Help with understanding brief agreement

[Space Mountain]

Hi Everybody:

I am considering meeting with an investment group regarding investing in some potential existing businesses through syndications and would like some opinions/re-assurance to below document. After reviewing it, I don't see much of an issue. Just trying to cover myself BEFORE signing.

Thanks in advance.

__________________________________________________ ______________

MUTUAL NONCIRCUMVENTION & NONDISCLOSURE AGREEMENT

In consideration for the mutual promises contained herein, the undersigned parties intending to
be legally bound, hereby irrevocably agree not to circumvent, avoid, bypass each other, directly
or indirectly to avoid payment of fees or commissions, in any corporation, trust partnership or
other entity or individual, revealed by either to the other, in connection with the below
referenced properties, and any additions, renewals, extensions, rollovers, amendments,
renegotiations, contracts, or third party assignments relating to this project. Nor, shall any party
reveal or otherwise disclose to a third party any confidential information provided concerning
lenders, sellers, borrowers, buyers, or their names and addresses, telex or telephone numbers, or
any means or access thereto including bank information code or reference and/or any such
information, advised to the other as being confidential or privileged, without the formal written
consent of the other. The term of this agreement will be for a period of two years and include:
properties, additions, renewals, extensions, rollover, amendments, renegotiations, new contracts
or third party assignments relating to this project. Commission fees for each new project shall be
negotiated and agreed to on a project-by-project basis. Addendum to each project controversy or
claim arising out of, or the breach thereof and which is not settled between the signatories
themselves, shall be settled by arbitration in accordance with the rules of the American
Arbitration Association.
This agreement pertains to any and all businesses listed or shown to the potential buyer listed
below by XXX Investments, LLC.
This agreement shall be binding on the parties here undersigned, and their associates consultants,
successors and assignees. All deposits on these properties for sale or lease shall be made to
XXX Investments exclusively. By signing below I/We acknowledge receiving a copy of this
agreement. I/We agree to become personally responsible for any commissions that would have
become due to XXX Investments by any breach of this agreement.
Acknowledged by the following:
L.S __________________ ___________________________
(Individually) Printed Name
L.S ______________________________ _____________________________
(Corporately) Printed Name

Dated: _______________

[eytonxav]

I would put a carve out into the NDA to the extent such confidential information is not already known to a party or is otherwise public knowledge.

[calmloki]

Beep beep beep. Mild alert here - sounds like "Don't use or tell of the incredible wealth building secrets we are about to divulge". Just sensitive after giving a bunch of suits at a fancy table a bunch of money to invest in various loans, paying us 12%. The 12% payments lasted a year, then the company dried up and blew away, taking with it our money.

[chinaco]

No offense.... but if your are asking questions about an NDA in a forum like this... are you sure you know what you are doing?


I would not invest anymore money that I would be comfortable with losing 100%.

My inner voice would be screaming "RUN"!

[REWahoo]

NDA's are sometimes a business necessity when one company deals with another company. Not so when it comes to an individual and an "investment group".

I see a huge issue with the fact they are asking you to sign an agreement that would potentially prevent you from seeking the advice of others as to just how sound the investment might be.

No way would I be interested in a "secret investment", and I'd run far away from this one were I you.

[Nords]

Quote:

Originally Posted by Space Mountain Hi Everybody: I am considering meeting with an investment group regarding investing in some potential existing businesses through syndications and would like some opinions/re-assurance to below document.

If this is how they introduce you to the group, then you need a new group. At best these guys are getting suckered into a bunch of amateur legalese. At worst they're crooks.

I've seen investing "syndicates" where they just want your assurance that you're an accredited investor. The businesses applying for the syndicate's investment can worry about NDAs when they start the due diligence.

Maybe it's worth considering it from another direction: If you were a business owner seeking investments from this syndicate, would you be interested in signing this form?

[Space Mountain]

Just to clarify, the group I am considering meeting with is a business brokerage company that has been around for 30 years. They try to place investors together that are seeking alternative income sources such as existing pizza parlors, hotels, etc...

I know I may sound naive, but that's why I reached out to this forum in the first place.

In theory, the concept seems plausible. They are not touting "get rich quick schemes."

