Raising Capital

Posted: June 19th, 2009 | Author: | Filed under: Small Business Topics | 4 Comments »

Many clients that come to see me have great ideas, but they need money to get started.  Typically, they are young and entrepreneurial, don’t have personal financial resources and banks won’t touch them.  Can they go out and ask people to give them money to develop their ideas?

Yes they can, provided they follow the federal and state securities laws and regulations.  These can be quite complicated, and this is obviously not the right place to analyze them in detail.  In simple terms though, the securities laws and regulations are designed to protect an unsuspecting public from the reach of unscrupulous promoters who go out and try to raise capital through public solicitations.  The law forbids this, and requires any public offering to be “registered” with federal and state regulators, which is extremely expensive and beyond the reach of fledgling businesses. 

However, the law does allow investments to be made in a private context without formal registration (private offerings) where the parties know one another and the investors have a thorough knowledge of the business in which they propose to invest.  The trick is to make sure that private offerings stay private, and that the investors are given all the information they need to make an informed investment decision. 

There are a number of different formats that may be used when it comes to putting together the investment structure.  For example, preferred shares are popular with sophisticated investors, whilst investments made by close friends or family members often involve loans, common shares or some combination.  Simple is always better!

Anyone looking to raise money privately should consult with someone who works in this practice area to make sure they remain on the right side of the law.  If they don’t, investors may have the right to get their money back if the business doesn’t do as well as they may have liked, with fairly dire consequences for the entrepreneur and the business.

4 Comments on “Raising Capital”

  1. 1 Sarah said at 9:14 pm on June 23rd, 2009:

    Pretty nice post. I just found your blog and wanted to say
    that I have really enjoyed browsing your posts. In any case
    I’ll be subscribing to your feed and I hope you write again soon!

    [WORDPRESS HASHCASH] The poster sent us ‘0 which is not a hashcash value.

  2. 2 admin said at 11:24 am on June 26th, 2009:

    Thanks Sarah, much appreciated!

    [WORDPRESS HASHCASH] The poster sent us ‘0 which is not a hashcash value.

  3. 3 Andrew Dumont said at 3:06 pm on July 7th, 2009:

    Great post Simon, glad to see you posting some amazing content.

    This is news to me, I guess that’s what we let Derek raise the money and not me.

    Keep up the great work, I look forward to future posts!


  4. 4 admin said at 9:46 am on July 8th, 2009:

    Hey thanks Andrew, much appreciated. Then again, you guys got me going on this….

    [WORDPRESS HASHCASH] The poster sent us ‘0 which is not a hashcash value.

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