Advanced Investing Topics

© 2016 DailyDAC, LLC d/b/a/ Financial Poise™ 1

ADVANCED INVESTING TOPICSSERIES: INVESTING BASICS 2016

Premier date: April 21, 2016

Premier Date: April 21, 2016

ADVANCED INVESTING TOPICS

SERIES: INVESTING BASICS 2016


WE WOULD LIKE TO TAKE THIS OPPORTUNITY TO THANK OUR SPONSORS



meet the facultyPANELISTS

Curtis Anderson Alpha FiduciaryJordan Fishfeld Peer RealtyJim Jones Self-Directed IRA Investment Institute

MODERATOR Jonathan Friedland,

Sugar Felsenthal Grais & Hammer LLP


Practical and entertaining education for business owners and executives, accredited

investors, and their legal and financial advisors. For more information, visit

www.financialpoise.comDISCLAIMER: THE MATERIAL IN THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD

NOT BE CONSIDERED LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

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about this webinarCommodities. Crowdfunded securities. Derivatives. Options.

These are just some examples of “alternative assets” that you can invest in besides stocks, bonds, or cash. Should you consider them?

This webinar explains the basics of some asset types and investment strategies that are more complicated than buying stocks, bonds, and mutual funds and explains how they may- or may not be- appropriate as part of a broader portfolio.

about this seriesAre you saving enough money? How much is enough? That depends, in part, on what your goals are and what sort of returns you can get by investing your savings. Many investors who thought they were well situated for retirement were devastated by the 2008 meltdown. Many others in recent years have lost their entire nest egg to fraudulent schemes. This Financial Poise webinar series will give you a solid introduction to the fundamentals of investing.

As with all Financial Poise webinars, each episode in the series is designed to be viewed independently of the other episodes, and listeners will enhance their knowledge of this area whether they attend one, some, or all of the programs.


episodes in this series

EPISODE #1 Basic Investment Principles 101-1/28/2016

From Asset Allocations to Zero Coupon Bonds

EPISODE #2 Goal Based Investing- 2/22/2016Planning for Key Events

EPISODE #3 The Legal & Tax Aspect of Investing :3/17/2016

Asset Protection: Estate Planning, and Tax Efficiency

EPISODE #4 Advanced Investing Topics

4/21/2016

EPISODE #5 Options for the Accredited Investor

5/26/2016

Dates above are premier dates All webinars also available On Demand through West LegalEd Center and Vimeo



Historic Offering Process

Offers/sales of securities must either be registered with the SEC and offered publicly or exempt from registration and offered privately

In most cases, in order to participate in a private offering an investor must be accredited

And, most private offerings prohibited issuers from engaging in general solicitation or advertising


The JOBS Act

The JOBS Act eliminated the prohibition on general solicitation and advertising in certain private offerings in which only accredited investors may participate

All kinds of issuers may now use general solicitation and advertising

This is Rule 506(c)


Why Alternatives?

Finding satisfactory returns in a return-starved world

Preserving the purchasing power of wealth in the face of inflation

Better diversification


2013 Crowdfunding Statistics

2013: $5.1 Billion (estimate)

2012: $2.7 Billion

2011: $1.5 Billion

These figures include Reward-Based (i.e. Kickstarter), Lending-Based (i.e. Lending Club), Donation-Based (i.e. First Giving) and Equity-Based Crowdfunding (i.e. Microventures).

Source: http://www.crowdfundingstatistics.com/p/infographics.html


Navigating Investments OpportunitiesAvailable to Accredited Investors

Traditional Investments

Bonds

Public RealEstate

Stocks

Hedge funds

Opportunities for Accredited Investors

Hard Assets

Private Real Estate

Private Equity


Who is an accredited investor under the income test?

• An annual income in excess of $200,000 in each of the two most recent years; and

• A reasonable expectation of the same level of income in the current year

• An annual income in excess of $300,000 in each of the two most recent years; and

• A reasonable expectation of the same level of income in the current year

Married Couple

One Person


How Have Accredited Investors Historically Accessed Alternative Investments?

Occasionally, by having a pre-existing, substantive relationship directly with the issuer or intermediary (know a guy- just for AIs who travel in the “right” circles)

In the secondary markets for resales of private investments


How Will Accredited Investors Accessed Alternative Investment in the Future?

