What would you like to see changed in the laws governing capital raising?

What would you like to see changed in the laws governing capital raising?

I’m excited to announce that I’ve been appointed to the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies, thanks to a recommendation from American Sustainable Business Council.

The purpose of the Committee is to provide advice to the SEC regarding its rule making and policies related to facilitating small business capital formation while promoting investor protection.

If there is anything that has been driving you crazy about the laws governing capital raising or you have suggestions for innovative ways to support small businesses in the capital raising process, please let me know!

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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Investment Crowdfunding under the JOBS Act – One More Tool in the Tool Box

Investment Crowdfunding under the JOBS Act – One More Tool in the Tool Box

The Securities and Exchange Commission has finally released the rules for the crowdfunding exemption of the 2012 Jumpstart Our Business Startups (JOBS) Act.

My involvement with what ultimately became the JOBS Act began in 2010 as the co-founder of a nonprofit called the Sustainable Economies Law Center (SELC). Janelle Orsi and I founded SELC to provide legal support for the movement to create a transition to a healthy, sustainable, and just economy. One of the areas that we decided to attack was the securities law that makes it challenging for regular folks to invest in the ventures they believe in.

In the summer of 2010, I worked with law student interns to draft and submit a formal petition to the Securities and Exchange Commission (SEC) requesting the creation of a crowdfunding exemption from the onerous registration requirements for public securities offerings.[1]

Our original petition garnered media coverage and letters of support from all over the country, yet we heard nothing from the SEC. But a White House staffer was intrigued by the idea when we presented it to the SEC’s annual Forum on Small Business Capital Formation. Congressional hearings and a Presidential proposal for a crowdfunding exemption followed, and after some major changes to the original proposal, the final legislation – the JOBS Act – was signed into law on April 5, 2012.[2] I was there in the rose garden to watch the President sign it.

The legislation gave the SEC 270 days to complete a rulemaking process so that the crowdfunding exemption could go into effect. Three and a half years later, the rules have finally been released and would-be investment crowdfunding portals will begin submitting applications to the SEC and FINRA in January. Investment opportunities will begin to be listed sometime in 2016.

Something interesting happened to me between 2010 and today. I got tired of waiting for the SEC so I identified and implemented legal strategies that allowed my clients to achieve the exact same thing that the JOBS Act allows (public offering of investment opportunities allowing an unlimited number of both accredited and unaccredited investors). The overarching term for these strategies is the Direct Public Offering (DPO). Using DPOs, I have helped multiple social enterprises all over the country raise hundreds of thousands to millions of dollars.

Here is a list of some of my clients that have currently open investment opportunities that are open to all investors – both accredited and unaccredited. The minimum investment amount is usually $1,000. These offerings are only available to residents of certain states, shown next to their names below.

Artisan Beverage Co-op – Massachusetts Residents

HydroRevolution – California Residents

Capital Good Fund – multiple states

Pioneer Valley Grows Fund – multiple states

Dorchester Food Co-op – Massachusetts Residents

Green City Growers – Massachusetts Residents

Maker’s Common – California Residents

My Trail – Colorado Residents

Economic Development and Financing Corporation – California Residents

Nia House School – California Residents

People’s Community Market – California Residents

Sunspeed Enterprises – California Residents

Once I started researching DPOs, I learned that it is actually not a new model. Ben and Jerry’s completed a DPO in 1984 to open their first production facility. For some reason, after all these years, many people don’t realize that it has been legal all along to do an investment crowdfunding campaign!

So, was it a waste of time to create a new crowdfunding exemption given that DPOs which have been legal for decades already allow investment crowdfunding?

I’m not sure what the answer is to that question but it is true that the new crowdfunding exemption introduces some things that were not previously possible under existing law. For example, the new rules make it possible to accept investors from all 50 states without having to do state by state compliance.[3] Also, for the first time there will be online investment platforms open to everyone that need not be licensed as broker-dealers. The crowdfunding exemption is a new and unique tool in the tool box that is already quite full of tools.

So how do you decide whether to use a DPO or the new crowdfunding rules?[4] It will be difficult to answer this question until there are some actual platforms available for conducting a raise under the new rules. Once there are platforms open for business you’ll be able to evaluate pricing, user friendliness, etc.

