It may sound like a dream-come-true: an investor has promised to fund your entire deal! But don’t be hasty; single-check writers aren’t always the knights in shining armor that they may appear to be.
So who are these single-check writers, anyway? They are usually private equity companies, hedge funds, family offices or high net worth individuals.
Single-check writers have a habit of:
1. Going dark right before closing (stop responding to emails, phone calls, etc.);
2. Deciding the deal terms need to change at the last minute (in their favor), or
3. Suddenly having something come up that prevents them from doing your deal.
Also, they usually heap a bunch of reporting and requirements on you that might require a lot of time to prepare on a monthly or quarterly basis, and if you miss a reporting deadline, they may try to call it a default and proceed to appropriate the property for themselves.
We’ve seen this happen many, many times in the past. We don’t want to see it happen to you. The best way to NOT be left holding the bag if your single-check writer fails is to have your syndicate investors lined up and ready to go. Just keep raising money! Remember, no one is an investor until their funds are in your bank account. Until then, you are just having a conversation.
If you raise enough money from $50k and $100k investors so you don’t need them (or you don’t need as much money from them), you will have the best bargaining advantage when it comes to negotiating terms with the single-check writers.
If you do decide to go forward in a JV or Preferred Equity agreement with a single-check writer, you still need representation on your side of the transaction, which is something we can do for you. We should get involved before you sign the term sheet. We can review your term sheet and suggest points you might want to resist or modify. Once you have negotiated a term sheet, we should do a kickoff call with your JV partner, their counsel, you and us to make sure we all agree on what the organizational chart looks like, who is drafting what, and what needs to happen to meet the requirements of the term sheet within the agreed time frames in order to get your deal closed.
Most of our clients do a deal with a private equity firm once or twice before they figure out that the costs are too high and learn to raise money from $50k to $100k investors themselves.