Soliciting and Selling Securities to Raise Capital

If you have completed the following four items, you are ready to raise capital through the selling and issuance of securities.

  1. Decided on a deal structure.
  2. Produced the appropriate securities-offering document.
  3. Checked the “Compliance” section in the Corporate Engineering Conservatory™, to ensure any additional requirements have been met to complete the document.
  4. Had your Company’s final securities-offering documentation reviewed by your attorney.


If you have completed the above steps, you may be one of a very few individuals who will succeed in raising capital for your start-up or early stage Company! You have come a long way. However, you still need to sell the securities, in a highly regulated environment, to raise capital.


This lesson is not a course on selling. Although we have outlined the techniques of selling securities in a highly regulated environment, one must understand the fundamentals of basic selling first. If you don’t know how to sell what are you doing in business? If you do know how to sell your company’s products and services, you can learn to sell its securities. You can also employ help by hiring a CFO with a securities industry background.


Everyone sells all the time. Some are simply better than others. You have been selling yourself and your abilities all your life. Most investors like to be sold. Most knowledgeable investors know a CEO and his/her management team had better be able to sell everything in sight. You and your Management Team need to be able to sell your Company’s products and/or services into distribution channels. You also need to be able to sell your Company’s corporate culture to the potential, talented employees you want working for your Company—not your competitors. In addition, you and your management team need to be able to sell the banker on providing the loan after the equity is raised. Sell the FDA, FCC, OSHA, or any other regulatory authority the company must interact with, that your Company’s operations does in fact comply with the various regulations. More important, you and your management team need to be able to sell securities to raise capital for your Company—even if you engage an SEC-registered broker-dealer to act as an underwriter.


Some folks are more successful at selling because of their inherent personalities. If you have a real problem with the concept of selling intangible assets—such as securities to capitalize your Company—you may want to rethink your mode of operation one more time and attempt to raise enough capital to license and place your inventions, products, or services with a potential strategic alliance as opposed to building a business.


Better yet, hire someone from the securities industry (your new CFO or VP of Finance), who is ready, willing, and able to sell your companies securities as part of your senior-management team.


There are quite a few selling courses available—Zig Ziglar and Dale Carnegie come to mind. Og Mandino’s book, The Greatest Salesman in the World, is a must for those who want to perfect their selling skills.  Neil Rackham’s SPIN Selling and Tom Hopkins’s How to Master the Art of Selling are two more.  There are many excellent programs and books available—learn from them if you’re not used to selling. For the “selling type,” to get refreshed and energized, you may want to review those selling courses—this is “show time.” (Arm yourself with basic selling abilities and skills.) Once you feel confident with basic selling skills, employ the following techniques outlined here and in the Corporate Engineering Conservatory™ to sell your Company’s securities. In addition, to keep “pumped up” through this process, we suggest a classic book, The Power of Positive Thinking, by Dr. Norman Vincent Peale.

The Key Points to Selling a Private Placement of Securities:

  1. In a previous lesson, we suggested you “test the waters” of your private-capital market for indications of interest. This means finding out what others want in an investment and tailoring your securities offering to meet that demand. Your success in your capital-raising efforts will be in direct relation to how well you have attempted to serve the needs of others. Recall that we suggested you ask a few wealthy folks to help you in your quest to formulate your deal structure for a securities offering. If you had put together your prototypes and asked these folks for their honest opinion on the deal structure, you would have gathered a feeling about where your private market is—as far as their desire for a particular deal structure. Humbly, with “hat in hand,” you approached them and asked for their wisdom, sagely advice, and help. By finding out their level of interest, you were able to customize a securities-offering that fits the demand. Many times, when an investor says he/she will like this/that, they are giving you their honest opinion. They are many investors in the US and around the world and they invest money all the time. There are many affluent folks looking to invest. We’ve read estimates that stated over $60 billion was invested in start-up and early stage companies in the year 2000—even after the dot-com collapse. It is simply up to you to draw upon these investors. Do you realize 1/10 of that figure is $6 billion; 1/100 is $600 million; 1/1,000 is $60 million; 1/10,000 is $6 million; and 1/100,000 is $600,000? All you have to do is attract…for $600,000 in start-up capital! Use that amount of equity capital to convince the bank to loan your Company $400,000. Now you have $1 million in capital.
  2. You are selling an intangible asset. Attempt to make the investor’s buying experience as tangible as possible. If you have developed a prototype product, ensure the prospective investor(s) get a hands-on experience. If you provide a service, ensure the hands-on experience as well as showing the value.
  3. You are selling a high-risk/potentially high-return security—sell it for what it is. Tell the prospective investor you’ve attempted to remove from the security as much risk as possible through the formulated deal structure. Sell the deal structure after you have sold the opportunity the company is meant to capitalize on. You have put them first in all manners of safety and return.
  4. Soliciting and selling securities is a highly regulated numbers game. You can solicit and sell securities to a limit of thirty-five (35) non-accredited investors—under most circumstances—and an unlimited number of accredited investors under the three subsections of Regulation D. If you can, we suggest you solicit and sell to accredited investors only. By doing so, you will further remove yourself and your Company from inadvertently violating any rules of the Regulation D, exemptions from registration.
  5. Trusted relationships with potential investors are crucial to successfully raising capital. For a prospective investor to actually invest in your Company, you must meet four key elements:
  • A [strong] belief in you and your business opportunity.
  • They must understand what your Company does.
  • They must trust you and your ability to make them a profit.
  • More than anything else, they must like you.