Here is a generalized comparison between the two options:

DPOs under pre-2016 law DPOs under the new crowdfunding rules
Nationality of issuer Any U.S.-only
State by state registration required (can take 1-5 months or more) Generally yes No
Maximum that can be raised Generally none (some multi-state offerings are capped at $1 million; there is a proposal to increase this cap to $5 million) $1 million
Per investor cap Generally none If investor annual income or net worth is less than $100,000, cap is the greater of $2,000 or 5% of the lesser of their annual income or net worth; if both their annual income and net worth are equal to or more than $100,000, cap is 10% of the lesser of their annual income or net worth
Use of intermediary Not required; very few intermediaries are available Required – communication outside of intermediary prohibited
Reviewed or audited financials required Usually not Yes if raising more than $100,000
Investors have the right to pull out at the last minute No Yes
Annual reports required Generally no Yes – must include company financials and must be posted on company web site
What kinds of securities can be offered Any (equity, debt, etc.) Any (equity, debt, etc.)

If you’re interested in exploring your options for conducting a public offering of securities, please feel free to contact us.

[1] The most commonly used legal compliance strategies for raising capital require investors to be “accredited” – having a minimum $1 million net worth or $200,000 in annual income. Offerings that are open to an unlimited number of unaccredited investors and involve public advertising generally require registration.

[2] The JOBS Act actually included several reforms to the securities laws in addition to the crowdfunding exemption.

[3] There is one type of DPO that also allows this (known as Regulation A+) but it requires a relatively onerous process with the SEC.

[4] I actually consider an offering under the new crowdfunding rules to be a type of DPO, but I’m making this distinction between the two for the sake of clarity. My definition of a DPO is any securities offering that can be made doing public advertising and is open to an unlimited number of both accredited and unaccredited investors.

Interested in learning more? Get in touch!

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Your complete capital raising checklist

The title of this post is a bit misleading because there is no such thing as a capital raising checklist! Why? Because there is an infinite number of ways to raise capital. Each capital raising campaign is more like a work of art than a regimented cookie cutter process.

I was on a call today with some of my group coaching clients and here are some of their insights on this topic:

  • It’s more important to clarify our own intentions than to worry about what investors will think because once we have that level of clarity we can tell our story to other people and they will be inspired to join us
  • We’re making our own adventure
  • Everyone is doing it differently and we’re all right
  • When I started this process my perception was that there is one right way but there isn’t – it’s a living experience that you’re going though as you bring your heart out into the world
  • We are in charge!

I almost cried when I heard them say these things because I believe the world would be a radically better place if more mission-driven entrepreneurs felt this way.

Please spread the word that it is absolutely possible to raise funds from investors on your own terms!  If you’d like to talk to me about your strategy, click here to apply for a capital raising strategy session.

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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As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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How to get in the best state of mind for raising capital

1. Examine your beliefs about asking for money and growing your business.

Chances are you have little voices in your head undermining you and you may not even be consciously aware of it!

Do a brain dump in your journal about all those beliefs and realize that there is very little, if any, truth to them. Once you drag them out into the light of day, you can loosen their grip on you by noticing how ridiculous most of them are!

Make it a regular practice to expose those beliefs that don’t serve you well and debunk them.

2. Notice the positive side of the things that you don’t like about yourself.

Just about every “negative” characteristic has a positive side. For example, if you worry that you are too cautious and don’t jump on opportunities quickly enough, think about all the times that quality has actually helped you avoid mistakes. Reframe the negative description of that trait to focus on the positive. For example, say to yourself, “investors would be very lucky to invest in my company because I am such a careful steward of resources.”

3. Remember that investors find it very challenging to identify good opportunities.

Remind yourself every day that, for the right investors, what you’re offering to them is at least as valuable if not more so than what you’re asking for.

When talking to potential investors, start by asking them a lot of questions about what’s important to them. If it becomes clear that what you are offering is a good fit for what they’re looking for, make your offer.

4. Practice the ask.

There is a way to ask for an investment that establishes a level playing field from the start. Here is an example of what you can say when approaching potential investors:

You know I’ve realized that the business opportunity that I am cultivating is going to have tremendous impact in a number of ways that I think given who I know you are might be of interest to you.

