Any investor that invests capital into your business, debt or equity, is going to get a security in return for their investment. In an equity situation they will receive stock or a membership unit, in a debt transaction they will receive a note or "debenture". These are deemed "securities" by the SEC and as such you are required to follow the rules and regulations set forth at the State and Federal level when you sell a security to an investor. This is true whether you need to raise $25,000 from 3 investors for a coffee shop or $10,000,000 for a software company.
The Regulation D Offering programs were specifically designed by the SEC to provide the proper legal framework, rules and regulations that allow a company to sell securities in a private transaction. Using only a business plan to raise capital and the "under the table" illegal securities sales that can result are future trouble for the company owner.
These problems can be avoided by using the Regulation D programs. The programs are fairly straightforward to utilize; thus the risks of raising capital the wrong way far outweigh the small investment of time you will make preparing a Regulation D Offering and raising capital properly.
A Regulation D Offering will solve all of the technical issues you will face when dealing with investors (investment structure, investment documentation, etc.) - these are issues that must be addressed at some point in time and they should be addressed before you interact with investors. Not addressing them ahead of time presents a very unprofessional image of you to the investor.
