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

Oct 26, 2011   //   by Robert   //   Angel Investors, Blog, Business Plans, Deviled Details, Entrepreneur, Funding Foreplay, Fundraising, PPM, Reg D, Securities Law, Start Up, Venture Capital  //  No Comments
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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.)

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