Are you open to having lunch so I could tell you about it?

I realize this may or may not be right for you. If it’s not, no harm no foul – that’s fine. But if you’re open to it I’d love to share it with you.

Once you get the meeting, start by presenting a short statement of your vision. Before getting into all the details, make sure the potential investor sees your vision – why this is important to you and how you want to make a difference with your business.

You can practice this in advance and get feedback from your supporters until you feel confident that the statement is clear, concise, and inspiring.

5. Be willing to say no to the wrong investor.

If your gut tells you that a potential investor is not a good fit, listen to that. Do as much due diligence on potential investors as they do on you. And listen to both your head and your intuition (body, heart, spirit, gut . . . .) when deciding whether to accept an investment.

6. Cultivate your garden.

Nina Simons of Bioneers says “fundraising is like cultivating a garden.” Take the time to get to know potential investors as well as those who may be able to introduce you to investors. It can take several touch points before an investor says yes. During this process, treat the investor as a whole person, not just a wallet that you’re trying to get into. Everyone, including investors, wants to be seen for the entire person they are and appreciated for all that they have to offer.

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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As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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Is there more than one way to reach your funding goal?

You’re sitting at a restaurant having lunch with two friends, Pat and Chris. They’re both entrepreneurs and coincidentally, they both just completed a funding round of $1 million for their businesses.

You ask them to tell you the details of their raises.

Chris says,

I brought on an investor who now owns 50% of my business. The investor has a seat on my board of directors and is there to help me make sure my business grows as fast as possible because our goal is to sell the company within the next 5 to 7 years. The investor has veto power over any big decisions I make. Basically, the investor is my boss. What we’re hoping will happen is that in 5 to 7 years when we sell the business, we’ll all make a huge amount of money. In the meantime, the investor is watching my like a hawk to make sure I work my butt off so that the business will become an attractive target for acquisition.

Pat says,

I brought on some investors who trust me to make good decisions about the business and they’re very busy people so they didn’t want any control or ability to participate in the management. If I ask them for support, they’re usually happy to give it, though. At the end of every fiscal year, we look at our books and determine whether we can afford to pay a dividend to the investors out of our profits. We try to pay a dividend of at least 4% per year (meaning the investors get 4% of the total amount they invested). If an investor wants to exit his or her investment, we have a mechanism that allows us to either bring in a new investor to be able to pay that investor back or to buy the investor out using our own reserves. In either case, the investor can never get back out more than what he or she initially put in.

Which one sounds like the better deal to you? Of course there is no right answer – there are pros and cons to both. But in the world that worships Silicon Valley style investing, Chris would be seen as a success and Pat might be seen as a bit of a loser. This is a bit strange since Pat was able to keep control, has a much lower cost of capital, and does not have to put in 120 hour weeks to make sure the company becomes an acquisition target as quickly as possible.

The take home message? Don’t get caught up in how others define success – do what is best for you and where you want to take your business. There is more than one way to raise capital and the Silicon Valley style is not right for everyone. In fact, less than one percent of business go that route! Who cares whether you’re touted as one of the exclusive club of VC-backed company founders if you raise the money you need and you’re running your company on your own terms?

To learn more about alternatives to the Silicon Valley, funding model, apply for a Capital Raising Strategy Session.

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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As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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If Startup Funding is so Plentiful, Why Are Many Women Entrepreneurs Still Struggling?

Reprinted from http://www.locavesting.com/featured/if-startup-funding-is-so-plentiful-why-are-many-women-entrepreneurs-still-struggling/

Women entrepreneurs, do any of the following comments sound familiar?

“I’m having lots of conversations and none of them are going anywhere.”
“I had an investor commit but now he won’t answer my phone calls.”
“I got sexually harassed when I pitched the first time.”
“An investor asked if I was truly committed to the business given my family obligations.”
“I had a couple meetings with funders who really didn’t seem to understand the product, or they wanted the product to be something else.”

If so, you’re not alone. For all the talk that startup funding is plentiful, many entrepreneurs are struggling to find investors. Women, especially, are spinning their wheels in meetings with investors that don’t yield results. This takes time away from running the business, not to mention their other priorities, and can lead to a downward spiral of lost confidence.