For the record, I reached out to them. They weren't doing any crazy advertising or anything that would initially raise a red flag.

Thanks.

[Space Mountain]

Oh, I forgot to mention, this business brokerage also simply brings buyers and sellers together for business transactions. I was looking to partner with someone who was interested in buying a business but with the experience in chosen field. You know, like a silent partner.

[haha]

Quote:

Originally Posted by Space Mountain Oh, I forgot to mention, this business brokerage also simply brings buyers and sellers together for business transactions. I was looking to partner with someone who was interested in buying a business but with the experience in chosen field. You know, like a silent partner.

These businesses you mention can be quite good. But for example, a hotel? What could a couple guys with moderate to even large capital for 2 investors do in the hotel area? Most of it might land you in jail, and the rest would have you competing with the Patels.

And pizza? I don't know your area, but in many places this announces that you would like to become a cash source for some guys named Sally, or worse, Igor.

If you are out of work, go find an old tired guy with a decent pizza parlor and start working for him. He will sell likely sell it to you sometime, and you shoud by then know what you are getting yourself into.

OTOH, if you have a job, run like Wahoo said!

Ha

[Nords]

Quote:

Originally Posted by Space Mountain Just to clarify, the group I am considering meeting with is a business brokerage company that has been around for 30 years. They try to place investors together that are seeking alternative income sources such as existing pizza parlors, hotels, etc... I know I may sound naive, but that's why I reached out to this forum in the first place. In theory, the concept seems plausible. They are not touting "get rich quick schemes." For the record, I reached out to them. They weren't doing any crazy advertising or anything that would initially raise a red flag. Thanks.

Quote:

Originally Posted by Space Mountain Oh, I forgot to mention, this business brokerage also simply brings buyers and sellers together for business transactions. I was looking to partner with someone who was interested in buying a business but with the experience in chosen field. You know, like a silent partner.

If you're looking to buy a business then it sounds like they'll make it happen. But it also seems that they're worried you'd cut a deal behind their backs, like using a realtor to find a good house and then ditching them to contact the seller personally.

If you're looking to learn more about what it takes to buy a business and how to become a better investor then it's worth considering an angel investor's group, although they're usually focused on startups.

This is the networking database used by a national association of over 600 groups: Angel Investor | Angelsoft Not every angel group is a member of ACA or uses Angelsoft, so you might also try searching online for angel investors in your local area.

There's also a number of national investing groups, but they seem to focus more on buying stocks. I don't know of many investing groups (other than venture-capital funds) trying to buy mature businesses.

It always bothers me when a business is trying to sell itself (or solicit additional investors) through a broker. The implication is that their financials aren't compelling enough to make anything happen without paying someone to bring in the crowds. The rare occasions when we've researched broker-sponsored deals have generally confirmed that skepticism.

[kumquat]

Methinks you may be over your head and about to be drowned (before you are raped). I think I might be if I was in your shoes. Do as you think best.

[devans0]

Pizza? High start-up costs, a lot of work, long hours, and thin profit margins. Labor costs and food costs are both key. I helped DW in her food service managements until she left to "pursue other interests" She specialized in turn-around situations.. Now she is an accountant/analyst for an energy company. She NEVER wants to go back to food service of any kind, but her hobby is still cooking. I was the occasional gofer/helper when someone didn't show for work.

It is interesting to me to see her in a new restaurant. In minutes, she can tell the quality of their training programs, the profitable and non profitable items on the menu, and whether the business will remain afloat and is always right on target to the strengths and weaknesses of the restaurant. Our daughter hated going out to eat with her because she always was commenting on the food and service.

You are taking too high a risk for too little reward, IMO. There are better businesses to become a silent partner on. A coffee shop is almost ALL profit. You are selling flavored water, essentially. It's cliche, but is at least viable for profit.

[growing_older]

I think they are trying to insure that they do not introduce you to a potential investment, only to have you cut them out of the deal (and all future deals) so they are attempting to lock in a commission (and future fees). I wouldn't sign this unless I knew what the legalese meant. It will not be a valid defense to say "I didn't think it meant I had to pay that much"

[chinaco]

Quote:

Originally Posted by Space Mountain Oh, I forgot to mention, this business brokerage also simply brings buyers and sellers together for business transactions. I was looking to partner with someone who was interested in buying a business but with the experience in chosen field. You know, like a silent partner.

