How would a President Trump affect small business finance?

How would a President Trump affect small business finance?

One thing is certain.  Trump has an awkward relationship with the chair of the Securities and Exchange Commission, Mary Jo White.

According to this fascinating article in the Washington Post, Mary Jo White, when in private practice, deposed the Donald on behalf of her client, a New York Times reporter that Trump had sued for writing that his net worth was far less than what he claimed.

Apparently the deposition was quite challenging for Trump – he was caught in about 30 lies.

So, Mary Joe White is not likely to be our SEC chair for much longer.

What else might happen?

At a recent crowdfunding conference, some of the speakers expressed optimism that deregulation will make capital raising and secondary trading easier for small business.  It is certainly true that it has become so expensive to be a public company that very few companies are choosing to go public these days and some are choosing to go private.

It’s hard to know what might change under a Trump presidency, but one possibility is that the restrictions on who can invest in a small business could be loosened.

As the Republican member of the SEC says, “I want to move beyond the artificial distinction between so-called “accredited” and “non-accredited” investors and challenge the notion that non-accredited investors are “being protected” when the government prohibits them from investing in high-risk securities. . . .  Because most investors are risk averse, riskier securities must offer investors higher returns. This means that prohibiting non-accredited investors from investing in high-risk securities is the same thing as prohibiting them from investing in high-return securities. . . .  [E]ven a well-intentioned investor protection policy can ultimately harm the very investors the policy is intended to protect. . . .  Remarkably, if you think about it, by allowing only high-income and high-net-worth individuals to reap the risk and return benefits from investing in certain securities, the government may actually exacerbate wealth inequality.”

What do you think?  How do we balance the need to protect “un-sophisticated” investors with the need to make it possible for small businesses to raise capital from their communities, customers, and fans?

Interested in learning more? Get in touch!

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Investment Crowdfunding under the JOBS Act six months in

Investment Crowdfunding under the JOBS Act six months in

It’s been over four years since the JOBS Act was signed by President Obama and finally, starting on May 16, 2016, companies are raising money under the federal crowdfunding exemption that the JOBS Act created (Title III of the JOBS Act).

Here are some things to know to help you decide whether it’s right for you!

Fun Fact! What does the CROWDFUND Act stand for?

Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act.

Do I have to have a U.S. company?

Yes, only U.S. companies can take advantage of the crowdfunding exemption.

How much can I raise?

You can raise up to $1 million in any one year period.

Do I have to use an online platform?

Yes. You can only raise money under the Crowdfunding Exemption by posting your offering on an online platform that has been licensed by the Securities and Exchange Commission. In fact, communications with potential investors must take place through the platform (there are very limited things you can say about your offering outside of the platform).  Here is a list of the current platforms: https://www.finra.org/about/funding-portals-we-regulate (there may be some others that are Broker-Dealers as well – this is a list of the ones that are not Broker-Dealers).

What is the per-investor cap?

(i) If either the investor’s annual income or net worth is less than $100,000, the greater of $2,000 or 5% of the lesser of the investor’s annual income or net worth; or

(ii) If both the investor’s annual income and net worth are equal to or more than $100,000, 10% of the lesser of the investor’s annual income or net worth, not to exceed $100,000.

Note that this is a cap on what an investor can invest in all crowdfunding campaigns in a year.

How am I supposed to know if an investor is within the per year cap?

You can rely on the efforts of the crowdfunding intermediary to ensure that the aggregate amount of securities purchased by an investor will not cause the investor to exceed the limits, provided that you don’t know that the investor has exceeded the investor limits or would exceed the investor limits as a result of purchasing securities in your offering.

Are state level filings required?

Only the state of your principal place of business and the state where more than 50% of your investment comes from can require a notice filing and a fee.  Not many states are requiring anything at this time.

Can I be raising in a different way at the same time?

Yes! Unlike many other capital raising strategies, you are allowed to raise money under the crowdfunding exemption at the same time that you are raising money in another way, such as through a different kind of direct public offering or an offering to all accredited investors under Rule 506(c).

What can I offer?

Even though some people call this “equity crowdfunding,” you can offer any type of security – you don’t have to offer equity.

What filings are required?

When you set up your offering on a platform, you have to provide detailed information about your company and your offering.

If you’re raising $100,000 or less, you have to provide tax returns.  You also have to provide financials that are prepared in accordance with Generally Accepted Accounting Principles – most companies don’t have GAAP compliant financials and it can be expensive to get these done.

If you’re raising more than $100,000 you have to provide financials reviewed by a CPA. Reviewed financials can cost several thousand dollars.

After the first time you raise money under Title III, you have to provide audited financials if you’re raising more than $500,000.

You also have to file an annual report (including your financials) which is required to be posted on your web site.  You have to continue to post your annual report for as long as you have investors that invested under Title III (there are some exceptions that allow you to stop reporting sooner than that).

