FREQUENTLY ASKED QUESTIONS
What is a "syndicate"?
A syndicate is an LLC that is formed to make a one-time investment in a specific company. Individual investors who wish to invest less than the company’s minimum or who wish to achieve a larger presence on the company’s cap table join the LLC and invest together as a group. Syndicates are often referred to by other names including SPV, SPE, opt-in funds.
What is the process for setting up a syndicate?
Forms LLC; manages investor subscriptions
Issues Capital Call; collects funds through trust account
Closes the Investment
Monitors investment and maintains LLC until liquidation; reports annually to members
Executes online documents to join the LLC
Wires funds to trust account
Receives confirmation of investment
Relaxes until liquidation
Can Loon Creek set up and manage a syndicate with recurring revenues?
Absolutely! If the investment you are making includes a revenue or royalty-based payment component, our process remains essentially the same as for an equity-only investment. The two main differences are: 1. our services during the Management phase will include receiving of payments and issuing of disbursements to the investors on a monthly or quarterly basis, and 2. tax returns and issuance of K-1s will be required annually.
Who is the LLC Manager and what is their role? Can Loon Creek serve as LLC Manager for me?
The LLC Manager is usually the individual who is leading the effort to invest in a company for the group. The group members designate authority to the LLC Manager to sign documents on behalf of the LLC and to make certain decisions. This role can be customized to meet the needs of your group. Loon Creek can serve as LLC Manager under a separate contract with your group.
Will my investors receive a K-1?
Equity investments: The simple answer is “usually not”. The more complicated answer is as follows: K-1s are issued when the syndicate files an income tax return. Income tax returns are filed only when there are taxable transactions to report to the IRS. Under LCCG’s standard model, there are normally no taxable transactions until exit and therefore no tax returns are filed and no K-1s are issued until the exit event.
Convertible notes: If the syndicate invests in a convertible instrument which accrues interest, at conversion, the syndicate will usually file a tax return covering the interest accrual and issue K-1s. Once converted to equity, then usually no additional tax returns will be filed until the exit event (see “Equity Investments” above)
Recurring revenue investments: Yes. Once the syndicate has started to receive payments and distribute them to investors, the LLC will be required to file a federal tax return and issue K-1s annually.
What is a cash reserve, and is it required?
A cash reserve is money collected during formation that is held in escrow to be used for future expenses. This avoids extra expense and hassle to your investors of a capital call in the future. If the money is not used, it is distributed back to the members of the LLC upon liquidation. Loon Creek offers the service of holding your funds in a trust account at no extra cost. Cash reserves are optional except for convertible securities, for which we require a minimum cash reserve of $1,500. The reason for this is that most convertible securities convert within 1-2 years, which then triggers a tax return and associated expenses (see Will my investors receive a K-1? question).
What is the minimum to participate?
The minimum amount to invest in a syndicate is set by the LLC Manager. Loon Creek recommends an investor minimum of $5,000.
I have a number of small investors on my cap table, and new investors consider this a problem. How can you help me?
This is a common problem. One way is to consolidate the small investors into a syndicate so that collectively they are one entry on the cap table. We can manage this process for you.
Can you take over administration of an existing LLC?
Usually. Because every LLC is unique, we need to understand our service obligations under the existing LLC. We’re delighted to discuss this with you.
Do you support Series LLCs?
Yes. In most cases it will be simpler and less expensive to set up individual LLCs but when it makes sense to use a Series LLC, we are happy to service it.
Who is Loon Creek Capital?
Loon Creek Capital Group (www.looncreekcapital.com) specializes in streamlined group investing services for private investors. Formed in 2010 to address the needs of the local angel community in Boise Idaho, the company has grown to provide services to angel investors across the U.S. The Partners are active angel investors, and experts in the unique challenges of investing in early stage companies.