Since I am not interested in doing that type of deal, I have not spent any time researching it or thinking about it.

The following comments are just my uninformed opinion... do not consider it to be advice and the comments do not constitute any sort of recommendation.... It is just my opinion!!!

I will start with my opinion about that sort of deal... I would not do it!

If you have not done this before and do not know what you are doing... you need to be very careful. You should try to find some people that have done it successfully and some people that did it and lost their @$$ets to better understand what you are doing. Identify some of those people independently (from the brokerage). Ask the Brokerage for some investor and business owner combinations as references (but not your deal). You should ask for current investors and the owners that have been successful and failures (investors and owners) and interview them. If they only provide people that have not failed and are in the early "excited" stage... be very skeptical!


Many small businesses fail. Do your homework.

What's Behind High Small-Biz Failure Rates?

Your example about the small pizza parlor. They are up against large, entrenched, well capitalize competitors that have the advantage of massive scale. Look around, many small owner/operator restaurants fail. For that matter some franchise owners struggle (depending on the brand). Some of those people (owner/operators) just wind up chained to a low paying job and never make it big (even if they survive)!

Since you are here.... I assume you are considering investing/risking assets that you will need to fund your retirement. Do you really want (or need) to take that kind of risk with your retirement security?

I would look at it very conservatively (high risk with a big chance of real losses). Make sure the business is solid and in good shape with a long track record and experienced proven owners. I would want to see their marketing plan and their books from the beginning. If I could, I would interview some customers (depends on the business). You should hire an accountant to review the books. You should look for independent audit reports (take nothing on faith)... this may not be available for really small businesses. Your accountant may need to perform some audits.

With the prevalence of sector funds and etfs that are highly diversified, one can get into just about any industry or thing that is managed or sold. If I felt like investing in a particular type of business.... sector etfs or mutual funds would be my investment vehicle of choice!

[SteveL]

Just my opinion, but NDA's should be deal specific. No need for a general cover everything NDA. If a potential deal really involves non-public proprietary information, then being asked to sign an NDA is appropriate.

However, the fact that you are asking about this subject tells me that you may lack the business savvy to consider investing in these kinds of deals anyway.

[Space Mountain]

Sincere thanks to all that replied.

I do not claim to have the utmost business experience. However, I have a net worth of low 7 figures and am 43 years old. (1 million in investable assets) No dependents, debt, etc...

I realize a combo of stocks and bonds should get me where I want to be in the future. (70/30)

That said, I am considering meeting with this company, find out which opportunities are available, meet some of the other potential investors, (hopefully not plants) WITHOUT signing anything or cutting a check. At the very least, it would serve as a good learning experience.

Space Mountain

[FreeAtLast]

I would meet with them but don't feel obligated to sign a NDA. I am sure that they try to get everyone to sign one but probably not everyone does.

The Sun will still rise in the morning even if you do not sign the NDA. Do not get stress out about it. They are just trying to push you around a bit. You need to be strong and push back.

You must negotiate from a position of strength, signing it will indicate your weakness.

[Nords]

Quote:

Originally Posted by Space Mountain That said, I am considering meeting with this company, find out which opportunities are available, meet some of the other potential investors, (hopefully not plants) WITHOUT signing anything or cutting a check. At the very least, it would serve as a good learning experience.

I'd say that 80% of the benefit of an angel investor's group is being able to sit in a room with a dozen experienced business guys doing due diligence on a company. I've been educated far beyond my wildest dreams.

[traineeinvestor]

Quote:

Originally Posted by SteveL Just my opinion, but NDA's should be deal specific. No need for a general cover everything NDA. If a potential deal really involves non-public proprietary information, then being asked to sign an NDA is appropriate. However, the fact that you are asking about this subject tells me that you may lack the business savvy to consider investing in these kinds of deals anyway.

No sane person would sign an NDA in the form presented. No experienced person would take anybody who presented such a document seriously - most of the institutions I work with would either be insulted or burst out laughing. At the very least they would conclude that they are dealing with complete amateurs.

In addition to being ridiculously broad it is neither deal specific (or very rarely industry specific) nor does it include any of the usual carve outs.