Forums: Discussions for entrepreneurs and small business.

Let said I want to raise $100,000 to launch a product line that has a projected revenue of $500,000 after one year in business.

However, if I am an incorporation I want to follow the law to a T.

I know at least 1,000 people that would invest $100 each.

The thing is the corporation is not on the NYSE.

I would have a lawyer stating that this is an investment that come with a risk.

However I do have good intention but on paper it looks like the infamous ponzzi scheme!

Do I need to register with the SEC if I were gonna to grant stakes/shares in the business?

The other problem that I am seeing with this is not being able to determine how to distribute the profit to the 1,000 intitals investors.Would it be the equalivent of owning a prefer share?

And that leads to the big questions ~ how do startup determine how much ROI an investor should get for his/her $$$$? Do they get residual income or what?

Because I remember during the dotcom boom. a lot of billionaires and millionaires were created because they gave out stocks but how you do that before the IPO?

Please don`t attack me - it has been in my head for a while on how to raise funds creatively but at the same time LEGALLY.

Your right, it does sound like a scheme.

I`m sure your $1k from 1k people was a hypothetical scenario so I`ll disregard that. I don`t know anybody that really "knows" 1000 people. When you make outrageous claims, some will conclude that your plan is outrageous also. Make it realistic.

No matter what your method is to raise funding. Somewhere, somehow, it has to be on paper and somehow directly connected to your gluteus maximus and the success of the business.

As to the legality of not filing and offering "shares" in your company...  If not illegal, at the very least it`s unethical and shady.

If it does look like a bad scheme, it`s up to you to explain to your potential investors exactly why it is anything but that.

Can you get detailed in any way here with your plan?  

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~Eric
JE Design Group, LLC
If all you do is what you`ve done, then all you`ll get is what you`ve got.
www.jedesigngroup.com

You bring up a lot of issues that are best answered by lawyers but I`ll give ya what i know.

A corporation does not have to be public (NYSE), most are not.  Shares are purchased/distrubuted to private investors.

There exist many securities laws pertaining to your situation.  For the most part it deals with "accredited" and "non-accredited" investors.  If selling shares to non-accredited investors you have to jump through many hoops.  You can not solicit the general public, you have to show prior acquiantence.

Dont worry about profit distribution.  More often then not profits will be reinvested in the business, leading to increased share value.

Investors will determine the ROI they need prior to making an investment.  80-100% year over year for seed money.

Millionaires were created during the dot-com boom because they sold their interest (shares) of their company to other private investors, who then eventually took it public.

You are describing a situaltion that is best funded by friends a family.  You don`t even need to be a corporation. 

Good Luck!

  

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Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--

Eric,

Well I wasn`t sure if it was legal or not. I thought about it and wrote it on paper but I just couldn`t make it work and want to make sure it wasn`t me.

Thanks for the information. I didn`t know that raising the money can be an issue.

But this is my major weakness - not knowing how to raise capital for a startup. I mean I have some money on myself but in order to make a buzz I would really need cash to launch the marketing plan.

The biggest thing is I want to be fair. I sure don’t want to go out like those greedy Enron CEO. It was awful on what they did to their Employees and Shareholders. 

I am the kind of guy that likes to share the wealth from the boardroom to the support staff and receptionist. Because off the point for a minute, if I was getting enough money PER YEAR to retire 1000x over and then my staff isn`t making CEO money but they were very integral to the success of the company, I SWEAR that I would feel like an Uncle Scrooge! I would diversity the money all the way down to the cleaning people. It would in my opinion add to the company`s bottom line.

Back to the topic - it is possible to reach out to 1,000 people (belonging to an organization) and if you give the pitch of a lifetime most likely you will have a lot of checks but it a hit and miss.

But the thing is I kind of based my theory on the NYSE; if a company is authorize to sell shares to raise operating capital I was thinking can the little startup do the same thing? 

But reality is I only have 20 buddies on my buddy list lol. I like to THINK BIG but let pretend that everyone in the world is your friend for the moment. I misuse the word know, so forgive me for not being clear the first time around.

