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Who Should Use a Regulation D Private Placement
| Guest post by: Ken Hollowell |
Article Overview: Most people do not know there are laws and regulations governing the raising of capital when equity is being provided.
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Free Download - What are Angel Investors? By Ken Hollowell |
Who Should Use a Regulation D Private Placement
Any private company or entrepreneur that is seeking to raise equity capital or private debt financing from investors should have a securities offering in place. Only a securities offering can provide the needed practical framework to accommodate investment.
Even if your transaction will only involve one or two investors - you still need to provide the proper transaction framework, disclosure documentation and investment agreements necessary for raising capital. Raising capital from investors, debt or equity, of any amount requires very specific documentation that far surpasses what a business plan provides. It is imperative that a company seeking capital from investors have in place a Private Placement Memorandum, a Subscription Agreement, and in debt offerings a Promissory Note Agreement. Raising capital without these documents is nearly impossible - they are a necessity.
You also need to use an SEC program, like Regulation D, to properly sell your company's securities to the investors. The SEC and States have specific rules concerning how a private company solicits capital from investors - even if very few investors are involved. The Regulation D Offering program is the exemption program designed by the SEC for private business. It is the most widely used program the SEC offers and provides the proper exemption needed to raise capital from investors. Not raising capital properly can provide investors with a "right of rescission" in the future - meaning they can get their investment back regardless of the circumstances. You could also face fines and other penalties resulting from an improper sale of securities to investors.
The Regulation D Offering Programs are typically utilized to raise from $25,000 to $50,000,000 in capital. Regulation D Offerings are used for a wide variety of transaction and industry types: corporate seed capital, corporate expansion capital, film production capital, real estate equity funding (acquisitions, development projects, golf courses, rehab), capitalization for early to pre-IPO stage Internet and technology companies, expansion funding for retail companies, and product development and distribution funding.
A Regulation D Offering provides the fundamentals for raising capital from investors - regardless of your industry type, age of your company, or the size of your organization.
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Article Tags: capital, funding, funding your company, ppm, private placement offering, raising capital
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About the Author: Ken Hollowell RSS for Ken's articles - Visit Ken's website He conducts numerous seminars annually on franchise development and investing in a franchise business throughout the United States. He is regularly requested by the Small Business Administration in Washington, D.C., S.C.O.R.E., Learning Annex and the International Franchise Association to speak on franchising. Mr. Hollowell's well-rounded experience and practical knowledge in both development and marketing have led him to be one of the most sought after franchise consultants in America. Mr. Hollowell has written many articles on both developing a franchise network and buying a franchise. Mr. Hollowell sits on no less than a dozen boards of directors. Mr. Hollowell works with as many as 120 new clients each year on teaching techniques and methods of raising capital through the SEC's Reg D Series of Offerings Click here to visit Ken's website   HOW CAN A FRANCHISE EXPERT HELP YOU What You Need To Know About Franchising Your Business or Concept FRANCHISING FRANCHISE BROKERS vs FRANCHISING CONSULTANTS Do I Offer Debt or Equity to Raise Capital |
Related Forum Posts
Any experience with McManus UK Ltd.?
- Did anybody already deal with any of the McManus UK Ltd offshore entities? I do have a program, but not enough cash. I have been advised that they can fund investors with access to Private Placement Programs but they don’t want to joint venture with me. They want a fee for the service. This is why I want to find out if anybody has had first hand experience with this group?
Patrick Ohara, Financial Consultant
How to valuate a business
- Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out:
How Northern Crown Capital Valuates a Business
2008 Financial Projections
Earnings Before Tax
$5,865,000
Tax Rate
42%
Taxes
$2,463,300
Net Earnings
$3,401,700
Amount Seeking to Raise Today
$3,500,000
Discounted Value of Future Opportunity, 5 Years Out
2008 P/E Ratio
15
Value of Company in 2008
$51,025,500
Discount Rate Applied
30%
Year 2008
$51,025,500
Year 2007
$35,717,850
Year 2006
$25,002,495
Year 2005
$17,501,747
Year 2004
$12,251,223
Value of Company at Investment in 2003
$12,251,223
Less: Investment Amount
$3,500,000
Present Value
$8,751,223
Discount for Risk & Private Company
40%
Less: Discount for Risk & Private Company
$3,500,489
Private Company Value
$5,250,734
Present Value (What the Owner Keeps)
$5,250,734
60.00%
Financing (What the Investor Gets)
$3,500,000
40.00%
Total
$8,750,734
100.00%
I hope this helps!
Re: How to Get Your Business Funded
- Check out fundsandloans.com they provide advice underwriting services, and business plan packaging for investment for final presentation to Private Investors
Re: The Storm Brace a new invention
- Hi Breck,
I sent you a Private Message - please check your "new messages link"!
Re: private label rights
- Just out of curiosity... how long has "Private label rights" been a business?
On a related note, I've seen the proliferation of websites that sell term papers and articles for students, each one justifying their work because "in this day and age students are just too busy to keep up with school work, and knowing how to write isn't important anyway, and universities don't realize this and ask too much of you, so it's perfectly alright for you to buy your schoolpapers from us."
I know it's not the same thing, but I think it's just sad...
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