It Takes Money
By William Cate
Published February 2000
[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
TO RAISE MONEY. This is the axiom of finance that most business
owners want to revoke. Since they can't revoke it, they ignore it.
In the beginning, you need money to start your company. You invest
your money. Your close family members invest their money. Thereafter, your
efforts to raise money from investors will cost you money. There are three
basic steps in raising private risk capital.
Step I. You must have a business plan. You can hire a professional
to write it. They will charge you anywhere from $8,000 to $75,000. If you
write it yourself, it will take your time. Time is money. Unless you have
written several successful business plans, you should have a professional
business writer edit your business plan. It will cost you anywhere from
$3,000 to $25,000 to have it edited.
Step II. Your investment offer must comply with State and Federal
Laws. Assuming you are seeking a million dollars in risk capital, you
should file a 504 Reg D Exemption with the U. S. Securities and Exchange
Commission. While any High School Graduate can complete the filing, you
should have the Reg D form reviewed by an attorney. The attorney will
charge anywhere from $3,000 to $10,000 to ensure that you haven't made a
clearly fraudulent filing.
Because it allows advertising your risk capital investment, the
usual State filing is a SCOR (Small Corporate Offering Registration).
Filing a SCOR meets the Federal 504 Reg D requirements. In California, the
SCOR State filing fee is $2,500. If you have an attorney prepare your SCOR
filing, it will cost you between $5,000-$50,000.
A DPO (Direct Public Offering) is a SCOR filing that includes
investment advertising on the Net. It will cost you anywhere from $75,000
to $225,000.
You can ignore the law and not file with the State or Federal
Government. You might raise the risk capital money that you need to start
your business. However, if your business fails and your investors complain
to any Government Agency, you can face criminal charges for failure to file.
Step III. Advertising for your investors costs money. You could be
the president of the local country club and its members your investors.
This might limit your investment marketing costs to a few Country Club
dinners. You can run ads in local newspapers and your costs will be a
hundred dollars or less. You can use a variety of creative marketing
techniques and your costs may still remain below $1,000.
You can use a professional marketing group to help you find your
investors. They'll charge anywhere from $15,000 to over $200,000 for their
help.
In California, if you did everything yourself, your out-of-pocket
costs could be as low as $6,500. If you have the investor contacts, this is
a good investment of your time and money. If you lack investor contacts,
doing it yourself wastes your money. You need professional help.
The odds of honest Professional Help raising $200,000 for your
company are about 1-in-4. On a statistical base, any professional payment
over $50,000 is a mistake.
It costs money to raise money. Your goal is to find a beneficial
ratio between costs and the probability of raising risk capital. Because it
offers greater investor liquidity, I think that taking your company public
makes more sense than doing a SCOR offering. However, creating and funding a public company costs more than doing a SCOR offering. In the same risk reward progression, buying a public blind pool costs more than taking your company public. But, you achieve near certainty that you will be rewarded by getting the money in the Blind Pool Treasury.
A successful business makes the right decisions in a maze of risk
reward steps. Until you understand the risk reward ratio, you can't make an
informed business decision.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
About the Author
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]