I was thinking of creating a service/product that will help people that are unable to do what the mainstream is able to do. This idea of mines has the potential to diversity an industry that is so used to catering to one group (Doctors/Lawyers/ CEOs/Consultant).

It is being put in use now, but it isn`t like I am reinventing the wheel. I just want to make it a better more efficient wheel and make some money and of course provide an useful service to people that can benefit greatly from the service/product.

I think to be honest in order for any business to make some serious noise - it would take a few million dollars to run a 30 second commercial during the Super Bowl.

 

Hi there MNGrillGuy,

Your reply brings up some interesting points and I have some questions for you.

I understand you are referring to dividends being reinvested into the business?

An investors can ask for 80% to 100% of NET INCOME??!?!?! What happens if the business lost money? I defintely would rather share a % of the net income with the company`s employees. I know for sure I would include a buyout clause of the investors because if that is why a lot of companies today can`t share the wealth because the company is only getting 20% of the income Then I am defintely in the wrong quadrant lol

See this is what puzzles me - how does all these CEO/Founder of these companies determine how much shares they can get?

Isn`t a share worthless in the beginning prior to the IPO?

I mean I am still trying to figure out how Google`s CEO are billionaires and their stock at the last trading mark was $500 something PER share?!?!? And the wall street analyst are predicting it will crack the $600 mark. And I nearly fell out of my chair when I heard Mr. Buffet`s company is worth at least $100,000 PER SHARE!!! I was like wow!

They did not teach me in business class on how to figure out shares/interest in a company.

If they did, I sure there would be more millionaires/billionaires from the USA on the Forbes list.

I know everyone has an exit stragerty. I would love to take the company public and sell my shares and buy myself either a NFL or NBA or a MLB team.

My idol is Mark Cuban. I remember when broadcast.com was the site but I was unable to use it.

Many good questions.  I will try answer on Monday.  I`m off to happy hour!!!

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Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--

 

Have a dirty martini for me!  Have a good weekend!

Dear Deafceo,

From your posts, I gather that you are still in the thinking stage, so I advise you to get some advice from professionals.

For starters - I’d like to comment on two sentences in your initial post.

1. I would have a lawyer stating that this is an investment that comes with a risk. This would be very unusual for an attorney to do. There is however, a proper way for this statement to be presented to a potential investor. It`s should be in the prospectus or private placement memorandum.

2. Do I need to register with the SEC if I were gonna to grant stakes/shares in the business?   According to the securities act of 1933, ALL securities must be registered (with the SEC) prior to sale - unless the sale qualifies under one of the exemptions.

Good luck.

 

 

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Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

there are two ways to raise money legally under the securities laws.

1) Public offering which requires public registration and costs around $150,000.

2) Priviate offering under state exemptions. In a nut shell you are very limited to the number of investors in a priviate offering and 1000 people would would not comply unless they were all totally accrediated investors whih would be difficult at best. even under these circumstances you have to prepare a priviate offering memorandum giving full risk disclosure. For more info you can go to Amazon. com for some books on how to do public and priviate offerings.

Good luch

 

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JWD

Deafceo, when I mention that investors will require 80-100% return on their money year over year I am refering to return on their investment, not a % of NI.  Investors do not get "paid" out of NI.  I`ll give you an example.

Let`s say you are trying to raise $1M in start-up capital.  You approach an investor with your business plan.  You are of average risk so the investor has this in mind for his required rate of return.

Year 1: 100%

Year 2:  80%

Year 3:  60%

Year 4:  40%

He anticipates getting out at the end of year 4, selling the business to a large corporate entity.  So, he needs about $8M worth of value at the end of year 4.  Your business plan indicates NI of $1.1M in year 4.  This line of business sells at a PE of 12 or so.  The business is worth $13M (12 x 1.1).  So, the investor needs to own 8/13 (61%) of the business for it to be a fair investment for him.  So, his initial $1M investment will need to acquire 61% of your company. 

For the most part, all deals are thought about this way.  Only the numbers change.   

 

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Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--