General Program Questions      Top

Is a Regulation D Offering right for our company?
If your company is seeking equity capital or private debt financing from $25,000 to $150,000,000 from individual investors - then you will definitely benefit from the structure of a Regulation D Offering. From simple deals like seed capital for opening a coffee shop to multi-million dollar raises for high growth companies - these programs will provide you the practical method of raising capital from investors in compliance with Federal and State rules. It is important to understand that the SEC and State regulators do have rules that apply to private companies raising capital from individual investors. If you sell securities improperly to investors - or don't make the proper filings - you could face a rescission issue with investors.

Do I really need to do an offering? I just need a few wealthy investors to invest into my opportunity.
Most private companies are capitalized by pooling together investment from a multitude of private investors. The real key to being successful at raising capital from investors is approaching them in a sophisticated manner and providing for them the method of investing into the transaction. A business plan, while important, is not adequate for accomplishing this task. Many companies attempt to locate one or two super-wealthy investors for funding. In theory this sounds attractive, however statistically you will have a much better chance at raising capital by accommodating investment from small to mid level investors (individuals investing between $10,000 and $250,000). There are exponentially more small to mid level investors in the marketplace than super-wealthy investors. Super-wealthy angel investors are difficult to locate and even if you do find one you still need to approach them with sophistication. A Reg D offering will ensure that you approach them with a concise, sophisticated method for accommodating their investment. Even if you only have three investors it is still necessary from a practical and regulatory compliance standpoint to use the Regulation D program. Three investors deserve the same level of disclosure, the same offering documentation, and the same level of professionalism as a thirty investor raise..

Is there any one industry that has better success with these programs than others?
No, not necessarily. If your company is seeking capital from investors then you will definitely benefit from the structure of a Regulation D Offering - whether you are in Internet, bio-tech, high-technology, manufacturing, real estate, consumer services, etc.

What is the success rate of the programs?
Because the Regulation D programs are government programs they are open for use by nearly any private company that has the practical need to use them. Thus - you have companies with good opportunities using the programs and companies with not so good opportunities. A Regulation D offering is not going to change a bad opportunity into a good one - but it will drastically enhance the capability of good opportunities in effectively raising capital. In the end - whether or not you raise capital is still going to be based on your core opportunity. If you have a solid investment opportunity your chances of raising capital with a Reg D offering are good.

Will my company be a public company at the end of this process?
Absolutely not - you will still be a private company.

Doesn't my company have to go through an expensive registration process with the Securities and Exchange Commission before I can sell our company's stock?
Not with a Regulation D Offering. These offerings were designed to be utilized by companies that needed to raise capital in amounts much smaller than a traditional IPO (typical companies raise between $25,000 to $150,000,000 under Regulation D). The SEC does require that a notification of securities sales filing be made and kept updated as the offering progresses. This filing is part of our service.

What are the related costs and fees to an offering?
The cost to prepare a Regulation D Offering using our services is $3,000. The average commission offered to registered brokers for selling the securities is 10% (which is added to the total amount the company needs to equal the total offering amount - the commissions are deducted from offering proceeds). You do not have to have a broker to sell your securities - as a principal of the company you can sell the securities directly to investors and bypass paying commissions to brokers. Some states have a filing fee to sell securities to investors residing in their state - these filing fees are typically $50-$250.00 and are paid only if the company is going to raise capital from investors in that state - these fees can also be deducted from offering proceeds. There is no Federal filing fee.

Do I have to personally guarantee the invested capital?
No.

I want to raise equity capital - how much of my company do I need to sell to investors? What type of return do investors look for?
This depends on several factors - however most companies sell between 5-25% of their stock for a first round funding - less if it is a second or third round situation. For start-up and early stage companies we use a projected income model to determine how much of the company to sell in an equity offering. Returns vary depending on risk. Most companies re-invest company income during the first few years after an offering to assist in the overall growth of the company.

What Is a "Private Placement Memorandum" and why is it important to raising capital?
A private placement memorandum (PPM) is the document that discloses everything the investor needs to know to make an informed investment decision. This includes: the offering structure, the share structure of the company, SEC disclosures about the securities being purchased, company information, information on company operations, risks involved with the investment, management information, use of proceeds, information on certain transactions that could affect the investor, and investor suitability data. The PPM also includes the subscription agreement which is the actual "sales contract" for purchasing the securities. This is the securities sales contract that the investor will sign and send in with their investment funds. The PPM is very important because it provides the investor with all of the prescribed data they will need to make an investment decision and includes the documentation needed to purchase the securities.

Qualifying / Company Structure Questions      Top

My company is a start-up with very little in assets - are there financial requirements or minimum net worth requirements to use these programs?
No. A substantial number of companies that successfully use the Regulation D programs are recently formed start-up companies or seed capital situations.