See previous Slide- + AI-only Platforms Rule 506(c) Title III (open to all) Public vehicles


Origin of Crowdfunding

• 2001 – ArtistShare launched crowdfunding site for music

• 2005 – Kiva launched crowdfunding site for lending

• 2005 – EquityNet launched crowdfunding site for equity

• 2009 – Kickstarter launched crowdfunding site for donations


Types of Crowdfunding


Who can invest in private companies via the Web?Title II Reg D Offerings Title III Equity Crowdfunding

ISSUERSThe JOBS Act Rule 506(c) of Regulation D provides domestic and foreign issuers with the opportunity to engage in general solicitation and advertising of offering, so long as they meet standard SEC requirements for issuers.

OPEN ONLY ACCREDITED INVESTORS

ISSUERSU.S. companies will be eligible to raise funds

using new crowdfunding exemption 4(a)(6 )

Can only raise $1 m per year.Companies that crowdfund will have to use a

registered broker or registered funding portal

Proposed rules require issuers to comply with significant financial and business documentation, similar to public company reporting, aimed at protecting unsophisticated investors

Anyone can investLimits on investment amount is based on

income and net worth. Those with an income /net worth < $100k/year will be able to invest the greater of $2k/year or 5% of annual net worth/income

Those with an income/net worth greater than $100k per year can invest 10% of their annual net worth/income up to a maximum of $100k per year


What does Crowdfunding compete with?

Pre-Revenue, early stageBeta

Product Development/R&DEarly OperationsSpecial Initiatives

Main Street GrowthPre-Institutional

Scale & GrowthGrowth Capital

Product ExpansionMarket Expansion

AssetsWall Street Growth

Institutional Partners

OPERATING COMPANIESEQUITY

Round 3/C…Round 2/BRound 1/AVCAngelSeed/F&F


The Alternative Investment Landscape

“Hard Assets”

Angel VC PEHedge


The Angel Investment Landscape Hundreds of thousands of new businesses start up each year. About half of them survive five years or more, and about one-third survive 10 years or more.

Just because a new business survives for 10 years does not guarantee that its equity investors will earn a good return. Shikhar Ghosh (Harvard Business School) said: “If failure means liquidating all assets, with investors losing most or all the money they put into the company, then the failure rate for startups is 30 to 40%. If failure means failing to see the projected return on investment, then the failure rate is 70 to 80%.”

Individual angel investors collectively invest tens of billions of dollars each year in startups and early-stage companies. About half of that investment is equity, half is debt.

Out of the approx. $80 billion per year of equity investment in small, private companies by individuals, 83% comes from family and friends; the remaining 17%—amounting to $13.8 billion per year—comes from angel investors, individuals who do not have prior relationships with company owners or managers.

In 2012, total U.S. angel investment was about $22.9 billion, involving 67,000 issuers and 268,000 investors. The average deal size was $341,800 and the average equity received was 12.7 percent.

More than half of angel investment is made by non-accredited investors. Average angel investor income is $90,000; average net worth is $750,000.


VC as an older cousin of Angel Investing

Angel Investing

VC


VC as a cousin, or sister of PE

VC PE ORPE

VC


Is VC a Good Investment for YOU

“Dave Swenson, the well-regarded head of the Yale endowment and author of Unconventional Success: A Fundamental Approach to Personal Investment, is famous for pointing out that VC returns are highly dependent on which individual fund you invest in.”Source: Mastering the VC Game by Jeffrey Bussgan


What is Private Equity?

PE employs varying strategies: Leveraged Buyout: the purchase of all/most of a company by using relatively little equity

and significant debt Targets are typically mature companies that generate strong operating cash flow

Growth Capital: equity investments in mature companies Mezzanine Capital: subordinated debt or preferred stock

Regardless of strategy, leverage is typically key“Financial buyers”“Sponsor”


Organizational Structure

General Partner(Private Equity Firm)

Limited Partners (Investors)

Private Equity Fund(Limited Partnership)

NewCo NewCo NewCo NewCo

Manages the fund


The Private Equity Universe


PE Fund Structure(VC/Hedge Funds VERY Similar)

Most private equity funds are “closed-end” funds Contrast with mutual funds

GP usually commits at least 1% of the total capital and balance is committed by LPs

GP manages and controls PE fund

Partnerships have 10-year life with +1+1 extension

4-6 year investment period

1-2% annual management fee

Profits split 80-20, after reaching “hurdle” return level for LPs

LPs need to fund within 2-3 weeks of “capital call”

Penalties for failure to fund by LPs

Investments typically are channeled through a NewCo

Proceeds of capital received by NewCo then used to acquire Target


GP Compensation Management Fee: Usually 2% of total capital commitments until end of a four to five-year investment horizon, and then 2% of

unreturned funded capital thereafter (declining as investments are sold or realized)

Carried Interest: Incentive compensation paid after a Preferred Return is obtained by Limited Partners to create 80/20 split in profits between LPs and GP (subject to a Clawback)

