Jillian taught Finance and Accounting for the BS and MBA programs at the University of Redlands, drawing on her experience as Financial Analyst, Controller, and CFO for many companies from manufacturing to real estate development. Prior to her legal career, Jillian owned and operated a record label enabling her to tour worldwide with artists, including visiting South Africa, Canada, Europe, and the United States.
She is an attorney specializing in how to raise capital money for small businesses and medium-sized businesses. Jillian will be sharing knowledge and information you need to know to do your business legally and effectively.
So why do we need to do this?
Firstly, it is important to know when laws apply to you and what laws you need to know in order to legally run your business.
There is a test or questions we need to answer such as:
- Investment of Money – Who will be your investors?
- In a common enterprise – For what purpose you will use their money?
- With an expectation of profits – As you will not only return the money they invested, but they will also gain profit from your business
- Through the efforts of a promoter – How will you make your business sell?
Now, we answer who will be your investors. Remember that your investors matter and which ones you solicit matter.
There are three types of investors.
- Accredited – they make $200k or $300k or $1m net worth
- Sophisticated – smart but not rich. They have some kind of knowledge but does not have that large income
- Unaccredited – not so smart, not so rich
The law considers these types of investors differently. So, how do we use the law to satisfy our capital needs?
First, we should ask ourselves these questions.
- Where is my crowd? Who is my crowd?
- Do I know wealthy, or not too wealthy people?
- Do I know a lot of people?
- Do I need to advertise or use my own network?
Let’s talk about Crowdfunding. Crowdfunding allows you to raise millions of dollars. There are many registered crowdfunding portals which you can use such as WeFounder, Star Engine, and Republic. In Crowdfunding, you can take money from any investors, but you can only advertise in that portal or through the registered crowdfunding portal. The investors are also limited in the amount of money they can invest. They can only invest 10% of their net worth or $10,000 whichever is less. So, you’ll be getting small amounts of money and the average you can get from each investor is $250.
In 506b, you can raise as much money as you want from your current network, meaning people you already have relationships with or have done business with before. You can use substantive pre-existing relationships But you cannot advertise. You can get investors type 1 and 2 in 506b which are the sophisticated and accredited investors.
In 506c, you can only get accredited investors but you have to verify that they are actually accredited. Advertising for investors is allowed under certain rules for 506c ,reg A and Crowdfunding.
In Mini IPO, it really requires you to have a lot of front capital. Others do not require any review by the Securities Exchange Commission but in Mini IPO, SEC needs to review your documents prior to allowing you to raise capital. You can advertise yourself for investors in any channels. You don’t have to go under a registered portal and you can create an audience for yourself.
In Regulation A+, they allow you to advertise, raise up to %50,000,000 and allow uncredited investors to invest in your company.
You need to educate yourself in these to become legally compliant, but you don’t have to process all this by yourself. You need to focus on putting your business together. You can hire an attorney to put all the documents together for you.
What you need to do is to know what you want to market now and what is the message you want to relay to your investors. Give them the reason why you are doing the business and why people would and should buy your product. Because that will also be how you would get people to invest in you.
Remember the 3Ds.
- Disclose all material facts by giving them the information they need to know to make investment decisions.
- Disclaim any potential liabilities such as risks and rules.
- Give them all the details such as when they are going to get paid, how much are you raising, and what are you going to use their money for.
Get yourself educated also on how to get SPA loans. These loans are free or like a grant but they use the term loans to ensure you’ll use it properly otherwise, they’re going to make you pay for it. There are three different ways to use it to pay payroll, to pay rent and to pay utilities.
Lastly, anybody can raise capital but you have to know how to raise it properly, know who the right people are, advertising the right way and knowing where to pitch that great idea.
Watch the replay of Jillian’s talk here: https://youtu.be/nQEa60I6g6g