But it’s not necessarily about you. In my work with entrepreneurs, I’m seeing the following trends:

1. Yes, it’s getting easier for startups to raise money, but this is only true for a very tiny percentage of startups that fit a very particular profile.

There is more abundant funding than in recent memory for tech start ups with high growth potential. I have met lots of women entrepreneurs whose businesses are not primarily tech-focused, but who are feeling the need to focus on the “tech part” to attract investors. So their dream of making healthy nutrition bars or customized footwear has to take a back seat for them to even get in the door with these investors. This doesn’t lead to good outcomes: either the entrepreneur has to sacrifice her vision to get investment or, more commonly, the investor senses the lack of enthusiasm for the tech part and passes on making an investment.

2. Most professional investors, even those that consider themselves impact investors, are driven by making high financial returns as quickly as possible.

Many women entrepreneurs are strongly committed to fulfilling a mission with their businesses. Almost every woman I talk to cares about more than making as much money as possible in the shortest possible time frame. They are very reluctant to sacrifice their mission in the name of raising funds. This creates a big mismatch between these entrepreneurs and the sources of capital they’re talking to.

3. Mainstream sources of information about raising capital are steering entrepreneurs toward a tiny pool of potential investors that may very well not be a good fit—which leads to a huge amount of wasted time, money, and energy.

Type “startup funding” into your favorite search engine and I can almost guarantee that everything retrieved takes for granted that the Silicon Valley model is the only model for raising capital. What is the Silicon Valley model? This is the fairy tale story that so rarely happens in real life where a start up raises a seed round, then an angel round, then several rounds from venture capital, and then the company is sold and everyone makes millions. Because of the articles and blog posts that make it sound like this is THE way to raise money, tons of entrepreneurs try to march down this path without realizing that this model fits for only a tiny percentage of businesses. I also hear from lots of entrepreneurs who tell me that their lawyers and advisors discourage them from trying more creative capital raising strategies.

How to counter these trends? Here are some solutions:

Broaden your definition of potential investors

Your potential investors could include your customers, suppliers, neighbors, members of organizations that are in alignment with your company’s goals, etc. In my experience, non-professional investors are satisfied with more reasonable terms and are less likely to demand control. Identify investors that love what you are doing, totally get it, and want to be a part of it. You will have a much more pleasant relationship with them than you would with a professional investor that only cares about maximizing financial returns at any cost.

Consider hiring expertise instead of thinking you need it from your investors

A lot of women I talk to, when I ask them what they are looking for in an investor, say they want an investor who not only has money to invest but also has industry expertise, is willing to serve as a mentor, and has a huge rolodex of useful contacts. Trying to find all these qualities in a single person is a recipe for frustration. Why not consider raising money from investors and then using that money to hire consultants to help with the other stuff?

Create a blueprint and follow it faithfully

When I work with entrepreneurs that are looking to raise capital, the often want to jump in headfirst and talk to every investor they can get an appointment with. I recommend taking some time to create a plan first. The few weeks it takes to do that could save you months or years of frustration! I help my clients create a plan that includes

1. Getting clear on why you are raising money
2. Your non-negotiable goals and values
3. How much to raise
4. Who is your ideal investor, where are they, and what are they looking for
5. Addressing the mindset issues that get in your way so you can approach investors with confidence
6. Create financial projections that help you see clearly the best way to bring on investors
7. What to offer investors – equity versus debt; exits; etc.
8. What legal compliance strategy to use to make sure you can reach your ideal investors without breaking the law
9. Designing your communication strategy

Once you feel good about your plan, stick to it!  Don’t listen to those who will tell you that you’re not doing it right. I promise you, many of those who “do it right” end up very unhappy, stressed out, and sometimes even fired from their own company.

Get support!

I am working with groups of women entrepreneurs that are all raising money at the same time and I’m amazed to see how helpful it is to be a part of a supportive group. The participants give feedback, resources, introductions, and pep talks to each other, which leads to better results and makes a process that can be very unpleasant actually enjoyable!

If you’d like to talk about your capital raising strategy, click here to apply to have a one-on-one conversation with me.

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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As a thank you for subscribing to our email newsletter, you will receive a free copy of my ebook entitled Get the Right Money from the Right Investors.

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