Lesson 7: Preparing for a Raise

Preparing for a Raise

It has become much simpler for entrepreneurs to raise capital online since the passage of the JOBS Act. As a result, a variety of capital raising, start-up investing, and equity crowdfunding platforms have become available for founders and investors. Each platform has its own approach. Choosing a platform that knows the ingredients and a recipe for creating a successful fundraising campaign is critical. Partnering with a bad apple could lead to severe penalties, even including a temporary ban on capital raising. Aside from choosing a platform on which to sell your shares as a founder, it’s important to show market demand for your product. 

Creating a Campaign 

Campaign Materials: 

Your profile on an online investment platform should include basic company information, a description of the industry you operate in and a summary of the investment opportunity. There is also an opportunity to upload supporting documents, videos, and images. 

Crowdfunding Video: 

For some investors, the video can be the most important part of a campaign because it gives the viewer a chance to meet your team and see your commitment to the business. There are a few key things to keep in mind when creating your video: 

• Talk directly to the camera. Investors want to see your commitment and excitement about the business. The most powerful way to convey this is to present directly to the camera.

• The audio is the most important part of the video because investors need to hear clearly what you are saying. Use good quality sound equipment and film in a quiet location.

• Write a script in advance and consult with the investment platform to make sure that there are no compliance issues with what you’re planning on saying.

• Film the video on location in your offices so that investors can see where you work and get a feel for the business. Also try to show the product in use with your customers. 

Launching on an Investment Platform 

When you raise capital online, the platform may conduct due diligence before launching your round on the platform. During the due diligence process, you will be asked to provide supporting documents and additional information before you can raise capital on the platform. 

The common steps in launching a capital raising process include: 

• Selection committee and initial review

• Legal and confirmatory due diligence

• Review of transaction documents

• Detailed business due diligence

• Investment committee 

Many choices exist when you’re considering raising capital online. Smart entrepreneurs know how to spot any “bad apples” and to tell their story in a way that inspires investors. 

Promote Your Campaign 

When it comes to promoting your capital raising campaign, it’s all about telling a compelling story to captivate your audience. Giving investors a front-row seat to your company’s growth is a complex form of marketing. Communicating the case for investment requires a delicate balance of messages relating to your product, company, and team. You need to compose an inspiring story that connects the past, present, and future of your business. 

Public vs. private rounds 

General Solicitation: 

Funding rounds conducted under the 506(c) exemption are permitted to generally solicit, so you can advertise you fundraise on your website, across social media, or shout it from the rooftops (you should still be careful not to say anything inaccurate or materially misleading). However, in these types of offerings, the SEC requires companies to verify the accreditation status of all investors in their 506(c) offering. If you have publicly mentioned you fundraise on any online platform, forum, or article (e.g., AngelList, Facebook, TechCrunch) at any time in the past, then you may have accidentally engaged solicitation and, can therefore, be required to verify the accreditation of all investors (self-certification by investors is not sufficient). Failure to meet these requirements can result in punitive action by the SEC. 

Seed Invest 

SeedInvest helps entrepreneurs throughout this process. Their platform guides start-ups through creating a profile for presentation to investors and helps control which potential investors have access to the information. They also work proactively with companies to help them craft their marketing activities to promote their funding rounds. 

506(c) New Rules with General Solicitation 

DO: 

• Promote your financing on social media such as Twitter, Facebook, and LinkedIn

• Send email blasts to relevant email lists about your offering.

• Speak about your offering at demo days, pitch events, and public events.

• Talk to the press and bloggers about your offering.

• Accept smaller investment amounts from many shareholders up to a maximum of 2,000 accredited investors (i.e., raise $10,000 each from 1,000 people)

• Verify the accredited investor status of each participating investor before closing, including by written confirmation from a lawyer, CPA, broker-dealer, or investment advisor or verifying income or net worth through financial documents.

• Use technology platforms for compliance and to extract shareholder value.

• Limit advertising materials to broad, non-sensitive, non-controversial statements

• Have each key employee, 20% shareholder, director, and officer, a new investor, broker, solicitor, or other “promoter” complete a Bad Actor Questionnaire 

DO NOT: 

• Advertise without speaking to a qualified security lawyer.

• Advertise before you are sure about 506(c) because there is no going back to 506(b)

• Allow any unaccredited investors to invest in your round.

• Make any untrue statements, misrepresentations, or omissions (anti-fraud applies) regarding the offering.

• Include sensitive, confidential, or controversial information in public advertisements.

• Include “puffery” or other boisterous or “off the cuff” statements in advertisements. 

506(b) Old Rules with no General Solicitation 

DO: 

• Conduct private offerings with friends, family, and your professional network.

• Reach out to individual investors through personal introductions.

• Confirm a substantive pre-existing relationship with every prospective investor to whom you speak.

• Confirm accredited investor status via self-certification (i.e., investors to check the box)

• Have each key employee, 20% shareholder, director, and officer, a new investor, broker, solicitor, or other “promoter” complete a Bad Actor Questionnaire 

DO NOT: 

• Talk about your financing at any public demo days or pitch events (i.e., do not mention that you are fundraising, do not talk about financial projections or business models)

• Allow the press or bloggers to speak about your offering.

• Send email blasts about your offering.

• Talk about your offering on social media.

• Participate in business plan competitions open to the public.

