Marketing Capital Raising Activities
In this article, we're going to discuss marketing your business plan to potential angel investors and private funding sources. This is one of the more complex aspects of raising capital given that there are some limitations as to how an individual entrepreneur can effectively showcase their business plan and related documentation to the general public. As we have discussed before, in certain instances a private placement memorandum may be required in order to raise capital from private sources. This law also extends to how a private investment is marketed to the general public. Generally, only accredited investors and qualified investors are able to provide capital to certain startups and existing businesses. However, there are a number of exceptions to this rule and only an attorney can determine whether or not the marketing of a business plan for capital raising purposes falls under an offering of securities. I know that we are starting to sound like
a broken record at times, but remaining within the letter of the law as it relates to raising capital from an angel investor or a number of individual investors should remain as the number one priority given that there can be significant consequences for improperly marketing a business for raising capital to the general public.
One of the foremost ways that a number of entrepreneurs will seek to raise capital from the general public is through the usage of a number of online platforms that have already vetted a number of accredited investors. These platforms gather information from a number of different private investment sources and individuals that have been qualified as people that have a net worth in excess of $1 million, or have annual household incomes that exceed the requirements set forth by the Securities and Exchange Commission. These platforms also vet the business plans that are given to them so that individuals who are enrolled as investors on these websites know that they are receiving quality potential deals for funding. Throughout this website, we're going to list several different platforms that can be used for these types of capital raising deals.
As it relates to the presentation, a formal business plan is always going to be required when seeking capital from an angel investor were an independent investment company. This business plan should have all the essential elements of this type of document including an executive summary, how the funds will be used, an overview of the products or services that are going to be offered, an overview of the organization and mission statement, industry analysis, economic analysis, strategic analysis, a competitor overview, a marketing plan, a personnel plan, and a financial model.
The financial plan section of the document should include a profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page that showcases the important financial metrics of the business. Often, many entrepreneurs will include a SWOT analysis, a critical risks and problems page, as well as expanded monthly profit and loss and cash flow statements. The depth in which a business plan is required wholly depends on what type of investor that the individual is seeking and what the investor wants to see in a business plan. However, by completing a plan that has a three year to five year overview – the entrepreneur can rest assured that they have generally covered all their bases as to what potential investor wants to see. Most importantly, it is imperative that the entrepreneur present the business plan as an economically viable business that will be able to provide a very strong return for a potential funding
Once investor has had their interest piqued as it relates to the presenting business, an attorney should be hired to ensure that any investment contract between the investor and the entrepreneur is very clear and states the terms of the investment. There have been many instances where these deals have been made on a handshake only to end up with substantial disagreement later on when the business finally becomes profitable and a significant amount of value has been created. As such, a very well-written investment contract – which should only become pleaded by an attorney – will ensure that the terms of the investment are outlined, the expectations of the investor will be known, the roles and responsibilities of the management team will be defined, and certain clauses will be put into effect that if certain negative scenarios occur certain actions will need to take place. One of the key elements to a good investment contract is to have a number of
clauses that detail exactly what would happen in the event of the business is not reach profitability by a certain point, management fails to operate the business well on a day-to-day basis, or if the investor wants to have their money taken by the business at any given time. Of course, no one can plan for every single scenario that could happen to any given commercial enterprise, but it is imperative to at least have a number of these things planned ahead of so that any dispute can be resolved quickly and at minimal cost.
In closing, marketing a business for capital raising is a complex process but there are now a number of different ways which allow entrepreneurs to do so much more cost-effectively. This trend is expected to continue as more and more regulations regarding raising capital for small businesses evolve given the crowdfunding movement and online platforms that allow investors from all of the over the world to vet viable small business projects.