Learning How to Raise Money requires extensive preparation that is rarely done by Entrepreneurs for several reasons. Quite frankly, preparation is the single greatest factor that Entrepreneurs succeed at raising money for their start-up company.
Entrepreneurs looking to raise money will need the following for their start-up company:
- Proper Legal Structure
- C Corporation (Allows you to have individuals and Corporations as shareholders)
- S-Corporation (Individual Shareholders only)
- LLC (Limited Liability Corporation) Individual or Corp owned based on how you tax the L.L.C.
- Subscription Agreement – This document is the contract between the investor and the company. This will include the price per share, number of shares being raised, etc.
- Private Placement Memorandum – A legal document that informs and discloses investors about issues or risk that they may not be aware of. Basically this document is to protect the company from liability issues with Shareholders coming back on the company or executives for any reason.
- Director and Officers Liability Insurance policy – This protects executives and the company should a lawsuit be filed against an executive of the company such as a shareholder filing suit for misrepresentation. This is something that should not be overlooked. Lawsuits can be very expensive even if there is no validity to the suit filed.
- Executive Summary – this document is the first part of your business plan and summarizes what the rest of the plan states. This document is relatively short with only a few pages.
- Three year projections showing your burn rate and break-even point.
As you can see there is more to raising money for your start-up company then simply asking someone for the investment. SEC and state regulations control how you sell your stock and who you can offer it to. A qualified attorney or a business incubator will help you to determine what you will need.