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.

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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:

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.


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.



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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)

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LLC versus corporation

When starting a new business, choosing what entity to form is an important decision and can have implications for how you can raise money in the future, how you’re taxed, how you can bring on help, etc.  Here are some things to consider when choosing whether to form an LLC or a corporation.


Corporations are required to follow certain formalities such as

  • Have a Board of Directors which meets regularly (can be a single member under most state laws)
  • Hold annual shareholder meetings
  • Take meeting minutes
  • Provide written advance notice to Board members and shareholders of meetings, including agendas
  • Have officers, including at least a President, Secretary and Treasurer (multiple offices can usually be held by a single person)

LLCs are generally not required to have the same level of formality.


LLCs can be structured very flexibly. For example, company losses can be allocated to one class of investors and profits can be allocated to another class. Different classes of investors can be given very specific governance rights. Corporations are a bit less flexible.

In LLCs, it’s possible to provide a “profits interest” to investors – this kind of interest can be given for low or no cost to the investor in exchange for future services. It entitles the investor to share in future profits. There is no comparable option in a corporation.

With a corporation, the general rule is that when a worker receives an ownership interest in a business in exchange for “sweat equity” instead of paying the actual value of the interest in cash, the worker will owe income tax on the value of the interest received. This means the worker will have a tax bill and no cash to pay it with. This is why corporations often grant stock options to their employees. The options provide the right to buy stock at a pre-set price at some time in the future. Generally, an option grant does not create a taxable event for the worker at the time it is granted. There is a taxable event when the option is exercised and the shares are sold at a higher price. Options only make sense in a company that will eventually have a market for its shares.

The flexibility of LLCs can be a double-edged sword. While flexibility can be attractive, operating an LLC can be more complicated and expensive because there are so few default rules that LLCs must comply with. It is also easier to make costly mistakes making the advice of an accountant with a high level of expertise in LLC accounting essential.

Employment Law

When an LLC provides equity to employees, the employees are thereby converted to partners and are no longer technically employees. They cannot be given tax-advantaged fringe benefits and may not be covered by employment law requirements such as minimum wage, the requirement to buy workers compensation insurance, etc. In a corporation, when employees are given equity, they continue to be treated as employees for all purposes.

Tax Considerations

Corporations can be taxed under Subchapter S or Subchapter C. LLCs can elect to be taxed under those subchapters as well but are most often taxed under Subchapter K (this is the subchapter that governs partnerships).

Both Subchapter S and Subchapter K provide for pass-through tax treatment. This means that all items of profit and loss are passed through to the individual tax returns of the company owners. The entity itself does not pay federal income tax on its profits (although some states do impose tax on pass-through entities).

There are several differences between these two subchapters:

  1. An entity may only elect to be taxed under Subchapter S if it meets certain requirements:
    • Fewer than 100 shareholders
    • Only one class of stock
    • All shareholders must be individuals and not entities
    • All shareholders must be legal U.S. residents.

These requirements do not apply to taxation under Subchapter K. However, corporations may not elect to be taxed under Subchapter K. Subchapter K may only be used by LLCs and partnerships.

  1. Under Subchapter K, all revenues received by equity investors that work in the business are subject to both income tax and self-employment tax, regardless of whether you call it a salary, profit distribution, etc. Under Subchapter S, it is possible for the equity owners to take a portion of their earnings in the form of profit distributions which are not subject to self-employment tax. Because of this, in businesses where the owners take large salaries/distributions, Subchapter K can result in a much higher tax burden than Subchapter S.

For entities taxed under either Subchapter S or Subchapter K, at the end of each tax year, the accountant needs to allocate the entity’s profit or loss to the company owners. Each owner receives a form called a K-1 that instructs the owner what needs to be reported on his or her individual tax return. Many owners do not like having to deal with K-1s because it makes the preparation of their individual tax returns more complicated and they often do not receive the K-1 until late in the tax season.

Another concern with pass-through taxation is that it is possible that an owner could be required to pay tax on profits that he or she does not actually receive in cash. This is a problem called “phantom income.” This happens when an entity makes a profit but does not pay the entire profit out to investors in the form of cash distributions. This is a very common occurrence since most entities need to retain some amount of cash to cover short-term needs. The entire company profit is allocated to the investors regardless of how much cash they receive. Often, investors agree in advance that a minimum distribution will be made to at least cover the tax bills they have to pay because of their investment in the company.

Taxation under Subchapter C is standard for larger corporations. Unlike with the other two subchapters, entities taxed under Subchapter C do pay tax – items of profit and loss are not passed through to the equity investors. Federal corporate tax rates range from 15% to 35%. If an entity taxed under Subchapter C pays a profit distribution to an investor, the investor pays tax on that distribution. These are often subject to a lower tax rate than the standard individual income tax rate. However, these funds are technically taxed twice because they are taxed at the entity level and at the individual investor level. This is known as the “double tax.”

Considerations for companies that want to bring in outside investors

Many equity investors prefer to invest in non-pass-through entities because they do not like having to deal with the possibility of phantom income, K-1s, and other complications that can come with pass-through treatment. On the other hand, there are some investors that may have investments that generate passive income who are looking for an investment that will generate losses that can offset those gains on their tax returns. For investors to be able to take advantage of these losses, the entity must be taxed as a pass-through. Knowing what type of entity/taxation your most likely investors prefer is very helpful in making the choice of entity decision.

Asset Protection

An LLC is preferable from the perspective of asset protection for the owners of the entity. If the owner of stock in a corporation is successfully sued, the creditor could be awarded the stock and gain control of the corporation. However, a creditor of an owner of an interest in an LLC cannot gain control of the LLC. The creditor is limited to a charging order which only allows the creditor to cash distributions made by the company. The creditor cannot force a distribution or demand any portion of the assets of the company and has no voting rights. This problem with corporations can potentially be addressed through the use of a Buy-Sell Agreement that provides for what happens if a major shareholder transfers his or her stock voluntarily or involuntarily.

Conversion from one to the other

From a tax perspective, it is generally easier to covert from a pass-through entity to an entity taxed under Subchapter C than vice versa.


Disclaimer: This post does not constitute legal advice! Please consult your tax advisor and/or attorney before making a final decision regarding entity type and taxation.

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