Can people who buy securities in my offering re-sell them to someone else?

Yes, but not before one year after the initial purchase.

What are some examples of successful campaigns?

Here are some that I’m following:

Spotlight: Girls

Farm from a Box

Maestroconference

Be sure to subscribe to my newsletter below to get up to date information as the crowdfunding exemption starts to get tested in the real world!

Interested in learning more? Get in touch!

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New easier ways to raise capital – Part 2 – Multi-state Offerings up to $5 million

New easier ways to raise capital – Part 2 – Multi-state Offerings up to $5 million

The Securities and Exchange Commission just amended Rule 504 to increase the amount you can raise from $1 million to $5 million.

Rule 504 is an exemption that allows you to raise capital in as many states as you want and does not limit who can invest or how the offering can be advertised.

So, for example, you could do an offering under Rule 504 and register to do a public offering in both Massachusetts and Vermont.  This is what my former client Real Pickles did.  But back then, they could only raise up to $1 million.  If they did it now, they could raise up to $5 million.

This is huge!!!  Keep in mind that you can only raise up to $1 million under Title III of the JOBS Act (the investment crowdfunding exemption).  So Rule 504 offers an alternative way to raise investment capital from the crowd that allows you to raise five times more.

If you’d like to learn more about raising money under Rule 504, please contact us.

Interested in learning more? Get in touch!

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New easier ways to raise capital – Part 1 – Intrastate Offerings

New easier ways to raise capital – Part 1 – Intrastate Offerings

The SEC just adopted a new rule called Rule 147A that allows companies to raise capital from investors within a single state (it is a new safe harbor under the intrastate exemption from the registration requirements of the 1933 Securities Act).

We already had a safe harbor for the federal intrastate exemption (Rule 147), but this one is new and improved!

Who can use it?

The company making the offering has to be “resident” and “doing business within” the state or territory in which all of the sales are made.

“Resident” means that the company has its principal place of business within that state (this is wherever the officers, partners, or managers of the business primarily direct, control and coordinate the activities of the issuer).

“Doing business within” means that one of the following is true:

  • The company derived at least 80% of its gross revenues from business operations located within the state;
  • The company has at least 80% of its assets located within that state;
  • The company intends to use and uses at least 80% of the net proceeds from the offering in connection with the operation of a business or of real property, the purchase of real property located in, or the rendering of services within that state; or
  • A majority of the company’s employees are based in that state.

Who can invest?

All of the purchasers of securities must be residents of that state.  You need to do some due diligence to establish a “reasonable belief” that the purchasers are actually state residents.[1]

Where can you advertise?

There are no restrictions on where the offer can be made, just the sales.  This means that you can promote the offering online, using press releases, etc.

Can the securities be resold?

For a period of six months from the date of the sale of a security, any resale of such security shall be made only to persons resident within the same state.  After that, resales are unrestricted under federal law.

The company is required to place a legend on the security stating that

“Offers and sales of these securities were made under an exemption from registration and have not been registered under the Securities Act of 1933. For a period of six months from the date of the sale by the issuer of these securities, any resale of these securities (or the underlying securities in the case of convertible securities) shall be made only to persons resident within the state or territory of [identify the name of the state or territory in which the issuer was resident at the time of the sale of the securities by the issuer].”

The company must also make a notation in its records of the transfer restriction and obtain a written representation from each purchaser as to his or her residence.

Required disclosures

The issuer is required to prominently disclose to each potential investor the following:

“Sales will be made only to residents of the state or territory of [identify the name of the state or territory in which the issuer was resident at the time of the sale of the securities by the issuer]. Offers and sales of these securities are made under an exemption from registration and have not been registered under the Securities Act of 1933. For a period of six months from the date of the sale by the issuer of the securities, any resale of the securities (or the underlying securities in the case of convertible securities) shall be made only to persons resident within the state or territory of [identify the name of the state or territory in which the issuer was resident at the time of the sale of the securities by the issuer].”

Timing with other offerings

Unlike before, you don’t have to have a six-month separation between another offering and your offering under this exemption.  You can use this exemption anytime after another type of offering.  So, for example, you could do a private offering and then immediately start an intrastate public offering.

State level compliance

You still have to make sure you comply with state level requirements for your offering.  So, for example, if you want to do a public offering in California, you need to comply with the California registration requirements for public offerings.

If you’d like to learn more about using this new tool, contact us!

[1] This can be established through a pre-existing relationship between the issuer and the prospective purchaser that provides the issuer with sufficient knowledge about the prospective purchaser’s principal residence; evidence of the home address of the prospective purchaser, as documented by a recently dated utility bill, pay-stub, information contained in state or federal tax returns, or other documentation.