Can we use the programs to raise capital for a real estate transaction?
Yes. Many real estate professionals and developers use the programs to raise equity capital and then utilize the enhanced balance sheet of the company post-offering to qualify for real estate loans. That is one of the critical advantages of raising equity - the investment is shown as an asset of the company (cash) rather than a liability as in debt arrangements. The programs are excellent for raising needed equity for re-hab projects, commercial real estate purchases, and real estate development.

Our company tried to get a business loan at a local bank but they turned us down - does this hamper our ability to successfully use these programs?
No, individuals who invest in Reg D offerings do so because they feel the long term possibilities of the company are good and/or a profitable exit strategy will develop - ie: the company will be acquired by a competitor at a substantial increase in stock value; the company will complete an IPO, or the company will be successful and produce a profitable return for the investor each year. They are much less concerned about the traditional bank criteria for lending. Banks are also notorious for not lending to early stage companies with little operating history - the Regulation D programs are ideal for these situations.

I don't have a good personal credit history - is this a factor in using these programs?
No, personal credit history of the principals is not a factor and is not disclosed to investors.

What is the best corporate type for an offering? Can it be an "S" Corporation, Limited Liability Company "LLC", or "C" corporation? Which is best?
This depends on the type of transaction. S Corporations do not make good choices for equity offerings over $3mm due to an S Corporation's limitation of a maximum of 100 shareholders. Limited Liability Company "LLC" formats are popular with companies that have one-off type deals (film deals, real estate development, etc.) where there is a definitive end of the transaction, and with companies that are going to remain private and only need one or two rounds of funding. In an LLC the company sells a membership unit in lieu of stock - it is basically an ownership stake in the company the same as stock ownership is but with some "pass through" tax advantages at the corporate level. C Corporations are the most used entity type because the C corporation structure provides for more flexibility in future rounds of funding and allows for the company to go public without the massive entity restructuring that would be needed in an LLC.

Regulation D Offering Process Questions      Top

Isn't structuring a securities offering difficult? I don't have much experience in securities.
The structure and marketing of a Regulation D offering is not difficult provided you have the necessary support and resources. The Regulation D Resources service provides clients with every resource needed to prepare, file, and market an offering.

How long does it take to structure the offering memorandum and have the company ready to market its stock to investors?
We typically have clients ready for market within 2-3 weeks.

Regulation D Offering Marketing Questions      Top

How long does it take to raise capital once we have completed the offering memorandum and filed the Form D with the SEC?
This depends on how much time is devoted to marketing, the size of the offering, and the quality of the company's concept - with an aggressive marketing program the securities can typically be sold within 45-90 days.

What is "Blue Sky" and how does it work?
Blue Sky filings are merely the State notification filings that are sometimes required (depending on the State of residency of the investor). They are typically straightforward in nature and typically mimic the basic data found in the Federal Form D filing. Most offering only need to be filed in 5-10 States to be sold out. Most States have a small filing fee they attach to the Blue Sky filing - this usually is $50.00 - $200.00.

How do you market a Regulation D Offering?
Regulation D Offerings are not necessarily marketed differently than any other type of investment opportunity. Reg D issuers cannot engage in general solicitation which is the primary restriction. We guide our clients on tactics that allow promotion to investors without violating the general solicitation rule. Companies that have Reg D's in place are much better equipped to interact with investors and accommodate their capital investment. There are some key marketing avenues for a Reg D Offering including Internet marketing tactics, opt-in accredited investor databases, FINRA broker-dealers, individual securities brokers, Registered Investment Advisors, sphere of influence resources, and private equity firms. We provide our clients customized guidance on marketing and promotion tactics to ensure maximum investor exposure.

Questions About Our Services      Top

What does Regulation D Resources provide that will help me prepare a Regulation D Offering?
Regulation D Resources provides clients with a complete services package for the preparation of a Regulation D Offering. From pre-offering structuring support, development of all offering documentation and filings, to blue sky filing assistance, marketing resources, and our investment banking consulting. We specialize solely in the preparation of Regulation D exempt offerings and our services package provides everything needed to fully prepare a Regulation D securities offering.

How much direct support do clients receive with the service?
Regulation D Resources will provide as much support and consulting as the client requires. While our online resource center does an excellent job of guiding clients through some of the basics - it is our consulting and expert document drafting that ensures that the client's offering has been prepared properly. Our principals deal directly with clients assuring that each client receives expert support and guidance.

Are there any additional costs charged by Regulation D Resources in addition to the $3,000.00 services fee?
There are no additional fees charged by Regulation D Resources - the $3,000 fee covers the entire services matrix; all needed consulting, PPM and Subscription document drafting, SEC filings, assistance with State Blue Sky filings, and marketing resources.

Why is Regulation D Resources services fee so reasonable - most other companies want $5,000 - $10,000 to prepare an offering?
Regulation D Resources is managed by former investment bankers. We offer this service as a resource to private companies allowing them to benefit from our years of experience as former underwriters of these types of offerings. We are also active private investors and utilize the service to screen possible investment opportunities for our own investment purposes. This is an integral part of our business model and allows us to subsidize the services fee while still retaining benefit as managers and investors.