In this video, we're going to talk about raising capital for your business. A lot of people when they think of Regulation D, they think about real estate syndication. But here we're going to talk in detail about what it means how you go about it, to raise that capital, that money that you need for your business. My name is Tilden, Moschetti, I am a syndication attorney specializing in Reg D Rule 506b and Rule 506c offerings for businesses as well as real estate syndication.

Using Regulation D for your business is not only possible, it's actually the main start of why Regulation D was started in the first place to create capital to influx, the smaller companies to save them from the expense of having to do a raise registering with the SEC. So not only is it possible, it actually is normal. There is also on top of this, of course, re using Regulation D for real estate syndication. But really the main idea has always been to raise money for your business. So what kind of things would you raise capital for for your business? Well, it may be to just acquire a business, right? So you may have identified a business that you think would be a really good fit, or you're adding on I'm merging with this other business, and you need the capital to do that. Or maybe it's some very large project that requires a large amount of capital for maybe it's capital improvements in your real estate. Or maybe it's a piece of equipment that's very large and expensive. Or maybe it's just hiring, doing a new marketing campaign or hiring additional staff. So Regulation D can raise money for all of those things, it can also raise money for you just starting out at the very initial stages of your business. So it could act as seed money. Now, sometimes they that money can come in through angel investors. But sometimes those angels that we think about can be the friends and family that you already know, want you to get a good start, and also will take a passive role in your business. Because remember, if somebody if you're taking money from somebody, and they are have a passive role, that is a security and it needs to either be registered with the SEC or fall under an exemption like Regulation D. So how do you go about doing this? How do you raise money for your business using Regulation D? Well, first, you have to identify the need, right? So you have to make a business case for it. You can't just go to a bunch of investors and say, I'd like some money for my business. And they don't know what they're getting in return, right? Nobody's going to fund that it's just doesn't sound worthy. So you need a business plan, you need a plan of what you're going to do with that money. Second, you really need to establish a timeline. So you're going to be raising amount of money. Now either you're you're selling the security of equity in your business, which may be ongoing for the life of the business, but you may be selling debt, which would have a much shorter timeline, or maybe you're selling equity, and then at some point, in the future, you would buy back that equity from the investors. So you need to plan out well, what's the timeline look like for how you're going to use the money, pay those returns and and finish the syndication or the capital raise? And then you need to also figure out, well, what exactly are you going to give the investors for their money? If they're going to give you $100,000 or $200,000? Or a million dollars? Well, what are they getting in return? Now maybe you're selling 20% of your the equity in your business or 50% of the equity in your business? But what does that really mean? And it doesn't mean that they're getting regular payments, like dividends? Or does it? Are you reinvesting all that money that you'll need to figure out as part of it as well? If you're selling dead on what sort of terms? Are you selling it? Are you selling it so that they it is a fixed rate of interest? Or maybe you're not making any payments for a period of time, but it's accruing for a period of time. And then you make one lump sum payment at the end? Well, what happens if you can't make that target? And then you need to change accordingly? Are there consequences for that? Does that change how the money is structured? These are all the things that you need to be thinking about when you're coming up with what it is that your investors are getting for that money. And then lastly, you need to ask yourself, does taking this money in this form? Make sense? Because it may or may not. Maybe it makes more sense to use the SBA and getting a small business loan. Or maybe it makes more sense to get a line of credit with a bank. Or maybe it makes more sense to just use a credit card, or all sorts of different mechanisms in order to get money in, is selling a security the best way forward for you? It may be and it may not be. So those are the things that you're all juggling in your head on? Should you even do it in the first place? And what would it kind of look like? Once you've decided that it is the path forward, most people hire a Regulation D syndication attorney, that's my specialty. And that's what I do for a lot of businesses. Now, I've helped businesses that are very small, raising less than a million dollars. And I've helped businesses that are very, very big, with over a billion dollars worth of capitalization. So I've, I've helped those businesses raise money for all sorts of different things. And that's exactly what the purpose of Regulation D is to do. So we start out by identifying how that money structure all works. And then we go through how that money is going to be returned to investors. The question I often ask the businesses themselves is, okay, so I'm an investor, I'm $100,000, what do I get for it? I'm expecting to hear a pretty good answer to that, because that's one of the fundamental questions that any investor is going to ask from the very get go. Then we start talking about the business itself and how it functions. And is it ruled by a manager? Is it ruled by an owner? Is it overseen by a board of directors? Maybe there's an advisory board whose advice comes in? How does all that work? How is growth work? And what are the long term profit goals of the company? Is that ultimately to do an initial public offering? Well, I may have one trajectory for how we craft this offering of the security, maybe it's just they want to take on a small amount of debt in order to finance a project and pay it off, that creates another trajectory that's different than than going the IPO route. And so it all crafts itself into this offering picture. How do the risks of the company differ from just general business risks? What's different about the company? How is the management structure? And what's coming down the pipe for them? How dedicated are they within the business? Or do they have a lot of other projects going, those are all the things we look at. And so when we put that all together, we get a private placement memorandum. So I write the private placement memorandum for my clients. And then we review it in great detail just to make sure that really, not only is the investment offering presented accurately, but also are the financial picture and the risk picture. And any conflicts are those all conveyed in a way that really makes sense. Lastly, we do anything that needs to be done on the operating memorandum or the bylaws to structure those to make it compatible with the money raise itself. Now, this is a new business, a lot of times we'll be the first people to write the operating agreement. And those things are very short and time line of when we're looking because if the company is looking at doing an initial public offering down the road, perhaps after this offering, all of that work that we did in crafting, the operating memorandum will ultimately get changed again, as as we start putting together what the Initial Public Offering needs in order to be successful. Lastly, then we do the subscription documents, those documents that bind the investor to the agreement, and you to them as well, in exchange for that money. And so we put those together. And then I most of the time, well, if my clients want it, I'll help them craft their, their marketing materials. I don't do the marketing materials myself. But I'm normally involved heavily in designing the message that goes to investors so that it's fair and accurate as what's being portrayed so that investors really know and have a good sense of what they're investing into. That's truthful, because at the end of the day, we're here to make money. But we also need to have investors that believe in us in order to begin with, right, if they didn't believe in what we were doing, they're not going to invest with us. If this project isn't something that is economically viable, they shouldn't invest with us and it shouldn't have been put together in the first place. And they should know that when they see it, they probably will know that it wasn't a good investment to begin with. So we make sure that we convey that message that this is the offering and the whole picture and put that out into the marketplace. So I hope that helps. This is how we craft that. That message This is how we build up that offering for Are businesses to raise capital with Regulation D Rule 506b and Rule 506c. If I and my firm can help you raise money for your business, we'd be happy to do so we can talk about how we work with you to put together all those necessary documents can file them with the SEC, and then help you craft your message so that when you take it to investors, that everything is conveyed in a way that's not only proper, but also very ethical and understood, so that you make money, they make money and everybody wins.

Transcribed by https://otter.ai