an SPV is.
45:26  Christina Sjahli
McCall thank
45:26
you so much for being here.
45:29  McCall Harris
Thank you.
45:30  Christina Sjahli
And that
45:30
brings us to the end of another
45:32
show. Thank you so much for
45:32
listening to another episode of
45:36
Her CEO Journey, the business
45:36
finance podcast for women
45:40
entrepreneurs. If you want to
45:40
create a proactive financial
45:44
plan and process for your
45:44
business, so you are ready to
45:48
weather the financial storm over
45:48
the next few months, let's chat
45:53
and see what's possible for you.
45:53
Book in a time to speak with me
45:57
at
45:57
www.christinasjahli.com/let-s-chat.