Invest With Our Company – Read All About It! Not!

One of the biggest mistakes that startup and emerging companies make was a major topic for discussion while we were having dinner with some friends this past weekend.

Our friends’ mentioned that their website about their thoroughbred racing farm referenced that they were looking for investors for their upcoming syndication. This was their first time they had considered raising money from angel investors – and they didn’t understand the legal constraints of a private placement offering.

Once they understood the onerous consequences that come from violating state and federal securities laws, they immediately changed their website — and are now both listening to my five-hour audio course called Funding Foreplay. before they move forward with any fundraising activities. (Funding Foreplay teaches entrepreneurs the right way to romance prospective investors for your company while still complying with securities laws.)

Executive Summary

Here’s the executive summary about one of the biggest mistakes that startup and emerging companies make: Advertising to the general public, in any way, that you’re looking for investors.

This means, in general, that you cannot discuss your investment offering on your publicly accessible web pages, in an e-mail blast to 10,000 people, in newspapers and magazines or walking up and down the street carrying a big sign.

The federal government, and all 50 states, have very specific rules, regulations and requirements in order to qualify for their securities law private placement exemptions.

The operative word here is “private.” This means that public is not invited.

It doesn’t matter if you’re raising $10,000 or $10 million. You cannot solicit the general public.

Period.

Some of the Penalties

Some of the penalties you could face from violating these specific requirements include:

• Having to rescind your offering — which basically means that you will need to give back all the money.  This is the usual consequence – although it gets a LOT harder to do once you have already started spending the investors’ money!
• Being barred from continuing your offering or ever sponsoring any future offering.
• Going to jail. (This usually won’t happen on the first offense — but it can!)
• Etc.  There are a LOT of these – but too numerous to list.

It’s totally understandable why fundraising virgins wouldn’t know about these kinds of laws – or even know to ask about them.  However, I can tell you that state and federal investigators won’t care.  Ignorance of the law won’t work as an excuse.

Hopefully, from this, you can see that it might, just maybe, be worth your time to make sure you understand the legal constraints and implications of fundraising before you consider raising investor capital.

Solutions

I offer a variety of fundraising services at my website, www.Chiefi.com including my audio course, Funding Foreplay which is also available from Amazon.com.

But, whether you use my services are not, please do yourself a very big favor and do the necessary research to get the right professional help to make sure you comply with securities law – before you even start on your Quest to raise money from angel investors.

(PS: Note:  I am not an attorney – just an MBA – so this is business advice not legal advice.)

Please leave your comments and ideas below.

Startup Company – New Product Roll Out – Now Or After Raising Investor Capital?

“Should I start selling my products and services now – or should I wait until after I have raised my angel investor capital from my private placement?  I want to do the roll out in a big way before tipping off my competition.”

This question came up yesterday – and it’s one I often hear.  The answer is:  it depends.

Like most things with start up and emerging companies, there are always exceptions to every rule.  However, in this case, if your company is a true start up with no sales and no experience in the marketplace AND you have already finished one or more products and services, then, in my opinion, there is only one answer:

Get Traction – Now!

Even if you have a great business plan produced by yours truly or by yourself or anyone else…you are still predicting the future with unknown and unestablished products and services.  And, prospective investors know it.  Think about it:  you are asking them to believe your projections are realistic when none of them are actually based on reality.

If you and your team have already gotten even one of your products and services ready for prime time – so that it can be delivered to a real customer with an outstanding customer experience, then start selling now…and sell as many as you can afford prior to raising investor capital.

Your Competition

Generally speaking, if you are a start up, you are so far down in the noise that most of your competition won’t even notice you until you start spending real money on your advertising and PR. 

If you really have a new product or service to sell today, one that is really ready for prime time, then your competitors will need time and money to catch up to you.  During that interim, you drive sales, gain traction in the market place, impress prospective investors, get your capital raised and then do your big roll out – all before they can even get past the design stage. 

Besides, if you are never able to raise your money, you probably will never have that big roll out that you anticipated – so your bootstrap sales approach to gain traction may be the only option you have – and the only way you will generate cash flow.

Seven Reasons – And More

Besides the obvious benefit of generating cash flow, which is almost always a premium for every start up company, selling now has several immediate benefits:

1. It shows that you can actually get wallet-share by selling your products and services to real human beings or to real companies at the price point your business plan shows.
2. It gives you a chance on getting real customer testimonials – for your web pages and for the eyeballs of prospective customers and investors. Remember:  pioneers are the one face down in the dirt with arrows in their backs. Many prospective customers usually don’t want to be pioneers – they want to see what other customers have to say about your products and services. 
3. It shows what your direct cost of sales really are.  You guessed what the cost would be for each incremental sale – this way, you know for sure.
4. It shows you what needs changing.  This includes everything from your flow of work processes to your fulfillment procedures to your after sale customer support.
5. It shows you what needs to be improved.  Your customers will tell you what changes they want, what works well and what does not.  If you can make the changes on this side of the funding, then do so in order to already have an improved product or service for today’s customers and tomorrow’s prospective investors. If those changes take more money and time than you currently have, then you have a feature and benefit list for version 2.0 to show prospective investors.
6. You can start to calculate what your customer acquisition costs are.  In other words, how much on average does it cost you in advertising, marketing, AdWords, etc. for each customer who ends up giving you wallet-share?  Is it $10?  $100?  $1,000?  Once you have this number, you can at least approximate how much you REALLY need to spend on marketing and advertising to drive the sales forecast in your business plan.
7. Even with a meager roll out, you can start to see where your constraints to growth will be.  Is it back office support? Fulfillment? Sales force limitations? Advertising? Enough of You? Or, is it just enough money to go do what you want to do?  My guess is that it will be more than one thing if you project out even one year.  The more constraints to growth you can anticipate now, and plan for now, the more insights you will have for your business plan.

These are just the Lucky Seven benefits of selling now and not waiting until after the investor funding.

Update Your Plan With Your Newly Gained Reality

Another key benefit:  Take all you learn from these seven – and go back to ALL of your driving assumptions for your financial projections and tweak and tune them to better reflect reality. 

Drill down on every assumption and question if it best reflects the new reality after chasing real wallet-share.  If not, change the numbers for your assumptions and generate new projections based on your real life experiences.  Then, update your plan’s narrative to discuss what you’ve learned and why you think the newly generated financial projections are better.

Not only will your projections end up much more realistic, you will be smarter about your customers and your costs – and your prospective investors will get better answers from you when they start asking you the hard questions. 

And, the revenue traction you show them might, just maybe, be enough to get them to stroke that check for your funding.

All the best,

Robert

PS:  This is just one of many pivotal strategic and tactical decisions you face with your new company.  Check out my Deviled Details and my Kick Start Planning Services for more information on how I can help accelerate the implementation of your vision.

Email And The Entrepreneur And Start Up Company

If you are a non-entrepreneur Gen Y like my son, you probably see email as antiquated at floppy disks.  For him, email has been replaced by social media, instant messaging and texting.

However…

If you are like me, and most other entrepreneurs, who run start up and emerging companies, you heavily depend on email.

So, what do you do in this spam and virus infected world to protect you and your company’s email?

Spam Reduction

For me, I don’t want to lose emails or their attachments – or inadvertently filter out client or prospective client emails. 

I still use an old Pop3 client called Eudora which isn’t even supported any more (one of these days, I’ll find the time to upgrade this.)  I also use a front-end spam filter called Mail Washer Pro which is excellent at filtering out the more than 2,000 spam emails I get every day.  Mail Washer does a great job – but sometimes, it treats an email from a prospective client as spam which means that I might not even get it.

For me, I use two solutions that might make sense for you and your company. too.

The first is that I am now using one of those annoying contact forms on this web site.  I know a lot of us hate filling these things out – but it solves the problem of new prospects getting caught in the spam filter.  Everything that comes from my web site contact form is marked as a “Friend” which means that I see it.  Once I start working with a new client, I mark their direct emails as Friends also – which means that problem solved – until they use yet another email address and catch me, and Mail Washer, off guard. 

But, for the most part, this is the best approach I’ve seen…and it avoids those spam trap opt in forms that are generally a complete turn off to friends and prospects alike.

 Automatic Email Backup Protection

Since I use a Pop3 email client fed by my hosting company, automatic email backup protection was easy.  There is a California start up company that offers this automatic email backup protection service for free: G o o g l e.

Many of you probably already have a Gmail account for home, personal or other reasons.  Many of you may use them as your primary work and start up company email address.  I personally don’t trust online storage of all my emails when you never know what might happen that inadvertently closes your account and you have lost everything.  Also, if you have employees, you want control of their company email account if they quit or if they are fired.  For those reasons, and others, I don’t choose to use Google or any other web resident email account as my main conduit to the world.

However, I do trust Google as a back up.

I use one of my Google Gmail accounts strictly as a back up for ALL 13 of my domain named email accounts. 

I simply go into my hosting account (I use Host Gator) and create a forwarded copy of ALL my received emails to send to this one backup collection account.  It took me less than five minutes to forward a copy of all email from all accounts to my new Google Gmail account.

Google gives you a massive amount of storage for all the emails and attachments that you get.  They even do a great job of separating out the spam.  This approach also gives me a way to view all my email accounts under one email roof when I’m using my mobile devices. Plus, I have a copy of all emails and all versions of documents sent to me.  If you wanted to back up all emails that you send, you could set up your mail client to automatically BCC all emails you send so that they also get backed up on your special Gmail account.

Check with your hosting account and see if they support duplicate forwarding of your company’s email.  If so, Google is waiting to solve your email backup problems for free.