Interested in learning more? Get in touch!

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The Fastest Path to Cash for Your Business

The Fastest Path to Cash for Your Business

I have been working with entrepreneurs to raise capital for over 10 years.  This is the cheapest, fastest (legal) way to raise money from investors that I’ve found (and it only became available a couple of months ago)!

Step 1: Decide what you want to offer

There are many different types of investment instruments you can offer.

If you offer something simple, you don’t necessarily need to hire a lawyer to create your offering.

For example, you can download a simple promissory note which commits you to pay your investors a set interest rate (I recommend an annual payment, rather than monthly or quarterly, to make life easier) and pay back the principal on the maturity date which you should select based on your reasonable projection of when you will be able to afford to make that payment.

Step 2: Begin public offering under Rule 506(c)

Rule 506(c) allows you to publicly advertise your offering however you want.  Before anyone invests, however, you have to make sure they are accredited.

Under Rule 506(c)

  • There is no maximum raise amount
  • All investors must be accredited
  • You can do public advertising (email blasts, announcements at public events, social media, press releases, etc.)
  • You must file Form D with the SEC within 15 days after the first sale of securities
  • You must complete notice filings and pay fees in all states from which investments are made – this is where you might need to get help from a lawyer! Or you can call the relevant states for instructions

You can start reaching out to potential investors IMMEDIATELY under Rule 506(c) because there are no filing requirements until AFTER you have actually raised money.

You are not required to use any particular method to verify that all investors are accredited, but the SEC has deemed certain methods to be acceptable.

Step 3: Launch investment crowdfunding campaign on a JOBS Act Title III platform

To be able to launch under Title III, you need to make sure your financials meet the requirements for financials under Title III.  Once you have that in place, you just need to create your profile on the crowdfunding platform site.

Before launching under Title III, it is important to understand all of the requirements that go along with it such as ongoing reporting obligations that require you to post your company financials on your web site for anyone to see.

If you’d like to explore the options for raising capital for your business, apply for a strategy session.

Or attend our two-day training for women entrepreneurs, Fund and Fuel Your Dreams.

Interested in learning more? Get in touch!

If you are interested in working together, send us an inquiry and we will get back to you as soon as we can!

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Five elements of a great investor presentation

Five elements of a great investor presentation

1. Authenticity

A lot of entrepreneurs think that they need to be someone that they’re not in order to impress an investor. That is not a good idea and can backfire. First of all, people can usually sense when someone’s not being authentic. They may not be totally conscious of what is going on, but something will not feel right and they will not invest.

Second, you have a much better chance of attracting investors that are going to be a great fit for you if you’re really honest about who you are and what’s important to you. Just as lying on your online dating profile only leads to heartache when you end up attracting someone based on deception, the same holds true in the world of capital raising.

2. Passion

Don’t water down your message – show your passion! Be proud of what makes you unique and yes, maybe, a little different and quirky.

Very few people want to invest in something generic. Highlight what makes you, your company, and your product or service truly special and inspired.

Every entrepreneur I know that has successfully raised money has told me that this was the key to their success.

Your presentation should make it clear that you are passionate about your business. Passion is attractive because it demonstrates commitment – this is not something that you are going to give up on at the first sign of hardship!

3. Story

Maybe there’s something about your personal story that led you to develop this business that makes you all the more passionate and committed. For example, I have a client whose children have multiple allergies. She became passionate about finding healthy foods for them and built her whole business around that. The story behind her business is really interesting and it adds to her credibility in the eyes of potential investors.

4. Integrity

It is essential to make sure that your potential investors know that you have integrity, that you’re going to be a careful steward of their money, and that you’re going to always act with the highest ethics. These are attributes that are important to investors and somewhat rare in the world of business. You may take these things for granted, but you need to remember that they add value to your investment proposition and so should be emphasized in your presentation. If you can, share stories or examples of how important integrity is to you.

5. Willingness to Walk Away

As you go through the capital raising process, commit to yourself that you will walk away from a potential investor if the fit does not feel right. This can happen for many reasons. For example, you get a sense from the investor that he or she has a vision for the future of your business that is not consistent with yours. Or he or she is already pressuring you to lower your wages and stop paying one percent of your revenues to charity when those things are really important to you. Or maybe it’s just a gut feeling that you really don’t like this person.

Being prepared to walk away reduces that chances that you will end up with a horror story situation in which you lose control, get fired from your own business, your investor makes your life miserable, etc. I have heard lots of these stories and believe me, you don’t want them to happen to you!

Another benefit of being prepared to walk away and really owning that mindset is that potential investors will be far more attracted to your offer because they will sense that they have to work to be accepted into your inner circle.

Interested in learning more? Get in touch!

If you are interested in working together, send us an inquiry and we will get back to you as soon as we can!

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