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.

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.

Major Changes to Securities Rules

Major Changes to Securities Rules

For those of us who care about moving investment dollars into the businesses we love, March 4, 2020 was like Christmas, New Year’s Eve, and the Fourth of July all wrapped into one. The Securities and Exchange Commission (SEC) released proposed rule changes that will make raising funds from investors easier for smaller businesses. The new rules aren’t perfect, and there are some things we wish they had included but didn’t, but these changes are really exciting! 

We are currently in a comment period, and we expect the new rules to take effect in the next couple of months. Please let us know if you have any comments you’d like us to add to our comment letter!

Here is a summary of the most exciting changes. But first, a big caveat: these rules do not preempt state law. So, for example, even though the new federal rule may allow you to publicly announce that you’re raising money at a pitch event, the law of the state you’re in very well may not.

Integration of Securities Offerings

Under current rules, if you switch from one type of offering to another (e.g. from a private offering that includes unaccredited investors to a publicly advertised offering under Rule 506(c)), you generally have to let six months pass between the end of the first offering and the beginning of the second. Under the new rules, the maximum amount of time you would have to wait between two offerings is 30 days. Unfortunately, state level integration rules could still prevent this.

Speaking at Pitch Events

We have often told our clients that if they speak at a pitch event, they cannot mention they are raising money without violating the rules against public solicitation of an investment offering. The new rules state that if you speak at certain types of events and publicly say that you are raising money, this will not be considered a public solicitation. The event has to be sponsored by a college, university, or other institution of higher education; a local government; a nonprofit organization; or an angel investor group, incubator, or accelerator. The sponsor would not be permitted to charge a fee to attendees of the event, other than reasonable administrative fees.

Testing the Waters

Under the current rules, you cannot offer an investment opportunity unless you have determined what compliance strategy you plan to use and, in many cases, complete compliance filings. The new rules propose to permit the solicitation of interest in an investment opportunity before having to incur the expense and effort associated with securities compliance. This is especially exciting if you are planning to raise under Regulation Crowdfunding because you will now be able to talk about a potential Reg CF offering without first having to complete all of the compliance requirements. And Reg CF preempts state requirements so you will be able to do this country-wide.

Offering and Investment Limits

The proposed rules increase the limit of how much you can raise under Rule 504 from $5 million to $10 million. This exemption allows you to include both accredited and unaccredited investors. The proposed rules also increase the amount you can raise under Reg CF from $1.07 million to $5 million, increase the cap on what each investor can invest, as well as remove caps altogether for accredited investors.

Crowdfunding Vehicles

The rules allow the creation of a special type of entity called a Crowdfunding Vehicle. The purpose of this entity is to hold equity investments that are then invested in the company that is raising money under Reg CF.  This means that all of the equity investors in a Reg CF raise can be combined into a single entity. There are significant limitations on the nature and scope of the crowdfunding vehicle’s permitted activities under the proposed rule.

Regulation Crowdfunding Eligible Securities

The rules propose to prohibit the offering of SAFEs (Simple Agreements for Future Equity) under Reg CF.

Stay tuned for updates on the final rules!

Major changes for maximum impact

Major changes for maximum impact

Dear Community,

This is my last blog post for 2019, and I want to thank you for all your support this year. As we work to change the face of investment in our country, your outpouring of love for our amazing entrepreneur clients, and of course your investments in them, mean everything to us!

2019 was a year of major change for Jenny Kassan Consulting. For the first time we didn’t do our signature training event, Fund and Fuel Your Dreams, because it felt like we were being called to serve in a different way.

It was time to acknowledge that raising significant investment dollars, for many entrepreneurs, is an undertaking that requires an extremely high level of support—coaching, legal services, support with communications, and help with connecting to the right investors. While a three-day training is a great start, it barely scratches the surface of what is needed to meaningfully support an entrepreneur with fundraising. Plus, now that my book is published, everything we taught at the event is easily accessible without the need to attend a three-day live event.

So, in 2019 we focused our efforts on one-on-one client services, allowing us to address each individual client’s unique goals and challenges and to bring the right resources to the table.

We also put more energy than ever into cultivating the investor side of the equation. With such amazing entrepreneur clients, the obvious next step was to leverage the relationships we already have with “outside-the-box” investors and to encourage connections between investors and our clients. We do this through our WeCapital Community—where we connect our current and former female clients with investors—and also through Angels of Main Street—a community of angel investors that is open to people anywhere in the US regardless of wealth or income.

In its first year, the Angels of Main Street have already moved several hundred thousand dollars into direct investments in mission-driven companies.

In 2020, we will continue 1) to focus on providing highly customized services for entrepreneurs who want to raise investment capital on their own terms and 2) to grow the movement of investors wanting to learn how to move their money into ventures they love.

We hope you’ll stay involved—here’s what you can do:

· Follow us on social media

· Join Angels of Main Street

· Invest on Crowdfund Mainstreet

· Buy and gift my book here

· Refer entrepreneurs to us here

· Continue to read our newsletter and encourage friends to join our mailing list by going to our website

Thank you again for your support and encouragement!

~ Jenny

Skip to toolbar