Raising Capital for a Debt Fund: SEC Compliance for Syndication Attorneys

Launching a debt fund is a powerful way to grow wealth and attract investor capital, but the legal landscape around raising money can be a minefield. This video explains the SEC compliance requirements every fund manager must follow to avoid violations that can shut down a fund before it begins. It explores the key provisions of Regulation D, including the differences between Rule 506(b) and Rule 506(c), and how each impacts marketing, investor eligibility, and documentation. You'll learn about accredited investor verification, when you need a private placement memorandum (PPM), and how to correctly file Form D. Whether you're building your first fund or scaling an existing one, understanding these regulations is critical to protecting your venture and gaining investor trust.

Read more about raising capital - Finding Investors for Real Estate Syndication and Private Equity Funds: https://www.moschettilaw.com/finding-investors-for-real-estate-syndication-and-private-equity-funds/

Read more about PPMs - What Is In A Private Placement Memorandum?: https://www.moschettilaw.com/private-placement-memorandum-attorney/

Moschetti Syndication Law Group is a boutique syndication law firm, serving small and growth-bound syndicators, as well as private equity firms. Our attorney, Tilden Moschetti, is determined to keep the firm’s ‘boutique’ size so we can tailor the services to each client’s unique needs without turning the firm into a faceless factory churning out private placement memorandums or passing unnecessary overhead expenses onto our clients. (As our client, you’ll only pay a fixed fee, so no surprises.)

As for the client experience, we give real-time answers with Tilden Moschetti without making you book an official appointment or get passed along to associates or paralegals. We’ll work with your ambitions and overall vision to help you close the current deal and fill in that ‘missing’ piece – whatever you need – to keep adding more syndications to your portfolio. We keep syndicators syndicating (TM).

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Episode Transcript

(00:00):
You can build the bestdebt fund in the world, but if

(00:03):
you don't raise capital theright way, the SEC can shut it
down before it gets off theground. Compliance isn't
optional. It's survival. Let'sdive into how you can legally
and safely and confidently raiseyour capital for your debt fund.
I'm Tilden Moschetti syndicationattorney and founder of

(00:24):
Moschetti syndication law. Ihelp fund managers raise money
the right way so they can growtheir funds without sleepless
nights worrying about the SEC.Today I'm going to walk you
through exactly what you need toknow to raise capital
compliantly for your debt fund.

(00:55):
When you start raising capitalfor a debt fund, it's exciting,
but it's also where most newmanagers run straight into
hidden dangers, because themoment you take $1 from an
investor, you're no longer justa fund manager, you're an issuer
of securities, whether yourealize it or not, and that

(01:16):
means you're operating under atight set of federal rules
designed to protect investorsand to penalize managers who cut
corners. The good news is thatRegulation D gives debt fund
managers a practical pathforward. It allows you to raise
an unlimited amount of moneywithout having to register your

(01:38):
fund with the SEC, saving youtime complexity and hundreds of
1000s of dollars in costs. ButRegulation D isn't a free pass.
It has strict rules, and youhave to pick your lane. Rule 506
B and Rule 506 C are the twomain choices on which you

(02:00):
choose, which sets the stage foreverything else that follows. If
you decide to raise capitalprivately through people you
already have relationships with,you're in 506 B territory. Under
506 B. You cannot publiclyadvertise. No Facebook posts, no
podcasts, no email blasts to alist of strangers. Everything

(02:24):
has to happen through quiet,personal conversations with
investors you already know andtrust. You can accept up to 35
sophisticated but non accreditedinvestors, along with an
unlimited number of accreditedinvestors, but you do have to be
careful. Sophistication meansthat they must have the

(02:47):
financial knowledge to evaluatethe risks themselves. It's not
just about whether they likeyou, it's about whether they
genuinely understand whatthey're getting themselves into.
But maybe you don't have a hugepersonal network, or maybe you
want to scale bigger faster.Well, that's where rule of 506 C

(03:09):
comes in. 506 C lets youadvertise your offering
publicly. You can post onLinkedIn, run ads, speak at
events, anything to get the wordout, but there's a major trade
off. You can only acceptaccredited investors, and you
must verify that they'reaccredited before taking a dime.

(03:33):
That means real proof, taxreturns, bank statements or
letters from CPAs or attorneys,not just someone checking a box
and saying, trust me, verifyingaccreditation isn't just
paperwork. It's your shieldagainst claims. Later, if things
go wrong, whichever path youtake, whether it's 506 B or 506

(03:59):
C, you must also file a Form Dwith the SEC within 15 days
after you raise your firstdollar. It's a short filing, but
it's absolutely essential. Thinkof it like raising your hand to
let regulators know, yes, we'reraising money, and yes, we're
claiming an exemption fromregistration, skip that, and

(04:24):
you're operating outside of thelaw, even if you thought you
were doing everything elseright. But your responsibilities
don't stop at the federal level.Every state where your investors
live have its own securitiesdivision, its own blue sky laws,
and often its own notice filingrequirements. That means every

(04:45):
time you accept an investor froma new state, you might have new
filings, fees and deadlines todeal with. Managing those state
filings is not glamorous work,but missing them can open up
massive.
Problems, including fines,rescission demands and loss of
your exemption. That's why astrong administrative systems or

(05:08):
working with legal counsel whotracks it all for you makes a
world of difference. Now here'swhere a lot of fund managers
stumble. They treat compliancelike a one time box to check.
But raising capital is anongoing journey. Every
communication that you have withinvestors, every email, every

(05:30):
webinar, every social media posthas compliance implications.
What you say in just asimportantly as what you don't
say can either can strengthenyour legal position or put it at
risk over promising returns.Minimizing risks or creating
unrealistic expectations arecommon pitfalls that land

(05:53):
managers in hot water. Remember,securities law is built on full
fair disclosure, not hype.That's why professional offering
documents matter so much. Astrong private placement
memorandum tells investors thetruth about the Fund, The Good,

(06:14):
the Bad and the Ugly. A wellcrafted subscription agreement
ensures investors formallyrepresent that they understand
what they're investing into andthat they're qualified to do so
these aren't optionalformalities. They are your armor
if questions come up later. Andcompliance isn't just about

(06:37):
covering yourself legally, it'sabout building real trust. You
see, investors feel safer whenthey know you're playing by the
rules. Institutional capitalwon't even look at you if your
compliance house is in an order.A clean, professional, compliant
offering is a massivecompetitive advantage in today's

(07:00):
environment, and it's not aburden. Raising capital is the
life blood of any debt fund, buthow you raise it legally,
transparently andprofessionally, is what
determines whether your fund isbuilt to last. If you get it
right from the beginning, youcan grow and scale with

(07:21):
confidence.
Raising capital for a debt fundisn't just about selling your
opportunity. It's aboutprotecting it, playing it smart,
playing it compliant, andbuilding something that
investors are proud and safe tobe a part of, if you want to

(07:42):
help making sure that yourcapital raise is bulletproof,
reach out to me. I'm TildenMoschetti, thanks for listening
and go and make something greatyou.