The SEC, Securities and Exchange Commission, quietly released a revision of the 1933 Securities Act that regulated how businesses raise funds through equity and how individuals can invest. I know the original Act itself sounds onerous to most of my fellow libertarian-minded colleagues, but this was really needed back in 1933 and the revisions are nothing less than amazing in 2015.
First, the 1933 Act put a whole lot of snake oil salesman out of business and protected a lot of simple folk from being bilked out of their life's savings. To start with, it required businesses to register with the commission to keep an eye on them. And it prevented them from using wide-scale advertising for investors. If you wanted to invest, you had to work through registered/accredited agents like accountants and professional investors. The investor also had to be accredited having a net worth that was deemed sufficient to protect you from ruin should the venture fail. I know this sounds like big brother protecting folks. But keep in mind, this was 1933, the height of the Great Depression and people were desperate.
Fast forward to 2012 and something amazing happened - crowdsourcing and crowdfunding. The SEC correctly recognized that the internet allowed vast access to capital for small businesses and that crowd could help vet businesses, adding a layer of protection for investors. And so, Jobs Act Title II was passed allowing businesses to cast a wide net on the internet to solicit investment for equity. The investors and businesses, however, were still required to be accredited. The intermediary like WeFunder.com, likewise and rightly, needed to be accredited by the SEC. And the SEC spent the next 2-3 years taking comments from players, monitoring progress, and developing something truly amazing, Jobs Act Title III.
Jobs Act Title III of the 1933 Securities Act, effective May 16, 2016, allows nearly anyone to invest in nearly any business through an online intermediary. This includes NON-accredited investors with minimal income and assets. There are some rules to follow such as registration requirements for all involved. But they don't represent a major hurdle and the onus is on the intermediary crowdfunding sites to maintain. In this Act, folks making less than $100,000 per year can invest the greater of $2,000 or 5 percent of the annual
income or net worth and 10% of the annual income or net worth
of an investor, if either the
annual income or net worth of the investor is equal to
or more than $100,000.
This is huge! Investment is no longer the advantage of a privileged a few and any great product or business can seek funding - even concepts. Those tired, dated, and arrogant Angels and VCs, most of whom know nothing about your product or industry, will now have to take a back seat to the general public.
By example, if you have a great concept but lack the funds to create a prototype, the crowd can invest. You don't need to spend time developing networks and risking exposure of a great idea to folks with deep pockets. Alternately, if the concept sucks, the crowd is sure to let you and every other potential investor know why. As an investor you can invest as little as $100 in as many projects as you like. And you don't have a to have a bucket of cash and can spread the risk around by investing in several projects. You might even get a piece of the next Apple.
Of course there are requirements in the 772 pages of required reading including a well-designed business plan and strategy and review by accredited third parties. This is what we do. We align your product with the market and SEC requirements to increase your chances of being funded. One analysis can validate your product features, target market, identify cash needs in a format required by the SEC for equity crowdfunding.
What are you waiting on?
GJC Business Strategy Consulting
860-970-2645
Thursday, November 19, 2015
Friday, November 6, 2015
How to Get Funding for a Startup
Product design, prototyping, customer segmentation, marketing strategy, marketing campaigns, manufacturing and distribution channel design, communications design, management strategy and design, and so much more. You may know your stuff when it comes to what you do as a small business owner, but no one can know all there is to know about all of these things. But these are the things that an investor wants to see.
My job as a business strategy, likewise, is not to know all of these things, but knowing they are needed and how to align them in the most cost effective and efficient way possible. This is what a business strategist does - align the business concept with the market and funding.
So I know what you're first reaction is; I can't afford all of those parts. This is where we provide the value you need. Most of our work involves preventing you from wasting money and, instead, investing money where it's needed. This is bootstrapping at any level. We're huge fans of bootstrapping and so are investors.
Check out our short article about BOOTSTRAPPING here.
My favorite examples of large scale bootstrapping involve a Soy Milk producer and the never too old story of how VHS beat Betamax to the market.
Looking at soy first, the milk industry actually sued the makers of a popular soy milk for using the word milk in the label and causing confusion with the customer. The suit was settled when the Milk industry agreed to distribute Soy Milk. This provided additional income for dairy distributors, allowed them to hedge their bets should soy replace milk, and gave Soy Milk folks a bonanza of not having to develop and maintain distribution and marketing channels.
Likewise, my personal project, Kronicity, a research tool that allows users to easily collect and associate data from any device, was faced with very large costs for content, marketing, and distribution in academia. My solution was to make it free for all educators along with revenue potential for teachers and professors. I saved a ton of cash and will launch months earlier than expected.
As for VHS, they faced a competitor in BetaMax that was backed by industry tech giant SONY that developed the Betamax nearly two years earlier. VHS countered with a product that allowed recording of movies 2 hours long (betamax bet on hour long television recording preferences for the consumer), and more significantly through an agreement with Blockbuster video to provide movies, marketing and distribution. The customer naturally gravitated to the machines that played all those Blockbuster movies. JVC used business strategy to collaborate the pants off of SONY.
In most cases, going it alone, spending the long dollar to reinvent the wheel, more accurately the distribution, marketing and manufacturing channels is a waste of precious time and money. You can get to market a lot quicker and for a lot less than what you thought through a good strategy that involves a few collaborators. Create and execute a plan like this and you're much more likely to launch with the cash you have and attract investors to grow to the next level.
For another example of really well spent money, consider our next post: "How Can I Reduce Development Costs".
