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Raising startup capital - Q & A

Matt calls in from Carson, Col. to get the Sloan Brothers’ advice on raising about $200,000 in startup capital by making his potential energy business public.

Rich Sloan:  866-55-START is the call-in number. We're going to Matt in Fort Carson, Colorado.  Welcome to the show, Matt.

Matt:  Hello, sir.

Rich Sloan:  How can we help?

Matt:  It's about -- I have an issue -- a question about raising capital.  Right now I'm in the planning stages of an energy company.  I'll be drilling for oil/natural gas wells.  And I thought about -- I'm finding companies that can take you public, you know, between 50 and for $100,000.

Rich Sloan:  Yeah.

Matt:  And raising capital.  But that only puts you on the pink sheets.  And I didn't know how many companies out there, you know, that have little money of their own to invest in it, I mean, if that's a feasible way to go around to try to raise capital for, like, say, you know, like a drilling operation?

Rich Sloan:  What amount of capital are you seeking to raise?

Matt:  Probably between 150 and $200,000 for the first project.

Jeff Sloan:  Well, you're not going to take this public on the stock exchange to raise 150 or $200,000.

Matt: Well, I would love to make more but, I mean, you know --

Jeff Sloan:  Yeah.  Here's what you're going to do.

Matt:   -- for my first project --

Jeff Sloan:  Let me give you some advice.  Here's what you're going to do.

Matt:   Okay.

Jeff Sloan:  You want to float an offering memorandum.  Now you're going to have to check with a lawyer to help you on the securities and exchange rules and regulations.  You don't want to take that public to raise 150 or $200,000 in a stock exchange.  You want to float an offering memorandum.  Get it in the hands of investors who want to put in 10, 20, $50,000 each and that's the way you raise that money at that level.

Rich Sloan:  Let's talk about that when we come back from this break.

Rich Sloan:  Jeff, just before we went out to the break, we were speaking with a gentleman who thought that maybe it was best to take his company public to raise in the neighborhood of 150, $200,000.

Jeff Sloan:  Yeah.  First of all, it probably will cost that much or more.

Rich Sloan:  Yeah.  Yeah.  Exactly.

Jeff Sloan:  Or more.  Much more to take a company public.

Rich Sloan:  And it is so cumbersome and complicated to run a public company.  If there's any way that you can get the financial resources that you need --

Jeff Sloan:  Yeah.

Rich Sloan: -- without having to go public, you definitely want to tap that.

Jeff Sloan:  Yeah.

Rich Sloan:  And angel investors you were alluding to right before the break would be one great source.

Jeff Sloan:  Angel investors or just investors in general.  You know, he might have even had his language mixed up a little bit.  When he said take it public, he might mean take it out to the public as opposed to the term "taking it public."  And there are ways to take it out to a public at large and allow them to invest in something without taking it on to a public stock exchange, which we call going public.

Rich Sloan:  Right.

Jeff Sloan:  And raise money.  Now there are what's called Regulation D rules and regs that you need to follow when you float a securities and exchange type offering.  One that has to be regulated by the Securities and Exchange Commission.  So there's a lot of things to think about.  The best advice we can give him is make sure in crafting an offering like this that you work with a very skilled lawyer.

Rich Sloan:  Yeah.

Jeff Sloan:  So that you make sure you're in compliance with all the regulations.

Rich Sloan:  He would be well served, also, by going to startupnation.com.  Listen up if you're interested in raising money or finding financing for your business.  Go to startupnation.com, click on the Ten Steps to Open for Business right on the home page.  And go to Step Number Six.  It's all about finding the  funding for your business.  And I'm sure it'll put a lot of clarity on the subject.