Forums: Discussions for entrepreneurs and small business.

We're very lucky as a company in that we've been able to have a top law firm craft our PPM. It's really a first class product. But our problem is that under the rules of the game, one can not use "general solicitation or general advertising" of the investment opportunity. The same great lawyers that helped write the PPM have insisted that we only send out numbered hard copies to qualified investors. Furthermore, we have to limit the offer to Ohio qualified investors because of need to register in the state where our "qualified investors" reside. I know a few of wealthy folks, but perhaps not enough.

The situation is made even more difficult by the local attitudes. We are seeking to raise $1m. In Cleveland $1M is still looked at as a LOT of money. Whereas on the coasts or internationally, the response is "Only $1M? What can you do with that small amount?"

Can anyone here help me to understand the more practical nature of this fundraising process? An even better question is how can I, without 'generally soliciting', engage investors who are more amenable to our offering?

Thanks!

Having a well constructed PPM is definitely an asset when seeking capital. However, I would not depend on the document to do the whole job of getting the investment.

We tell our clients to begin expanding their network before the PPM is ready by building a constituency.

We also know that how you go about seeking the capital will impact your chance for  success a great deal - probably more than the "quality of the PPM".

Depending upon the exemptions selected for this private offering - dealing with investors in another state can be a minor issue or a Big pain.

I live on one of the coasts and can attest that pretty much everyone thinks a million dollars is a lot of money. Whether it is the "optimum" amount for you in this round depends on a number of factors including the stage of the business and the use of those funds.

I'd develop a Capital Action Plan (CAP) which should describe your target source and layout the steps from approach to consummation.

Good luck. If you want to discuss your specific situation, feel free to drop me a PM or contact me directly.

Hi there,

As Robert pointed out correctly, having a well-crafted private placement memorandum in place is a material aspect of accessing capital markets. However, as you have learned the hard way, attorneys often work on these type of documents strictly from a legal perspective, which often severely restricts their usability.

I’m not aware of any rule under Regulation D that would require registration outside the issuer’s domiciled state, unless your offering is structured as an intra-state offering. But that’s hard to tell based on the information you provided.

Sending out numbered copies of your private placement memorandum is standard practice, but in all likelihood you won’t be able to consistently qualify recipients as Accredited or Sophisticated Investors. This is typically done by including a segment titled “Suitability Standards”, which requires recipients to return the private placement memorandum immediately if they don’t meet the outlined criteria. Another option is to provide a so-called purchaser questionnaire that drills-down on the specific wealth and sophistication requirements a recipient has to match to qualify as an investor. Please note that these wealth requirements have recently been amended pursuant to the SEC’s CDI 179.01 (Compliance and Disclosure Interpretation).

There’s a good article available on our website that explains these new requirements in detail:

http://publications.fastventures.com/subscription-documents-for-regulation-d-offering--new-sec-cdi-accredited-investor

As far as building a following for your offering is concerned, it’s going to be a tricky path which will likely involve some serious legwork. But there are ways to promote it without resorting to advertising or general solicitation. If you need some good ideas for identifying high-net-worth and ultra-high-net-worth individuals in your area, take a look at our whitepaper “Reaching high-net-worth individuals with your private placement”. It’s available at http://publications.fastventures.com/reaching-high-net-worth-individuals-with-your-private-placement

It’s a complete road-map and decision-making guide for marketing your private placement to qualified Accredited or Sophisticated Investors. We developed these strategies and research techniques while raising $5 million for our distressed real estate investment fund. Besides valuable online resources, tips for building key relationships and actual marketing collateral, we also included a schedule that enabled us to stay on track and complete every task necessary within the required timeframe.

If you’re interested in discussing your project in greater detail, please feel free to send me a PM or contact me via our website. I’ll be glad to give a few more pointers.

I hope this helps

Karl

Gents:

Thanks for the insights. I know that I was a bit sparse on the details, but mostly out of caution. I am definitely not soliciting investment through this forum. I am also quite certain that we will have to make a filing in each state where potential investors who will receive the PPM reside. Not a huge deal, about $100 per, but a pain.

Our PPM includes some of the points addressed, particularly the restrictions and certifications of being a qualified investor under current rules. My issue with the PPM is that in general, it is a list of reasons not to invest--certainly not a marketing document.

Our CAP is quite robust, but like any forecast, it will be wrong. A well-known accountancy was responsible for our valuation of $5M, which I feel is low based upon a reasonable earnings multiplier, as well as the knowledge power / experience of our team. We've got some good IP and are booked on a major, highly rated, network TV show. There are a few other assets, and a very strong sales funnel. But I digress. Regardless of our valuation, my goal is to get "oversubscribed" in the offering, just to be on the safe side.

Would you be so kind as to discuss the use/engagement of broker-dealers or other organizations that often represent qualified investors? How does that process work? I understand that there are some limits on finders fees and the like.  I also understand that such brokers can't offer the units, but would have to send us the names of their investors who would then receive the hard copy from us.

Thanks in advance.

If your goal is to drive interest - then use some of your current methods of contacting your customers - your customers may be a great source of investment.  You can put out on your marketing materials or correspondences that you are offering public shares (but no details) - you simple state that your company is offering shares. There is also a book written by Drew Field titled "Direct Public Offerings" - that outlines several ways (within the rules) to offer your PPM online and off.

I am familiar with a securities and Capital Consulting firm that specializes in this area and is competitively priced. Their name is Centarus Professional Services, www.centarusps.com. Take a look at their website; it is pretty informative.

Loui,

Since you & centarusps are located in the Chicago area- I guess that you are

Louis Amatucci - Managing Partner if the firm. Am I correct in my assumption?

While I found your site interesting and informative, I would like to point out that trying to view it using Internet Explorer was difficult because the site causes an error and explorer shuts down. Works Ok on firefox.