Did Raising Money Just Get Easier? Depends Who You Are The Security and Exchange Commission's recent lifting of a ban prohibiting entrepreneurs from being public about raising money may have changed the funding game for some. Here's how.
By Jay Turo •
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Meet Marko and Regina. Marko is 32 years old, lives in Palo Alto, Calif. and is seeking $500,000 in growth capital for his developmental stage technology company. Regina is 55 years old, lives and works in San Antonio, Texas and is looking for a million dollars in capital for the healthcare services company she's been running for the past 15 years.
Disclaimer: These aren't real people. But, given the Security and Exchange Commission's lifting last week of an 80 year ban on "general solicitation," which prohibited entrepreneurs from publicly discussing private investment offerings, these two archetypal entrepreneurs shed light on the challenges entrepreneurs seeking funds face and how, for some of them, the ban's lifting might be transformative.
Under the previous rules, both Marko and Regina were limited to raising capital on a mostly one-off basis from investors in their personal and professional networks.
For Marko, who has developed a simple point and click app that designs a "perfect fit" wool knit cap, this isn't a problem at all. A lot of his friends work at hot technology companies and are either active angel investors themselves or know folks who are.
In fact, one of Marko's skateboarding buddies also happens to be one of the first employees at Instagram and knows that pictures of perfectly fitted knit caps are all the photo-sharing rage. So he writes Marko a $100,000 check and promises to speak to a few of his Instagram and Facebook friends about the deal.
Related: Secret's Out: Now You Can Tell the Whole World You're Raising Money for Your Business
As compared to Marko's quick fundraising success, Regina, faces more challenges. Her business, which provides in-home concierge medical care for many of San Antonio's wealthier, older residents has 75 employees, $5 million in revenues and has been profitable since day one. She thinks $1 million in capital for marketing and customer acquisition will enable her to double her company's size within three years.
But after a very long day of putting out the various fires natural to running a business, Regina is feeling a bit stuck. She knows her numbers cold and feels, even in the worst case scenario, that she will have enough cash flow to pay her investors back their principal, and a 10 percent return annually. The problem is that her bank doesn't like to lend to service businesses. Her banker suggests that she instead reach out to angel investors, "rich people" he says, who can "think outside the box."
Regina knows some rich people as her clients are among the wealthiest people in San Antonio. But in addition to them being mostly old, she also fears the last thing they will think about when they think about a middle-aged woman is investing.
So, with the recent lifting of the general solicitation ban, how will the fund-raising process change for Marko and Regina?
For Marko, not much.
He was fine before and he will be fine now. He knows the investors that can give him the capital he needs, and candidly if they won't, then nobody should.
But Regina now has a lot more options including noting on her website, Facebook or LinkedIn that she is seeking investors, all of which was not allowed under the old rules.
She could try buying a list of homeowners in San Antonio's wealthiest neighborhoods, and emailing or mailing them her investment summary and then having her assistant follow-up with a phone call to see if they're interested. Or, she could buy an ad on the radio, local magazine or newspaper.
Will this make raising capital easy for her? Of course not.
But the promise of the new rules is that entrepreneurs like Regina, who don't live in charmed places like Menlo Park and Manhattan, or have friends at Facebook, now have more alternatives, more potential swings of the bat.
And for the nation's entrepreneurs, this is good reason to cheer.
Related: What You Need to Know About Raising Money After the SEC Ruling (Infographic)
