Where does an existing firm turn…?

1.   When their “friends and family” run out of money to invest;  

2.   When they are too small to be listed on an exchange; and,

3.   When they are too “private” to share their history – or too cheap to cover startup costs -with independent broker dealers?

Direct sales to investors, via a Regulation D offering, provides the most “bang for the buck” at this stage of the firm’s development. NOTE – Generally these investors must be high net worth (aka – “accredited”) investors, having $200,000/year income; or $300,000/year with spouse; or $1,000,000+ net worth not counting their residence.  

Following the narrow path provided by national and state securities regulators (e.g., SEC, FINRA, NASSA) a firm can raise unlimited equity capital, with manageable third party costs, while controlling some of their equity formation risks.

TIME & EFFORT & MONEY

No investor really cares if your firm has created the “better mousetrap” for your industry.  

Investors need to feel brilliant for investing where they gain a superior return (wanting BOTH escalating cash flow AND tremendous growth) … and with no risks!  Investors will not beat a path to your door, as NO legitimate investment has

1.    low risk and

2.   likely high cash flow and 

3.   with significant potential growth!

 And there is no competent person or firm waiting in the wings to raise capital for you just for the promise of a participation.  

Equity formation takes time (multiple visits), cost money (to prime the “sales pump”) and will make you uncomfortable (as you must consistently and effectively pitch strangers). 

THE BIG THREE

1.   RESEARCH

What is consistent in the top 10 investors you have attracted to date? Consider their level of wealth, liquidity, age, investment history, proximity, family, profession, relation (to you), and how that relationship evolved once they became one of your investors. 

To effectively expand your reach to investors you do not today know, start with determining how to locate prospect investors LIKE those who have previously invested with you.  There is something about you and your firm which resonates with this type of prospect.  AND it is more than likely that current investors have contacts with people similar to them. 

2.   MARKETING

Your “friends and family” knew you for a long time before they invested with you.  Your research (and requests for referrals from existing investors) have identified prospects who are similar to those who trusted you enough to invest with you.  Your challenge is how to shorten the time from when they meet you to when they trust you enough to invest.  

Drip target marketing directly to your prospects and to those who influence your targets (go deeper in your prospect research to determine their school, church, politics, children, charities, professional service providers). No one invests in your from an advertisement!

Also, do not waste your money on mass social media. Shotgun social media tends to lessen your “uniqueness” with older established prospects.

3.   SALES

Send out all the email mail blasts you want; checks will not flow in (and, if you are doing a Reg D using the “B” choice, you probably have just broken the law with a general solicitation). Webinars where you go beyond pitching your firm, to selling your offering, is also general solicitation (unless you have previous confirmed that all attending are accredited investors). 

If you are pitching prior performance statics (without pages of nuance) or worse, pitching an anticipated return (without already putting in the hands of the prospective investor your offering document), you may have given every investor a “get out of jail free” card, as this may trigger rescission (meaning you may have to buy back their investment, at their original cost, no matter what happens with the offering).

Successful sale of a Reg D offering requires direct and often face-to-face selling (even with a “C” structure which permits general solicitation). An investor does not sign a check for a large number (no matter how rich), unless and until they like and trust the sponsor of the offering – and that does not happen by email (and generally not by Zoom).

BOTTOM LINE

There are prospective investors, similar in some way to your existing investors, ready – willing – able to bring their equity to your offering.  

You need first to identify them, then go deep on your research (of their individual uniqueness), and market to them the information important to them (rather than shotgun how you want to tell your story). 

Sales need be personal (to build trust), consistent (to meet securities requirement), and persistent (as seldom is it a “one touch” closing with an investor, as they are inclined to compare and contrast with all of their investment options).