Preferred returns must be paid to Limited Partners (after return of capital) before carried interest is paid to General Partners

A Clawback is a contractual provision applied at the liquidation and winding up of a fund that adjusts distortions in compensation to General Partners based on the timing of gains and losses, obligating the General Partner to return a portion of prior distributions of carried interest for redistribution to Limited Partners

Portfolio Company Fees and Expenses: Paid directly by portfolio companies to the private equity firm based on the following fees and expenses


Limited Partners GP has great degree of control

LPs protected by basic covenants in fund documents

Restrictions on how much capital can be invested in any one company

Covenants may preclude investments in publicly traded and foreign securities, derivatives and other private equity funds, etc

Covenants usually require that cash from sale of portfolio assets be immediately distributed to LPs

LPs usually limit deal fees or require deal fees be offset against management fees


Structuring Portfolio Company Investments

• Debt (~60-70%) of overall cap structure)

o Senior bank debt, two types:

Revolving credit facility (Revolver) which can be paid down and re-borrowed as needed Term debt (senior and subordinated) with floating rates

o Junior debt, two types:

High yield (typically public markets) Mezzanine debt (subordinated notes, typically sold to banks, institutions and hedge funds) Other key features:

• Warrants• Payment-in-kind (PIK) toggle allows no interest payment and increase in principal

• Equity ((~30-40%) of overall cap structure)

o Preferred stocko Common stock


Things to consider before jumping in

•How to structure your investment: individually, through a trust or other entity? •Tax consequences: understand how your choice of investment vehicle will affect your tax liability, and also the tax risks related to the private investment itself

•Liability: are you investing as an equity holder, or as a lender?

•What are your rights and obligations if the investment fails?


Looking at specific investment opportunities

o Fit in Overall Portfolioo Specific Investment Meritso Legal Issueso Tax Issues


The personal investment landscape in the US is undergoing the greatest transformation since the popularization of the mutual fund

The JOBS lifted the ban that previously prevented private placements from being advertised

Millions of AIs are only now beginning to understand they have investment options they never before considered

Some Additional Take-Aways

More About The Faculty: JONATHAN FRIEDLAND

[email protected] Friedland is a partner with Sugar Felsenthal Grais & Hammer LLP. He regularly represents parties in the purchase and sale of businesses and counsels businesses and their owners in their everyday affairs. Jonathan is also a nationally recognized expert in matters related to financially distressed companies.

Jonathan holds the highest possible rating from Martindale-Hubbell (AV® Preeminent™) and AVVO (10/10), has been repeatedly recognized as an Illinois “superlawyer” in the areas of Business/Corporate Law and Bankruptcy & Creditor/Debtor Rights, and has received several other similar distinctions. He is licensed to in Arizona, Illinois, New Jersey and New York.

Jonathan has been profiled, interviewed, and/or quoted in numerous publications, including Buyouts Magazine; Smart Business Magazine; The M&A Journal; Inside Counsel; LAW360; Business Week.com; The Bankruptcy Strategist; Dow Jones Daily Bankruptcy Review; Bankruptcy Court Decisions; Dow Jones LBO Wire; and The Daily Deal. He has authored three books and more than a hundred articles, and has spoken on more than 100 panels.

Jonathan is also the founder and chairman of DailyDAC, LLC, d/b/a Financial Poise™, an on-line provider of continuing education, information, and business intelligence for business owners, investors, and their trusted advisors. Jonathan graduated from the State University of New York at Albany, magna cum laude, in 1991 after three years of study and from the University of Pennsylvania Law School in 1994. He clerked for a federal judge before entering private practice, spent several years teaching MBA candidates as an Adjunct Professor of Strategic Management at the University of Chicago Booth School of Business, and was the 2006 Clayton Center for Entrepreneurial Law Visiting Professor of Business Law at the University of Tennessee College of Law. Jonathan was a partner with Kirkland & Ellis LLP before joining SugarFGH.


More About The Faculty: D

JORDAN [email protected]

Jordan Fishfeld is the founder and Chief Executive Officer of PeerRealty. He focuses his time on the development of strategic partnerships with investors, sponsors, and developers, while ensuring all deals are strong and viable. With over 8 years of investing, development and sales experience in the real estate industry, Jordan understands the benefits of strong and tangible assets.

Prior to founding PeerRealty, Jordan worked as a finance attorney for Katten Muchin Rosenman, LLP, where he assisted on more than $1 billion worth of syndicated loan transactions. Before graduate school, Jordan worked as a law clerk for a New York based real estate firm, representing lenders for properties valued at over $45 million.

