Raising capital for a startup is difficult because it is a new business with no income or earnings history and no proof that your business concept will succeed. As a result, professional investors who can write a check for the entire amount you would like to raise will be unlikely to invest until there is some “proof of concept.” The focus needs to be on raising sufficient capital to prove that your idea can make money even if the amount is less than what your business plan is requesting.
There are several Federal laws that require compliance when raising capital from Investors. In this case, because you will need to advertise and solicit accredited investors, you will be using the exemption known as Regulation ‘D’ – Rule 506(c). This Federal exemption allows you to advertise directly to public investors; however, the investors must also qualify as an “accredited investor”. (Your investors must meet the financial qualification of a liquid net worth of $1,000,000, excluding their residence.)
If each investor invested $25,000, you will need to close 200 Accredited Investors.
Setting up a Google AdWords account will allow you to reach out and solicit investors from across the United States and around the world. This through a Google AdWords advertising campaign.
Remember: This is a startup; you are selling a concept and an idea to investors until you have earnings demonstrating proof of concept.
We charge $3,800 for the (PPM) Private Placement Memorandum, Operating Agreement, Subscription Agreement, and the Accredited Investor Questionnaire. See the deliverable details under the menu tab: $3,800 Preparation Private Placement Memorandum - PPM.
You must prepare the business plan. It needs to be completed and attached to the PPM as an addendum before the documents are made and distributed to the public.
Very Important Note:
When preparing the Offering Documents, you will need to identify the minimum amount that must be raised before funds can be released for use. This minimum amount should be sufficient to begin a reduced operation. Example. Your offering is for $5,000,000, with a minimum requirement of $1,000,000 that must be raised before funds can be released to you for operations. Your business plan should explain how you can initiate a reduced version of your business plan to demonstrate a “proof of concept” that will be used to raise $5,000,000 or more from venture capitalists.
Keywords:
A qualified prospect is someone who submits a Google search query that includes a keyword used in your ad, website, and Offering Documents. Your ad with the keyword appears on the prospect's screen, and he clicks on it. The click takes them to your website, where they find information related to their query, plus a way to reach you with further questions.
A qualified prospect is someone who contacts you for further information on a matter he is interested in, and his click on your ad initiates contact with you for more information and/or clarification regarding your presentation. This not only brings them to you but also provides them with all the information about your project so they can read it and decide whether they are interested. It also provides them with the mechanism to email or call you with additional questions.
A non-qualified prospect is someone you cold call or email without prior consent or a prior showing of any interest in your venture. Every day, you delete multiple examples of unsolicited emails from your inbox and spam folder.
The commonality across all phases of this process is using “keywords” that potential investors will search for, that trigger your ad and initiate a response from them. In this manner of solicitation, they are coming to you.
When we build an Offering Document, we include 5 or 6 keywords that likely prospects will be using in their searches.
Advertising budget: $600 - $1,200 per month / 300 - 600 qualified clicks/leads per month. That represents a daily budget of $20-$40.
The investor clicks, directing the prospect to your website. Your website includes the Offering Documents and is structured to focus on the keywords presented in your Google AdWords Ad / Website Landing Page / Offering Documents, as well as the keywords in the prospective investor's query that led to your ad being served to the investor.
If you have a closing rate of 1 investor per 25 qualified leads, you will need a solicitation system capable of processing 5,000+ leads. It's neither practical nor possible for you to talk to and explain your project details to 5,000 contacts. A Private Placement Offering Memorandum (a 100+ page document) that provides investors with critical information about your project without necessarily needing to speak with you. In this manner, it leaves you to answer just a few questions that the prospective investor needs answered. A PPM allows you to respond to 5,000 investor prospect queries.
Your Private Placement Memorandum, which would include a Business Plan addendum, is the only available and viable option for educating investor prospects responding to your Google AdWords Campaign. Without the Offering Documents, you will be looking at 15,000+ hours of investor conversations.
Most professional investors who can write a single check for your entire project's capital needs will require proof of concept that the investment has demonstrated the ability to make money, even if on a much smaller scale. Proof of concept is very important to your success in raising sufficient capital. Also, most all professional investors will require you to provide them with a PPM.
See menu item above for Private Placement Preparation Deliverables and 142-page Private Placement Memorandum example.
To Create a PPM - You Need:
Business Plan. This document should be more than 5 pages and cover the specifics of the company's operations and the management team's curriculum vitae. The Private Placement Memorandum will also require you to declare the minimum amount of investors' capital you must raise before you can keep any of the money. This amount should be explained as the minimum required to set up and run a smaller operation that will provide investors with a proof of concept. Example: you are seeking to raise $5,000,000 but set $1,000,000 as the minimum amount you need to raise to keep the money. Once you reach the $1,000,000 minimum, you can begin the operation while continuing to raise funds up to $5,000,000.This also allows you to begin operation with only 40 investors instead of 200.
Note: The Private Placement is valid for up to one year from the date listed on the front page of the Offering Document (PPM) and can be renewed when it expires.
Private Placement Memorandum. The document we create is < 100 > pages, not including your business plan. The PPM includes your Offering details, Subscription Agreement, Operating Agreement, and Accredited Investor Questionnaire. Your business plan is added as an addendum.
There is a 142-page example PPM available for you to scroll through to understand what a PPM looks like and the information it contains (see the menu above for the link). Reviewing the example PPM will provide you with insight you will find invaluable when creating your own PPM.
You will need to open a Google AdWords account. This will be your principal medium to solicit “qualified prospects.” There is no cost to open the account, and you can direct how much $ to allocate as a daily budget. For example, you can budget $10 per day for advertising and will only be charged for the number of clicks your ad receives. Example: With a daily budget of $10, you would receive 5-6 qualified clicks per day at $2.00 per click.
You need to create a Website. When a prospect clicks your ad, they are taken to your website, which provides access to your presentation materials, including your Private Placement Offering, and includes a mechanism to reach you with any questions.
Note: With our clients, we typically engage for 4 to 6 hours of conversation, explaining the different deal options you can offer your investors. We also explain in detail how this works and how to set it up. If you prefer us to set up the ads and website, we charge a fee if you would prefer not to do it yourself.
Does this strategy work? By reading this, you can see it does work.
If you are undecided as to a business project, raising capital for real estate actually provides the best potential for raising money from accredited investors. This is because the investment can be secured by the underlying real estate asset, mitigating the investor's risk exposure. I offer a free 30-minute consultation to clarify any questions. Call or text me at 239 231 5509
Lance Shields