• Make any material misrepresentations or omissions (anti-fraud applies) regarding the offering. 

1. Direct Promotion 

Direct Outreach: 

For public rounds, the first stage of promoting a capital raising campaign is to inform your direct connections you are raising capital. These direct connections already know you and your product. 

Customer Email: 

For public rounds, your customers can be a key source of potential investors, and a group email is the most effective way of letting them know that you are raising capital online. You can craft this email to your customers to look like a “letter from the CEO” and invite your customers to share in your success by becoming investors. 

One-to-one Email: 

For public rounds, your own personal network may not be a significant source of capital, but their vocal and public support can be a vital part of creating momentum and awareness of your campaign among potential investors. And the mass email to your customers should also share a link to your campaign with your personal and professional networks. 

Events: 

For public rounds, running events for potential investors is a keyway to allow potential investors to learn more about your business and your management team. As always, talk to the investment platform and your lawyer prior to launching any promotions for your offering. 

2. Online Promotion 

Community: 

For public rounds, social media and online communities can be an excellent source of investors. You can use social media to notify your existing followers you are raising capital and to find other communities of interest that may also wish to become investors in your business. 

Content: 

For public rounds, creating useful and informative content is a powerful way to communicate your credibility to potential investors and to make it easy for online communities to share their enthusiasm for your business with their peers. Content useful for a capital raising campaign can include: 

• Blog posts from the CEO about the vision for the company

• Video interviews with key team members about their functions

• Interviews with existing investors

• Testimonials from customers 

Influencers: 

Bloggers, YouTube celebrities, and industry influencers can have substantial personal followings. These can make for powerful endorsements. During a public round you can use your relationship with influencers to encourage them to share your round with their followers. 

3. Public Promotion 

Press: 

For public rounds, public relations and press outreach can amplify your message by finding relevant publications that can write about your company and your capital raising round. 

Advertising: 

For public rounds, online advertising can be an effective source of investors if the message and channel placements are highly targeted to find investors that will be strategically useful to your business.

What you’ll do for your campaign: 

• Provide information about your business — things such as GAAP financials and potential risks.

• Create your public profile — funding portals provide you with an editor to help you craft a good landing page.

• Bring the crowd — invite your customers, friends, family, and colleagues to invest in your business. 

Part 1 – Campaign Prep 

Step 1: Get started [30 minutes] 

As you start your application, you will be asked for some basic information about your business and your fundraising plan. 

Think about the type of terms you would like to offer investors. 

Step 2: Finish filling out information for the SEC [3 hours] 

Once you’ve figured out how much you’ll be raising, you’ll be asked to provide some more information for your SEC Form C. 

Your goal in this section is to fill in the information as accurately as possible — next they’ll be reviewing it with their lawyers and filing it with the Securities and Exchange Commission. 

What you should provide: two years of CPA reviews and GAAP financials (if you have them). If you’re planning to raise more than $107,000, your GAAP financials also need to be reviewed by a CPA. 

Step 3: Build a polished profile [3 hours] 

In this section you’re building the profile that investors will see and use to determine whether to invest in your business. 

Your goal here is to build the most compelling pitch about your business possible, without including any projections of future growth (the SEC doesn’t like that) or making any false claims. 

What you should bring: any photo, video, or written content you have about your business, as well as compelling numbers and charts. 

Step 4: Get ready to launch! [5 – 10 days] 

Once you’ve completed your profile and disclosures, you’ll most likely be assigned an Account Manager from the funding portal team, who will be your point of contact moving forward. 

During this time, your primary role is to be available for questions. As they generate and review your Form C, and file it with the SEC, they’ll probably have additional questions for you. 

This process can take a few days — they must make sure everything is compliant and complete. Once you’ve done a final review and signed off, they’ll take care of the filing for you — and then you’re off! 

Part 2 – Fundraising 

[1 – 6 months] 

When your campaign first goes live, it’s in stealth mode, meaning only investors with the direct link to your campaign can see it. Your job during this time is to bring the crowd — usually about 60% of it — with support from our team. You want to reach your minimum fundraising goal within six months from your initial launch date to have an effective campaign. Again, this is crucial! Have everyone in the company tap into their network via ALL social media platforms. 

Once you’ve reached a certain investment amount (differs from portal to portal), you can potentially be featured in their weekly newsletter and a targeted marketing newsletter, which goes out to their community of investors. You’ll also most likely be featured on their Instagram and Facebook. 

Depending on the platform, once you’ve reached a certain amount of your minimum goal, you can withdraw one lump sum once before the closing of your campaign. 

Best Practices 

Step 1 – Hone Your Pitch 

Over the course of you fundraise you’ll be speaking to hundreds of investors; your pitch is your most crucial tool. In 2-3 sentences you should be able to answer: 

• What does your company do?

• Why should someone invest in your company?

• Why should someone invest in you—the founder? 

Step 2 – Assemble Your Team

• Have a designated point-person for: 

• Social Media 

• Emails & Newsletters 

• Investor Questions 

Step 3 – Get on the Offensive 

All fundraises inevitably hit a plateau. Create a timeline of “attacks” to reignite investor enthusiasm. When investments slow down, try the following: 

• Press Releases & Features

• Promotional Events

• Major Investor Announcements

• Exciting Product/Progress Updates