Businesses issuing through a general solicitation must publicly state they have filed SEC Form D and have followed regulations for advertising a 506(c) offering. [2] X Research source
Private fundraising offerings may also include up to 35 non-accredited individuals, provided they have a close, personal relationship with the issuer. [4] X Research source
Make sure your executive summary provides the problem your business can solve, as well as how you intend to solve it. Your executive summary should indicate the progress you have already made professionally, or the research you have conducted regarding the demographics you will market to, as well as your potential for success. Your summary should include any existing successes you have experienced in your field as well as what makes you qualified to pursue further profits in the industry.
Include any achievements you have in your field to demonstrate your understanding of what the industry requires. List your experience managing employees in the industry to demonstrate your ability to successfully manage a team in pursuit of your business goals.
Briefly discuss your experience in the industry as reasoning for your expertise. Avoid using industry-specific jargon, as investors may not be well-versed in the specifics of your industry.
Explain why your leadership team is uniquely qualified to excel in the industry of your choosing. You can do so by describing their experience, talents, or educational backgrounds. Include any advisors that you utilize that are outside the leadership team you have appointed but that may lend credibility to your endeavor. Securities laws require certain disclosures to protect potential investors as well as offerer. The issuer must comply or they will be subject to civil and criminal penalties.
This circular is required for “private placement” offerings, which are those not registered with the SEC or issued under Regulation D. [11] X Research source
The “use of funds” section of an investment prospectus is a legally-required section that shows investors what their money will be used for. Be sure to provide them with a solid idea of how much money will be required to accomplish the goals you wish to achieve. Explain what the exact results of the money invested will be and why you require the level of funding that you do.
You cannot provide a guaranteed or estimated return unless investors is receiving a bond or preferred stock. Provide specifics about what investors will receive in return for their funding. Will they receive a percentage of company ownership? Will they receive a share of the profits? Be clear about what the return on their investment will be. Make sure the return is valuable enough to warrant the investment and accept the possibility of turning a loss.
Provide details on funding you will use for recruitment, marketing or operations. Identify project milestones that can be reached through varied levels of external funding. Remember that investors are as interested and concerned in your business plan as they are in the business itself. If it appears that you are disorganized or ill-prepared, most investors will be reluctant to invest in even a great business idea.
Collateral can be anything that you own and are willing to put up against the value of your business. Things like houses offer a large amount of collateral and can give investors the incentive to provide funding to your business. If you do not provide any kind of collateral your proposal will need to provide an even stronger plan for returning on investments than otherwise, as investors will stand to lose even more if your business does not succeed. Remember that you will have to turn over the collateral you put up in the event your business is not a success, so it is not recommended that you anything you can’t do without as collateral.
Investors will not be looking for an extremely long term turnaround on their funding. Instead provide relatively short term plans for their money and how they can receive returns. By “thinking lean” in terms of your investment requirements you will demonstrate an understanding of the market and a business savvy that may make investors more likely to pitch in. That said, sometimes the market overvalues a new company or idea. If you think your company can take advantage of this expectation, consider taking as much money as possible with to gain capital with a low outlay of equity.
Risk disclosure may include things like location of the business (for instance, if your business is located down the street from a competitor), or risks related to key personnel (such as if the company is overly dependent on the ideas of a single person—think Steve Jobs). There are specific state and federal rules that require the disclosure of certain information. Consider this the bare minimum, and note that it may not protect you from a lawsuit down the line if an investor loses money. Be as upfront as possible about the risks involved. Failure to make proper disclosures can have serious consequences, including facing civil and criminal charges.
The process of gaining investors can be long, so demonstrating your courtesy may be one of the things that differentiates you from other prospects. Even if an investor declines to participate, establishing a relationship with them can be beneficial for future investments or guidance on receiving investments from others.
Some investors wait to see how other investors respond to your pitch in order for them to proceed. These investors will wait until the first few people pitch in before making an investment of their own. Prepare yourself for a series of “maybe” responses as investors weigh their options and their possibilities for return on an investment to your business.
The first paragraph should establish your credibility within the industry as well as the other members of your team as assets that can aid in your success. Your second paragraph should lay out your plan to use the funding and what each investors can provide to the business. The third paragraph should lay out your financial needs as well as the possibilities for return on investments and risks involved.
