How to Make Investing in Your Company a Golden Opportunity

How to Make Investing in Your Company a Golden Opportunity

You’ve built a company with a promising future. You’re ready to start looking for funding. You know there are some folks out there (maybe your customers, suppliers, neighbors, values-aligned supporters, etc.) who will be interested in learning more about the opportunity to invest in your company.

That’s great! But at some point you need to tell them EXACTLY what they will be getting for their investment dollars.

The piece of paper that describes exactly what your investors are entitled to can be called by various names: investment offering, investment instrument, or security. There are many different kinds of offerings, some more commonly known than others. Examples include preferred stock, LLC membership units, convertible notes, revenue-based debt instruments, and SAFEs. Within each category, there are numerous choices to make. For example:

  • Will investors have voting rights and, if so, what specifically can they vote on?
  • How much time can go by before your investors receive payment?
  • How are payments to investors calculated?
  • Are any payments made as the company grows or only when you sell the company?
  • Do all investors have the same rights, or do some have the right to get paid before others?
  • Do you have to set a valuation on the company and, if so, how do you set it?

The options for how your offering can be structured are limitless.

A poorly structured offering can create years of misery when you and your investors butt heads over misaligned expectations, while a well-structured offering can be a win-win for all the stakeholders involved—you, your employees, your investors, your customers, and the long-term success of your business.

So, how do you design a win-win investment offering? We like to break it down into a step-by-step process:

  1. Get clear on the goals, values, and non-negotiables that will inform the design of your offering.
  2. Choose one of the three main categories of offering (equity, debt, or convertible) and make sure it fits with the legal and tax structure of your your business.
  3. Decide on your investors’ rights to get paid—when and how much will they make on their investment.
  4. Decide whether to give your investors any control and, if so, what kind.
  5. Decide whether to offer any perks, in addition to the investment itself, as a way to motivate larger and faster investments.

If you’d like help designing your offering, please watch for our upcoming announcement on a FREE 5-day challenge—Create a Golden Opportunity for Investors: How to Design a Win-Win Investment Offering. During this challenge, we will give you bite-sized lessons and quick daily assignments that will culminate in your having a customized investment offering drafted.

Sign up for our newsletter below to make sure you receive details on how to join the challenge.  

Do I Really Have to Do This? Yes, and It’s the Right Thing to Do

Do I Really Have to Do This? Yes, and It’s the Right Thing to Do

Raising investment dollars for your business is one of the smartest ways to reach your long-term goals. But like most things that are worthwhile, getting investments is work. And it’s not just the work you have to put into finding your ideal investors and getting them on board.  

It’s the things you have to do so you don’t get in trouble. One thing is disclosing information about your company. If you are doing any capital raise, you have to disclose material information to potential investors1. Beyond that general requirement, what you have to disclose varies according to the type of capital raise you do. Some types of offerings require very specific information. Let’s say you do an offering under Regulation Crowdfunding. In that case, you’ve got to tell everyone in the world: 

  • what your business is
  • how you’re planning to make money
  • what you’re planning to do with the funds you get from the raise
  • how much money you made in the last two years
  • and risks that investors would want to know about before they invest

And you need to be pretty sure about all of this. You can’t guess or give answers that don’t have a reasonable basis—and you can’t make important changes after launching your campaign without telling everyone what those are. You can’t claim you are doing things that really you’re just planning to do. (Close enough, right? No.) You can’t omit important risk factors or important information because you think people won’t invest in you. 

Yes, this can seem like a hassle. Yes, it can take time. And yes, it can take money to hire someone to help you do it right.  

You can’t guess or give answers that don’t have a reasonable basis…and you can’t claim you’re doing things that really you’re just planning to do.

So you might say, “I know my company is great. Do I really have to do all of this?” Yes, you really do. If you don’t, you could get into serious trouble with the federal Securities Exchange Commission (SEC), state regulators, and/or your investors.

But disclosure is not just about staying out of trouble. It’s about building an economy that is based on trust, transparency, cooperation, and compassion. 

People don’t tend to talk about the SEC as a warm and fuzzy institution. But, believe it or not, the SEC exists to protect individuals and our economy—in part by insisting on the truth. In the 1920’s, businesses were making extravagant claims, and people from all walks of life were investing like crazy2. But then stock prices fell dramatically; banks failed; and unemployment and hunger abounded3. We entered the Great Depression in part because companies were dishonest4. The laws governing capital raises were enacted to prevent this5. 

If you’re not being straight with the people supporting you, you run the risk of cheating them. That’s no way to make a better world. 

Of course, put your best foot forward. You are one of those special people who have the courage to start a business and make a difference. Be proud. 

But don’t hide your flaws. And don’t make up reasons why you’re great. Be honest with the people willing to be by your side as you navigate the choppy waters of entrepreneurship: the people willing to take a chance on your dream.  

And seek out investors who really believe in you, who know that no one is perfect, and who know that the future is unpredictable. I guarantee that they are the ones who will have your back when the going gets tough. 

We can’t control the future, but we can control how we treat each other now, and we can work toward a future where we all can thrive. 

Be well, stay safe, and keep going. You can do it.

P.S. If you want help figuring out how to raise money and stay out of trouble, give us a shout. We can help you with marketing, deciding what investment to offer, complying with those pesky laws, and coaching you so you can keep your head in the game no matter what’s going on in the world.

Know All the Investor Types

Know All the Investor Types

I recently got the inspiration to do a 6-session book study program in which we go through one of the key chapters of my book, Raise Capital on Your Own Terms, in each session. I was thrilled when almost 90 people decided to join us!

We’ve had two calls so far, and participants have been incredibly engaged, not only asking great questions, but also sharing resources with each other and creating interest groups where they are taking conversations further.

