THE BEST KEPT SECRET IN FUNDING A BUSINESS
Anyone who is considering starting a new business must analyze the cost and expenses associated with the start up operations. For the business owner who wants to expand an existing business that requires additional capitalization also needs to weigh the various costs and liabilities.
Being under capitalized is one of the most common mistakes business owners make. Attempting to work on a financial shoe string is not only stressful but can impede the growth of the business for years.
The very first step that most companies take when seeking private capital is the creation of an executive summary and/or a business plan. While executive summaries and business plans are an important facet of raising capital they are not designed to be investment documents.
Executive Summaries and Business plans typically just provide general information about the company, its business model, goals, etc. While this information is important to investors, it does not provide a basis or structure for accepting capital investment.
A business plan does not allow a company to accommodate multiple individual investors. Most business plans state an aggregate amount of funding needed, “$500,000″ for example, but provide no structure to allow for fractional investment. This means the company must find one single investor with $500,000 to invest – and the patience to develop the transaction structure and documents to process that investment. This limitation is probably the single biggest reason why so many companies fail at raising investor capital. Raising capital effectively and properly from investors requires very specific documentation that far surpasses what a business plan provides.
Public companies don’t raise capital from investors by putting a business plan in front of them. If you wanted to invest into Dell Computer – do you think Dell would send you a business plan to process your investment? Of course not – you would invest into Dell Computer through a securities offering. The same holds true for private companies seeking capital from investors. Don’t expect an investor to invest unless you have presented them with a securities offering. Business plans serve a purpose (especially for start-up companies) – but they should not be relied upon as investment documents.
Here is the “Best Kept Secret in Funding.” The Regulation D series of funding can allow you to legally in compliance with Security & Exchange Commissions laws raise the funds necessary for your business with a short period of time. Whether it’s a few hundred thousands of dollars or millions, there is a Reg D to answer your requirements.
If you intend to offer equity in a privately held company such as a corporation or limited liability company, then you must have the proper exemption from the Securities & Exchange Commission or you’ll be in violation of offering a securities. The Reg D series of private placement offerings are the exemptions. For individuals needing $1 million or less, the Reg D 504 Private Placement Offering is ideal. It’s very cost effective and easy to comply with only a few restrictions. For those needing over $1 million, the Reg D 506 is commonly used.
You owe it to yourself to learn about this method of raising funds for literally any type of business.