[Cole Taylor]

Originally Posted by entrepresooner

An "Accredditted investor" has to have a net worth of 1 million right?

OR a 200k+ income for the last two years OR 300k+ with spouse. There are other requirements for trusts, corporations, etc. You need to look up SEC rules 501-506 of regulation D.

So if I am using sophisticated investors that are accredited and use 3rd party advice, then I am alot better off?

The point of using accredited investors is that they are considered sophisticated and as such have the means to evaluate opportunities without seeking outside counsel.

EDIT: ...and yes, get an Attorney

[entrepresooner]

Okay, thanks for all the help. Looks like I found the answer to my questions. An Attorney.

[akula]

haha, yeah...that's the start of it
the system works like this:
1) your venture needs money
2) so you go around pitching accredited investors
3) the financiers then need to do due diligence on your deal (i.e. screen it)
4) so you need lawyers and accountants to endorse the deal
5) but, in addition to these technical requirements, the financiers need to make sure that your deal is endorsed by other investors and entrepreneurs
6) to meet this requirement, founders put together advisory boards with brand name business people who help endorse the venture as a good investment opportunity
that's the nuts and bolts of fund raising....overlooking 20 odd other important things

[entrepresooner]

I think your getting a little complicated for doing a simple RE flip....maybe not though. We aren't talking millions here. 100k at the very most, which is still relatively alot of money, compared to what I have now...

[akula]

yeah, private equity is a terribly difficult and expensive financing marketplace which is best to be avoided. If you're taking money from a bank (who have security) or an old high school buddy (who doesn't know any better), or a drug dealer (who doesn't need records), then the close is gonna be shorter - but in your situation; raising equity capital from accredited strangers...the close is usually 6 months to a year. I know, awful...but on average, that's how long it takes to hustle a perfect stranger before they become your equity partner..it's a protracted sales cycle...it can take much longer.

now, of course this sounds like a pain in the ass...and that's because it is. equity finance is undoubtedly the most expensive, uncertain, troublesome and annoying (wait till you try to negotiate terms with someone!) financing option for any entrepreneur - and many people (like 95% of all people) do quite well by avoiding it altogether...you may need to do the same.

Anyways...the bottom line is that you now have at least a vague idea of the laws, rights and responsibilities that are associated with taking other people's money (particularly as equity) and you have some sort of an idea of what it takes to close an equity sale with an accredited individual who doesn't know you from a bar of soap...then again, people are different and maybe the process is less onerous where you're from.

[Cole Taylor]

Originally Posted by akula

yeah, private equity is a terribly difficult and expensive financing marketplace...if you're taking money from a bank (who have security) or an old high school buddy (who doesn't know any better), then the close is much shorter - but in your situation; raising equity capital from strangers...the close is usually 6 months to a year. I know, awful...but on average, that's how long it takes to hustle a perfect stranger before they become your equity partner..it's a protracted sales cycle...it can take much longer.

now, of course this sounds like a pain in the ass...and that's because it is. equity finance is undoubtedly the most expensive, uncertain, troublesome and annoying (wait till you try to negotiate financing terms with someone!) option for any entrepreneur - and many people (like 95% of all people) do quite well by avoiding it altogether...you may need to do the same.

Anyways...the bottom line is that you now have a at least a vague idea of the laws, rights and responsibilities that are associated with taking other people's money (particularly as equity) and you have some sort of an idea of what it takes to close an equity sale with an accredited individual who doesn't know you from a bar of soap.

Doing a private placement doesn’t have to be hard. Now admittedly, it's 10x more difficult today to get funding than it was a few years ago.

Now I'm talking complete strangers. At the end of the day the numbers, your assumptions, your relationships, etc. all become secondary; it's about being a closer.

People want to believe, people want to be part of something big. People want to make a lot of money and they invest with people they like. In order to be closed a prospect needs to meet certain criteria. That criteria is:
- Friendly
- Liquid
- Controllable
- Decision maker

I know that this isn’t the popular opinion and we all want air tight financials, a sellable advisory board, and pending contracts. However, selling to accredited investors is easy and it's only difficult if you make it difficult. Your biggest weapon is the takeaway.

Now dealing with VCs, Angels, Hedge Funds, etc that is a royal PITA.

[akula]

great points there cole
damn, that's so true...prospects are unpredictable
some people I've met just ask just "what's the deal and what do I sign" and others play six months of phone tag, call it "diligence" and leave you hanging after you've turned down three other people because you were waiting on their confirmation

..it's also true that if a prospect wants to get rid of you, or simply keep you on the hook but still stay uncommitted, they'll keep asking you for additional requirements and stall the deal...funk, i'm just starting to remember all the nasty games that people play when it comes to this kind of stuff..

[Cole Taylor]

^^^Yeah, it's weird...people would rather string you along than say no. Sometimes the excuses they come up with are funny though.

I got a kick out of this when I read it last week:
Feld Thoughts: The VC Version of Kick the Can
February 11, 2008 10:22 AM
The VC Version of Kick the Can
I got an email this morning from an entrepreneur that I know that has been trying to raise an early round from a "seed VC investor" for the past few months. He's put together (and closed) a decent angel round and left it open for this seed investor.
This morning the entrepreneur was told by the VC that they are "postponing their decision on investment until a future round" because one of the partner's friends at BigCo "isn't comfortable with the direction the startup is headed."
I asked the entrepreneur who the person at BigCo was. I know plenty of folks at BigCo in the relevant area and wanted to do a reality check for the entrepreneur. He responded that the partner at the VC firm wouldn't say - just that it was a good friend.
I told the entrepreneur to move on and not worry about it because I put this in the "VC kick the can" category. Given that data above, I don't think the VC was ever serious - if they were at a minimum they would have connected the entrepreneur up with the person at BigCo.
Remember kick the can? It's a game that is mildly entertaining but fundamentally pointless. You play it because you are hanging out, have nothing better to do, and feel like playing a game is better than doing nothing (with my apologies to children all over the world.) For whatever reason, VC's play this game with entrepreneurs all the time.
I'm sure I am occasionally guilty of it but I try really hard not to be. The best move for an entrepreneur - when they find themselves in a game of kick the can - is to pick up the can and say something like "so - are you serious about funding us or not. If not, just tell me. If you are, what do we need to do next to get to a deal?"
Dear entrepreneurs: Just because your VC can't seem to make a decision doesn't mean you should be an enabler. Kick the can usually ends when everyone gets bored of playing.