One of the hot topics we’ve been discussing is “who are investors and how do you find the right ones?” I gave a presentation about the following distinctions that you should be aware of when raising money:

  1. Professional investors versus non-professional investors—Professional investors are people who invest in small businesses on a regular basis. Conservatively, they account for only 0.3% of all investors in our country. Everyone else is a non-professional investor—people who go about their lives without thinking much about investing.
  2. Outside-the-box investors versus conventional investors—Outside-the-box investors are those who have an open mind about what makes a good investment while conventional investors are those who have pre-conceived, rigid ideas about investing. Most professional investors are conventional and most non-professional investors are outside-the-box.
  3. Accredited versus unaccredited investors—Accredited investors are defined under federal law, generally, as those who have at least $1 million in net worth or $200,000 in annual income. They make up approximately 10% of the population; 8% of accredited investors are “active,” meaning that they actively invest in small business, usually by joining an angel group. Depending on your legal compliance strategy, you may be limited to only raising money from accredited investors, but there are options that make it possible to raise money from both accredited and unaccredited investors—what I like to call “the 100%.”
  4. Angel investors versus OPM investors—Angels are those who actively invest their own money in small business. OPM investors invest other people’s money (OPM) and therefore are much more constrained than angels due to their obligations to their investors.

Capital on Your Terms Community

Because the book study has been such a success, we are planning to launch a pilot monthly membership program for those who want to learn more about raising capital on your own terms. Topics will include:

  1. Getting clear on your goals and valueshow much capital to raise, when and how often to raise, long-term plans for your business including exit strategy, understanding what you can offer investors, etc.
  2. Your ideal investors—who they are, where to find them, and designing the ideal relationship with them.
  3. What to offer investorsdifferent business structures and how they affect your relationship with investors, what to put in the term sheet, how to describe the offering, how to get literate on various aspects of investments, etc.
  4. Legal compliance strategy—what are the options and how do you stay compliant.
  5. Investor enrollment strategy—what to show potential investors, how to get meetings, what to say in the meeting, how to follow up and close the deal.
  6. Prepare to address mindset obstacles—know what obstacles may arise along the way and prepare to address them, so they don’t stop you on your fundraising journey.

The membership program will include live monthly office hours and an online platform where you can get your questions answered, get feedback, and share resources.

If you’re interested in learning more about this new offering, please click here to sign up for our waiting list, and we will email you with the details.

Temporary Relief for Investment Crowdfunders

Temporary Relief for Investment Crowdfunders

I recently joined the board of directors of the Crowdfunding Professional Association.  The board asked me to draft a letter to the Securities and Exchange Commission requesting emergency temporary relief from the onerous requirements under Regulation Crowdfunding to prepare reviewed financial statements.  We submitted the letter on April 7.

To our surprise, the SEC released emergency temporary rules on May 4.  The key provisions are:

  • financial statements do not need to be prepared to launch a campaign (but investment commitments cannot be accepted until the financial statements are provided)
  • the amount you can raise without having to prepare reviewed financials has been increased from $107,000 to $250,000

These temporary rules apply for Regulation Crowdfunding campaigns started between now and August 31, 2020, and the issuer must have been organized and operating for at least six months.

If you’d like to take advantage of these temporary rules, please contact us at info@jennykassan.com.

Here is the specific request we put in our letter:

The Crowdfunding Professional Association writes to voice its support for the SEC’s goal to simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.

Given our current health and economic crisis, we would like to respectfully request consideration of the following urgent temporary amendments to some of the registration exemptions to expand short-term access to capital:

. . .

Section 227.201(t):  Suspend the requirement that “the financial statements must be prepared in accordance with U.S. generally accepted accounting principles and include balance sheets, statements of comprehensive income, statements of cash flows, statements of changes in stockholders’ equity and notes to the financial statements” to the extent that the company has a minimal operating history and/or its previous operating history is currently immaterial to an understanding of future operations due to current economic crisis.  Similarly and for the same reasons, suspend the requirement that issuers provide reviewed or audited financial statements for raised over $107,000.

We very much appreciate the opportunity to submit these proposals and believe strongly that they could facilitate much needed capital formation for our country’s small businesses that are struggling during this economic crisis.

 

Fundraising Tips from Dan Fireside, Capital Coordinator at Equal Exchange

Fundraising Tips from Dan Fireside, Capital Coordinator at Equal Exchange

Equal Exchange is a worker-cooperative that sells Fair Trade coffee, chocolate, and other staples.  They created a revolutionary way of raising money from investors.  Investors receive non-voting preferred stock, and if the co-op is ever sold, any excess revenues would go to another Fair Trade organization.  Investors make money via annual dividends, and Equal Exchange actually has to turn investors away.  They currently have about 550 investors and have sold over $17M in preferred stock.  

Dan’s job is to raise capital and manage investor relations.  Dan says that now is a great time to raise capital because, based on his experience, when Wall Street crashes, investors become more aware of the importance of investing in alignment with their values.

Dan has learned from experience that the most important way to cultivate investment is by building relationships with values-aligned people.  When talking to potential investors, remind them that all investment is risky, but at the end of the day, whether you make money on your investment or lose it all, it’s nice to feel good about what your money is doing in the world.  

When Wall Street crashes, investors become more aware of the importance of investing in alignment with their values.

Once you have investors, you have to communicate with them and not just send them a check each year.  Help them see why they should be excited about their investment.  Tell stories about your impact—be as specific as possible.  Click here for an example of what Equal Exchange sends to their investors.

Keep building relationships with your investors.  If you’re ever in trouble, they will be the first ones to support you.

If you’d like to learn more about raising capital using the same principles as Equal Exchange, click here for information on our upcoming online book study of Raise Capital on Your Own Terms: How to Fund Your Business without Selling Your Soul.

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