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!

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

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

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!

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

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

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!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

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!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

How to launch an investment crowdfunding platform

How to launch an investment crowdfunding platform

Do you want to launch a funding portal for investment crowdfunding?  Currently, there are only 12 of these that have gone through the process required under the JOBS Act.  Here is a very abbreviated summary of some of the main requirements for starting and operating an investment crowdfunding portal:

Funding Portal Registration

To create a funding portal you have to complete and file “Form Funding Portal” with the SEC.

You also have to become a member of FINRA (see details here: http://www.finra.org/industry/funding-portals).

Limitations on Funding Portals

The funding portal may not

(1) Offer investment advice or recommendations;

(2) Solicit purchases, sales or offers to buy the securities displayed on its platform;

(3) Compensate employees, agents, or other persons for such solicitation or based on the sale of securities displayed or referenced on its platform; or

(4) Hold, manage, possess, or otherwise handle investor funds or securities.

Measures to Reduce Risk of Fraud

Among other things, the funding portal must conduct a background and securities enforcement regulatory history check on each issuer and on each officer, director or beneficial owner of 20 percent or more of the issuer’s outstanding voting equity securities, calculated on the basis of voting power.

Educational Materials that Must Be Provided to the Investor

In connection with establishing an account for an investor, the portal must deliver educational materials to such investor that explain in plain language and are otherwise designed to communicate effectively and accurately:

(1) The process for the offer, purchase and issuance of securities and the risks associated with purchasing securities;

(2) The types of securities available for purchase on the intermediary’s platform and the risks associated with each type of security, including the risk of having limited voting power as a result of dilution;

(3) The restrictions on the resale of a security offered and sold in reliance on the crowdfunding exemption;

(4) The types of information that an issuer is required to provide under the rules, the frequency of the delivery of that information and the possibility that those obligations may terminate in the future;

(5) The limitations on the amounts an investor may invest under the rules;

(6) The limitations on an investor’s right to cancel an investment commitment and the circumstances in which an investment commitment may be cancelled by the issuer;

(7) The need for the investor to consider whether investing in a security offered and sold in reliance on the crowdfunding exemption is appropriate for that investor;

(8) That following completion of an offering conducted through the portal, there may or may not be any ongoing relationship between the issuer and the portal; and

(9) That under certain circumstances an issuer may cease to publish annual reports and, therefore, an investor may not continually have current financial information about the issuer.

Promoters and Compensation Disclosure

The portal must inform investors regarding any person who promotes an issuer’s offering for compensation.

When establishing an account for an investor, an intermediary must clearly disclose the manner in which the intermediary is compensated in connection with offerings and sales of securities.

Investor Qualification

Each time before accepting any investment commitment (including any additional investment commitment from the same person), an intermediary must obtain from the investor

(a) A representation that the investor has reviewed the intermediary’s educational materials, understands that the entire amount of his or her investment may be lost, and is in a financial condition to bear the loss of the investment; and

(b) A questionnaire completed by the investor demonstrating the investor’s understanding that:

(i) There are restrictions on the investor’s ability to cancel an investment commitment and obtain a return of his or her investment;

(ii) It may be difficult for the investor to resell the securities; and

(iii) Investing in securities offered and sold in reliance on the crowdfunding exemption involves risk, and the investor should not invest any funds unless he or she can afford to lose the entire amount of his or her investment.

Communication Channels

The portal must provide communication channels by which persons can communicate with one another and with representatives of the issuer.  The portal may not participate in these communications.  Anyone may view the discussions but only investors that have opened accounts may post comments.

Maintenance and Transmission of Funds

The portal may not handle funds.  It must direct investors to transmit the money directly to a qualified third party, such as a registered broker or dealer or a bank or credit union.

Compliance

A funding portal must implement written policies and procedures reasonably designed to achieve compliance with the federal securities laws and the rules and regulations thereunder relating to its business as a funding portal.

A funding portal must also comply with federal rules related to privacy of consumer financial information and safeguarding personal information; limitations on affiliate marketing; identity theft red flags).[1]

A funding portal must permit the examination and inspection of all of its business and business operations that relate to its activities as a funding portal, such as its premises, systems, platforms, and records by representatives of the Commission and of the registered national securities association of which it is a member.

 

[1] https://www.law.cornell.edu/cfr/text/17/part-248

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!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email

Who should be allowed to invest?

Who should be allowed to invest?

Have you heard of the term “accredited investor”?

An accredited investor is defined under federal law, in general terms, as an individual with at least $1 million in net worth (excluding her primary residence) or $200,000 in annual income.

If you qualify as an accredited investor, there are many more investment opportunities open to you than to everyone else.

This definition has not been updated significantly since 1982.

The definition has been criticized from two opposite sides: advocates for investor protection believe the dollar amounts should be increased to reflect inflation, while advocates for greater investor access argue that the definition should be expanded to allow more people to invest wherever they want.

There are some proposals on the table to update the definition that have nothing to do with dollar amounts.  These include

  1. allowing people with a certain amount of past investment experience to be included in the definition
  2. allowing people with certain professional credentials, such as licensed securities brokers, to be included
  3. allowing people who pass an exam that demonstrates financial sophistication to be included.

What do you think?!  How do we balance the need to protect investors with fewer resources and less sophistication with the benefits of allowing everyone to make his or her own decisions about how to invest?

(Source: Report on the Review of the Definition of “Accredited Investor,” a report by the staff of the U.S. Securities and Exchange Commission, December 18, 2015)

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!

Sign Up For Our Newsletter

As a thank you for subscribing to our email newsletter, you will receive a free copy of my tip sheet: How to Talk to Investors.

  • Email