My job as a business strategy, likewise, is not to know all of these things, but knowing they are needed and how to align them in the most cost effective and efficient way possible. This is what a business strategist does - align the business concept with the market and funding.
So I know what you're first reaction is; I can't afford all of those parts. This is where we provide the value you need. Most of our work involves preventing you from wasting money and, instead, investing money where it's needed. This is bootstrapping at any level. We're huge fans of bootstrapping and so are investors.
Check out our short article about BOOTSTRAPPING here.
My favorite examples of large scale bootstrapping involve a Soy Milk producer and the never too old story of how VHS beat Betamax to the market.
Looking at soy first, the milk industry actually sued the makers of a popular soy milk for using the word milk in the label and causing confusion with the customer. The suit was settled when the Milk industry agreed to distribute Soy Milk. This provided additional income for dairy distributors, allowed them to hedge their bets should soy replace milk, and gave Soy Milk folks a bonanza of not having to develop and maintain distribution and marketing channels.
Likewise, my personal project, Kronicity, a research tool that allows users to easily collect and associate data from any device, was faced with very large costs for content, marketing, and distribution in academia. My solution was to make it free for all educators along with revenue potential for teachers and professors. I saved a ton of cash and will launch months earlier than expected.
As for VHS, they faced a competitor in BetaMax that was backed by industry tech giant SONY that developed the Betamax nearly two years earlier. VHS countered with a product that allowed recording of movies 2 hours long (betamax bet on hour long television recording preferences for the consumer), and more significantly through an agreement with Blockbuster video to provide movies, marketing and distribution. The customer naturally gravitated to the machines that played all those Blockbuster movies. JVC used business strategy to collaborate the pants off of SONY.
In most cases, going it alone, spending the long dollar to reinvent the wheel, more accurately the distribution, marketing and manufacturing channels is a waste of precious time and money. You can get to market a lot quicker and for a lot less than what you thought through a good strategy that involves a few collaborators. Create and execute a plan like this and you're much more likely to launch with the cash you have and attract investors to grow to the next level.
For another example of really well spent money, consider our next post: "How Can I Reduce Development Costs".
How to Reduce Developer Costs"
I like to cite examples of what to do using my personal startup, Kronicity. Kronicity is a free research tool that generates revenue through user engagement and publishing. Greta idea, but getting it developed has been a pain in the ASCII. I literally went though 5 developers to get the product to a place where we can anticipate a launch. And I've come up with a few rules for development and a new tool in my business strategy tool box.
1. Never use equity as payment for a developer. They're just too few around and they're so easily pulled away by paying customers.
2. Vet the hell out of them. This doesn't mean looking at sites they've developed. You really have to get in there and talk to the owners of the site they've worked on and even the developer's partners. Sorry to say guys, but development seems to attract the real awkward kind of folks - folks no normal human can work with.
3. You can save a bundle gong offshore, but Don't go directly offshore. Use a third party in the USA that can be held responsible. More on that in the example.
4. Talk it over with a lot of folks.
Here's how I accomplished all of these rules in Kronicity. First, I found a developer in hartford, CT that outsourced his work to Egypt. He's a very likable and competent sort and, critically, bound by law to adhere to his contract with me. I get the security of a local developer but paying offshore prices. He came with personal references and paid him for a test of his skills that went quite well.
Next I took on a developer as partner. Not just any developer. I found one that I can work with - not awkward and argumentative. His job is to make sure the contract developer is doing his job, on time and under budget. As a business strategist and paleontologist, I have no idea when I'm having the wool pulled over my eyes. He also utilizes his network of developers to discuss and adjust our development - something I could never do. Bottom line is that his motivation is the same as mine.
The results have been amazing - half the development time and $123,000 less than planned. We've since added development services to GJC Business Strategy Consulting service list. We work with you to not only develop good business, marketing and channel planning, but also build and guarantee the site for a fraction of what most think possible.
We're available for free consultation in the Hartford area. Looking forward to hearing what you're building.
Fo more on the value of Business Strategy, see post: "What Does a Business Strategist Do?"
1. Never use equity as payment for a developer. They're just too few around and they're so easily pulled away by paying customers.
2. Vet the hell out of them. This doesn't mean looking at sites they've developed. You really have to get in there and talk to the owners of the site they've worked on and even the developer's partners. Sorry to say guys, but development seems to attract the real awkward kind of folks - folks no normal human can work with.
3. You can save a bundle gong offshore, but Don't go directly offshore. Use a third party in the USA that can be held responsible. More on that in the example.
4. Talk it over with a lot of folks.
Here's how I accomplished all of these rules in Kronicity. First, I found a developer in hartford, CT that outsourced his work to Egypt. He's a very likable and competent sort and, critically, bound by law to adhere to his contract with me. I get the security of a local developer but paying offshore prices. He came with personal references and paid him for a test of his skills that went quite well.
Next I took on a developer as partner. Not just any developer. I found one that I can work with - not awkward and argumentative. His job is to make sure the contract developer is doing his job, on time and under budget. As a business strategist and paleontologist, I have no idea when I'm having the wool pulled over my eyes. He also utilizes his network of developers to discuss and adjust our development - something I could never do. Bottom line is that his motivation is the same as mine.
The results have been amazing - half the development time and $123,000 less than planned. We've since added development services to GJC Business Strategy Consulting service list. We work with you to not only develop good business, marketing and channel planning, but also build and guarantee the site for a fraction of what most think possible.
We're available for free consultation in the Hartford area. Looking forward to hearing what you're building.
Fo more on the value of Business Strategy, see post: "What Does a Business Strategist Do?"
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