Raising money for your business (or in my case my clients’ businesses) can be a tricky time. It’s particularly hard for the company raising money (what the United States SEC often calls “the issuer”).
For an issuer you want to be different enough to stand out from all the other issues that are talking to your potential investors. But at the same time you want to be the same enough to comply with applicable securities laws and to not scare your investors away. This can be a very tricky tightrope to walk.
So how do you do it the right way?
The good news for those of us that want to make a bigger impact, and perhaps increase our chances of having success in raising money, is that there are ways to stand out in the right way. There are things we can do that comply with the law that actually make us stand out in a good way.
First, Be Serious About Compliance
One way you can stand out from the crowd is to become serious about compliance – particularly securities laws – early in your company’s history. Many companies will be out there “winging it” and running afoul of various laws. Based on my personal experience I would guess that the majority of all early rounds of securities offerings (particularly friends and family) are done the wrong way.
Companies that are serious about compliance, know the terminology and understand how an offering works (and shouldn’t work) stand out. You don’t have to study the SEC website to do this. You just need a team that does that to make you look good.
Showing investors that you are serious about compliance will put you in good graces with investors. Also if you can get investors to trust you and believe in you sooner you’ll have an easier time of raising money. Additionally investors know that compliant companies are worth more down the road when it’s time for them to cash out their investment.
Go Against The Crowd And Disclose More
The natural inclination of most issuers that I work with is to disclose less. I think it’s human nature to say less thinking that that will give others less reason to avoid working with you. The more you say, the more faults they can find the reasoning goes.
But in my experience, with quality investors, the opposite tends to happen. The companies that say too little often lose the investors.
Good investors want to know your story. Your complete story. They’ll ask questions or just not invest if they don’t get complete answers.
Why not show investors that you understand the issues they are likely going to asking questions about? Why not give them as many answers as you can before they ask?
Show You Know Your Stuff
Good disclosure also gives you a chance to showcase that you know your stuff. It takes knowledge and understanding of your business and industry to describe what’s happening, what risks those happenings bring with them and how those issues apply to your company.
Many investors will tell you that they invest in a quality management team over a business model knowing that the management team will move to success. When you give full disclosure to your clients you show that you understand the industry, risks and related issues.
But being different and discussing more in your capital raising documents you have a chance to stand out and show your competence. It takes a quiet confidence to fully show your business plan – risk and all.
Show An Appreciation Of Risk
Which brings us to another major point. Investors know they are taking a risk by investing. Whether they are investing in your company or another they know risk will be there.
And investors don’t want to invest in companies they are risk-free. If the investor really wanted risk-free investments they would be buying treasury bonds. What investors want is companies with risks they understand.
They also want a management team that sees risk, manages risk and acts in light of risk. By disclosing more, including risks and the downside of the investment, you can show investors that you understand their risks.
Bring A Compliance Mentality To Your Company
And being different and providing good disclosure takes work. Even with a good legal team the management team of an issue will spend a lot of time working on the disclosure documents that will go to investors.
That rigor and work, to do it the right way, will make you and your leadership team stand out. It will also make you think about compliance issues.
Often in the rigors of preparing disclosures compliance programs need to be reviewed. Sometimes areas of legal non-compliance are found. When these things are found early it can be a real win for the company.
Get ahead of the crowd and show you are a company of compliance. Believe me when I tell you investors don’t want to buy a pile of legal headaches when your company makes it to a sale.
Doing things correctly requires patience. And patience is getting to be a rare quality in today’s marketplace. And a valuable one two.
More and more thought leaders are saying focus is an important skill in today’s marketplace.
Doing good disclosures can show that you indeed do have patience. Why not showcase this in your work and stand out from the crowd.
Understand Your Reputation Matters
As mentioned before most investors look at management teams more closely than the actual companies. It is possible you’ll win some investment dollars by underdisclosing. But it’s also possible you’ll harm your reputation.
If you do the right thing on all of your companies and are honest and fair in your disclosure you have the chance to stand out from the pack.
Put your reputation first and make your career last.
What do you think? Are you ready to raise money? What issues are you having? Join us in the comments below to discuss.
**NOTE: Any discussion of legal ideas in any of my public facing materials is not legal advice. You must consult counsel to get legal advice based on your facts and circumstances. Do not rely on the content of this message without consulting a lawyer. No attorney-client relationship is formed by this content (video, blog, etc.) Unless you have retained my firm and I have specifically acknowledged I am your lawyer you should not rely on any of my statements as legal advice.**
By: The Our Shawn McBride, is the business nerd and long-time business attorney that focuses on changes of ownership in businesses. He gets businesses ready for the future of business through keynotes, training and personalized solutions to get your business ready for The Future of Business and hosts The Future Done Right(TM) Show. If you want regular content on the future of business subscribe to get new blog posts from us here.
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