What to expect when sending your first investment

The unknown is the #1 cause for anxiety in people and if you’re leading up to making that first investment it can be tough to get over. In this post I’m going to lay out the exact steps that will likely happen leading up to that first investment, and what should happen after to hopefully mitigate the unknown.

So you’ve done your research, you’ve found an operator you like and trust and now they have a deal that you like as well.

You’ve done your due diligence and now you’re ready to make that investment. Here are some of the steps to completing your very first passive investment:

*Every deal and operator is different but in the industry these are the steps that I’d expect are followed to a certain degree*

Quick Notes:

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1 - You’ll submit a soft commitment form. This form is commonly a google form or some might have an investor platform you may use instead but you’ll follow the prompts to submit your soft commitment.

You’ll fill out your name, mailing address, contact information, investment amount, how you’re investing (either as an individual or as an LLC or other entity like a retirement account), then verify if you’re an accredited investor or not.

Of course if the deal requires you to be accredited there is some form of verification of that which we’ll get to in a bit but if you’re not accredited and the deal does require you to be accredited this is essentially where you’d stop and start looking for deals that don’t require accredited status.

This soft commitment is NOT legally binding.

2 - Once you fill out that form or submit your soft interest in the investment portal, the sponsors team should reach out with a private placement memorandum (PPM). This is a heavy legal doc and depending on the investment can be up to a few hundred pages.

For most people, this is the toughest part because you want to either review those yourself or if you have an attorney you’d like to review that you can do that as well. But these docs will lay out and confirm, legally, the details of the deal highlighted in the marketing packages.

Including return projections, equity splits, any return hurdles, liquidation events, sponsors fees, early liquidation if that’s possible and the process for that if you need to get your cash out before the investment is sold/completed, and of course lots of disclaimers.

You’ll want to review these docs to the level that you’re comfortable with the terms then sign them.

If there’s something in the docs you’re not comfortable with, bring it up to the sponsor for clarification. Sponsors typically aren’t going to make exceptions for retail investors with their legal docs but it never hurts to ask.

All sponsors should send these to you in an e-signature platform like hellosign or docusign so signing should be very simple.

3 - Once you sign the documents the sponsors team will be notified and they’ll reach out with funding instructions or an accredited verification step.

If the deal requires you to be accredited they may either request proof by having you send your W2 or proof of net worth requirements, or more commonly they’ll send you to a third party verification platform like parallel markets or verify investor.

These 2 platforms operate almost exactly the same and typically get you a verification letter the same day or next day if you submit it later in the evening. They also offer a rushed verification service for an additional fee, I haven’t ever gotten a letter later than 1 day at the most, typically within a few hours so I haven’t seen a need for that fee before.

Once you have that verification letter you can send that to the sponsor team or if you’re in an investor platform you can upload it there.

4 - Once that’s done you can fund the account. You should have funding instructions that tell you the bank name, account and routing number that you’ll be transferring or wiring money into.

If it’s the same institution as you use for your banking you may be able to do this in your app but many prefer to go to the bank in person. I’d be sure to use your full name and the investment opportunity in the memo of the wire transfer so the sponsors can easily track your investment.

When you’re going to wire the investment, let the sponsor know when you’re going so they can start checking the bank account for your investment. A great sponsor will work to verify your funds as soon as possible once they receive them.

Different institutions may take different times to complete the transfer so no worries if it’s not instant. It could take a few business days for institutions to transfer this cash.

*interesting fact*

If you have a very common name, your wire could be delayed. What happens in the background when cash is wired especially in larger amounts is there are checks to see who is sending and who is receiving the money.

People with common names tend to share a name with others who may have criminal backgrounds and depending on those crimes it could take the financial institutions longer to verify that you’re not that person and dig into what exactly this money is going to.

Just something to keep in mind as I’ve had that happen to colleagues of mine

5 - Once the sponsor confirms your investment, if you haven’t been in a portal already, you’ll receive information to set up your portal and create a password so you can view your dashboard and track the investment.

The nerve wracking part is over! Now your only job is to receive and review regular updates from the sponsors and reach out with questions if any but now your job as a passive investor starts to kick in and you’ve made your first of hopefully many passive investments.