Jordan holds Bachelor of Arts in Political Science and Bachelor of Science in Business Administration degrees from the University of Florida. Jordan also received Master of Business Administration and Juris Doctorate degrees from the University of Miami, where he graduated Magna Cum Laude.




CURTIS [email protected]

Curtis Anderson is a Managing Director at Alpha Fiduciary.

Curt brings a distinctive resume of investment experience to Alpha Fiduciary. For over 20 years, Curt has directed investment strategies and portfolio management for foundations, pensions and mutual funds. Early in his career he worked for a large, national, bank-owned RIA where he managed a balanced mutual fund with over $400 Million in assets, was Director of Research overseeing total firm assets under management of $6 Billion while personally managing over $1.5 Billion in foundations, trusts and the mutual fund. From there he went on to manage a $1 Billion balanced mutual fund for a fortune 500 owned fund company. As Sr. Vice President, he oversaw four CFA-accredited analysts, wrote monthly newsletters, participated in press interviews and served on the Investment Committee.

Curt spent a brief period in his career working on a private equity investment. After purchasing a corporation with another investor, Curt took on the role of CEO and President of this service company that employed 50 people in two states. Over four years they were able to double sales, open up a third office, and undergo a complete IT restructure. Curt sold this company to its largest competitor.

Recently Curt has specialized in managing the investments and preserving wealth for high net worth individuals. Curt was Sr. Vice President of Portfolio Management for a SEC registered RIA. In that role he oversaw the portfolio management operations, served on the Investment Committee and completed due diligence on sub managers, direct equity investments, private investments and hedge funds.



JIM [email protected]

James A. Jones is the CEO and Founder of the IRAeXchange, and the Vice President of Business Development for IRA Services. James was the sole pioneer of Self-Directed IRA’s in the P2P Marketplace Lending as well as the Equity and Real Estate crowdfunding industries. He engineered the first “Crowd IRA” in 2013, and now has strategically aligned with IRA Services to offer the first cloud based API driven retirement account platform that opens up the $14 Trillion retirement industry to alternative asset investors.James A. Jones works directly with Crowdfunding Portals and Platforms, Broker Dealers, Hedge Fund Managers, Registered Investment Advisers, Family Offices and Real Estate firms and associations.Invited to the White House Crowd funding Champions of Change, he is a nationally recognized speaker, author and educator. Mr.Jones is regularly featured in the Wall Street Journal, Dow Jones Market Watch, Reuters, Crowd Fund Beat, InvestorBeat.com and AccreditedInvestorMarkets.com. He is a frequent expert speaker at leading Crowd funding Industry Association forums including Dara Albright Events and Lendit. He is Amazon's #1 seller on Self-Directed IRA's and the industry's most published author offering the series "Retire Richer" core set with "Self-Directing Your Retirement", "Self-Directed IRA Workbook", the Industry’s first practical step-by-step guide in the process of investing in self-directed IRA’s, and "Self-Directed IRA - Prohibited Transactions". Having spent over 20 years in financial services working for firms such as Merrill Lynch and Wells Fargo, Mr. Jones has Series 65, 7, 63, insurance and mortgage licenses as well as a Masters degree in Finance from Harvard University.

Visit www.eisneramper.comEisnerAmper. Let's Get Down to Business®

EisnerAmper LLP is a leading full-service advisory and accounting firm, and is among the largest in the United States. We provide audit, accounting, and tax services, as well as corporate finance, internal audit and risk management, litigation services, consulting, private business services, employee

benefit plan audits, forensic accounting, and other professional advisory services to a broad range of clients across many industries. We work with high net worth individuals, family offices, closely held businesses, start-ups, middle market and Fortune 500 companies. EisnerAmper is PCAOB-registered and provides services to more than 200 public companies and to thousands of entities spanning the hedge, private equity, brokerage and insurance

space in the financial services marketplace. As companies grow we help them reach their goals every step of the way. With offices in New York (NY), New Jersey (NJ), Pennsylvania (PA), California (CA), and the Cayman Islands, and as an independent member of Allinial

Global, EisnerAmper serves clients worldwide.

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The JOBS Act & the accredited investor: What every accredited investor should know before investing

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Important Notes

• THE MATERIAL IN THIS PRESENTATION IS FOR GENERAL EDUCATIONAL PURPOSES ONLY.

• IT SHOULD NOT BE CONSIDERED LEGAL, INVESTMENT, FINANCIAL, OR ANY OTHER TYPE OF ADVICE ON WHICH YOU SHOULD RELY.

• YOU SHOULD CONSULT WITH AN APPROPRIATE PROFESSIONAL ADVISOR TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.