The 5 Million Dollar Question: How Can Entrepreneurs Fund Their Dreams? Perhaps, "Securities Offerings" May Be the Answer

Source: University of Illinois at Chicago, Center for Urban Business, Featured EMail Article
Author: Timothy D. Hogan
Copyright date: 10-13-2005

If you build it, they will come! As a movie quote, it works; but as a strategy to attract investors to a new business, it?s a pipe dream. Countless good inventions and businesses fail or never get off the ground because the owners underestimate how much capital the project will require and how difficult it is to raise capital. There is no ?mother load? of capital available for start-up, early stage, or even for most seasoned companies? just trickles here and there. Entrepreneurs need specialized tools to collect those trickles in a cost- effective manner in order to make their businesses successful.

Sources of Funding

Venture Capitalists: Many businesses turn to venture capitalists or investment banks for funding, however, only 1.5% of entrepreneurs are funded by VCs or investment banks. They rarely fund start-up and early stage companies because there is too much risk involved, so for most entrepreneurs this alternative is simply a waste of time.

Commercial Banks: This leaves 98.5% in search of capital. Most turn to commercial bank loans, however, banks are generally insufficient for the company?s or projects total capitalization needs. Additionally, these loans usually need to be collateralized with personal assets.

Securities Offerings: A more effective means for start-up and early stage businesses to raise ?substantial amounts of capital? (US$100,000 to US$10,000,000 or more) may be through a private or limited (Regulation A) public securities offering.

Private placement: These offerings are generally used to attract seed capital for amounts between US$100,000 & US$500,000. This enables companies to solicit funding from management?s personal and professional investor contacts, as well as, friends and family.

Regulation A: The second type of offering is known as Regulation A, and it allows companies to sell up to US$5,000,000 to investors over a 12-month period of time. Regulation A is not an initial public offering (IPO), but it does enable a small company to conduct a general solicitation to investors by using the media--primarily newspaper "tombstone" ads.

To make these offerings, the documents must be written to qualify for the registration exemption under subsection Regulation D, 504, 505 or 506 of the Securities Act of 1933, as amended. Although nowhere near as complex and expensive as an IPO, conducting a private placement or limited public offering still requires a great deal of paperwork and highly specialized legal, accounting and investment banking advice. Bu siness plans and executive summaries do not meet the stringent legal requirements necessary to raise capital from individual investors, only securities offering documents do, and preparing a private placement offering can cost between US$25,000.00 and US$35,000.00. However, Commonwealth Capital Advisors has developed a solution to assist entrepreneurs in affordably conducting a security offering.

Determining the Best Method of Raising Capital for Your Business

To help entrepreneurs determine which method it best for them to raise the money they need to make their business a success, Commonwealth Capital Advisors has also developed an e-book entitled, The Secrets of Wall Street - Raising Capital for Start-up and Early Stage Companies. To obtain a complimentary copy of this e-book, visit our web site at: www.commonwealthcapital.com, click on green box that reads "Download Free E-book Here" and then enter promotional code 1993.

New Software to Assist in Making Security Offerings

The Financial Architect® System includes sophisticated software template programs that enable entrepreneurs and their professional advisors to conduct a private placement or limited public offering on their own, following a step-by-step process. As a result, the Financial Architect® System can save an entrepreneur up to 90% of the typical cost of conducting a private placement or limited public placement of securities to capitalize their company or project. For more information on the Financial Architect System, visit www.commonwealthcapital.com and enter promotional code 1993.

Timothy D. Hogan is CEO of Commonwealth Capital Advisors, a company that specializes in assisting start-up and early stage companies with the capital raising process. Before founding Commonwealth, Mr. Hogan spent 21 years in securities brokerage and investment banking for firms, such as; Merrill Lynch, E.F. Hutton and Shearson Lehman Brothers.

This article posted with permission and is copyright by the original author and/or publisher.