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.
Oh I know! And before you make a dime yourself there’s working sometimes 20 hours a day, investments in what YOU need for proper functioning equipment….you’ve really gotta want it to make it work.
GREAT advise!
Sharon
http://sharon-moms-madhouse.com/
Sometimes not raising money is a good thing. Less hands in the pot to mess things up
Very Good Advice…. Entrepreneurs are you listening?
Useful information, thank you!
The single greatest preparation should first be in your product/service. Have a good idea and know your market. If you can sell the investor on your vision and that you and your team are best position to breathe life into it you’ll be turning them away.
Of course all the legal mumbo jumbo is important in case you fail.
Thanks for your tips on how you may be able to raise capital depending on the type of business or brand you have. I can see how ensuring you’re properly prepared seems to play a big role in how successful you can be depending on the demographic you may be targeting for funds. Good stuff man!
Raising and managing money are very important steps any entrepreneur should learn and prepare. They are major factors determining how successful one could be in early stages.
Great post Kirk – I hope all budding entrepreneurs are reading this one
I am in need of this info right now. Very timely and very much appreciated 🙂
Great take-away value for new startup people!
Good info
Nice article.
You cover the essentials. Personally, as an investor I want to see an exit strategy defined. It defines how the entrepreneur thinks about the business in the future. It also suggests a 360 degree realistic view of the business within an chaotic economic environment. Finally, laying out an exit strategy suggests a savvy entrepreneur who well may yield a reasonable return.