How Stockbrokers Sell Securities

Stockbrokers—also known as “financial advisors” or “financial consultants”—are the only professionals who can legally raise capital for other issuers of securities (companies) in the United States. Technically, they are “registered representatives” of SEC-registered broker-dealers/FINRA Member firms.


All stockbrokers have restrictions on the way they prospect for new clients. They are highly regulated by a number of regulatory authorities. Actually, over sixty regulatory US authorities regulate how stockbrokers operate. However, they can sell investments to just about anyone, as long as the investment is suitable. If the investment is not suitable, the stockbrokers can get heavily fined, possibly lose their licenses, and/or, in extreme cases, serve jail time. They may advertise anywhere and everywhere, under certain content restrictions, as long as it does not involve a private placement of securities.


You, too, have restrictions on new-investor-prospect methods when engaged in a private placement. You may not use a general form of advertising unless your Company’s securities have been registered at the state and/or federal levels or have qualified for an exemption, thereof. For a private placement, you must keep the solicitation and sales effort private or directed to accredited investors only, with no use of general solicitation—not even direct mail, email, or even a password-protected area on your Company’s website—unless certain regulatory protocols are complied with. This may seem like a disadvantage, but it is a blessing in disguise.


General advertising doesn’t work for most start-up and early stage companies unless you can advertise a relatively safe security, like a Note, Bond or a Preferred stock with a high yield in the newspaper to generate investor leads. A private deal has the element of secrecy. You have absolute exclusivity to your securities offering unless, of course, you are engaged with a FINRA Member, syndicated, selling group. Even then, you still have relative exclusivity. You are different and should command an investor’s attention if you approach them correctly.


Accredited investors are bombarded by stockbrokers, financial advisors and consultants every day. For the most part, these professionals are selling the same old stuff. Any broker can sell a bond, a publicly traded stock, a mutual fund, or a professionally managed fee-based account to an investor. They’re all fishing from the same public pond, essentially. Even new municipal bonds are market priced, so the exclusivity one broker has over the other, for all intent and purpose, is meaningless because all bonds are priced the same according to coupon rate, maturity, and safety—it becomes a bit boring. Historically, the S&P Index has outperformed 98% of all money managers (including mutual funds) every year.  Most accredited investors know that and buy index Funds. Most accredited investors like to review special and exclusive deals with exit strategies and real upside potential.


Most stockbrokers sell securities that are publicly traded and, therefore, liquid. Investors can buy and sell them all day long. This seems to be an advantage if you look at it that way. First, the liquid stock has already gone through its initial IPO. It is already priced to the publicly traded market, or where it should be priced. The entire bang for the investment buck is gone! The greatest amount of upside potential in most stocks is getting in BEFORE the IPO. Hot IPOs can go up ten times their original offering price after going public. Moreover, some have done it in less than a year. What about the returns to the original investors who got in at maybe 1/10 or 1/20 of the original IPO price? Those returns are massive. Now that is upside potential and is what you are offering investors if your Company’s plan is to go public someday. Don’t forget, you can list your hybrid securities on a limited public exchange, like the OTCBB, as well.


In bull markets (markets increasing in value), investors can make this argument: “Why should we take on the risk of an early stage or start-up venture when my mutual fund has been returning an annual 22% for the past few years?” Your comeback could be: “Do you think that’ll last over the next year or two?” and/or “Why don’t you start paring back by selling some of those shares to raise some cash to take advantage of the next market downturn?” or “Why don’t you take 10% or 20% of that cash and invest it in our company?” Everybody loves the public securities markets at the top and they hate those same markets at the bottom. All good traders know, they should love them (buy) at the bottom and hate them (sell) at the top.


In bear markets (markets decreasing in value), investors want to hold on to the ever-fleeting hope that their stocks will rebound, and they will regain their lost profit or at least break even on their principal amount. More often than not, it is highly unlikely that it will happen anytime soon. In bear markets, even after suffering paper losses, investors will eventually become inpatient and will look for high-yielding cash-flow-producing investments. This is where your Company’s hybrid securities can compete.


Overall, we believe you and or your new CFO or VP of Finance will have a distinct advantage over the average stockbroker. You do not need administrative support, research, or the regulatory compliance costs associated with running a typical broker-dealer. You can prospect actively in person, which is the most effective way. You have an exclusive offer that is pre-IPO with huge upside potential. Indeed, you now have a real fighting chance!

The point being you have what everybody wished they invested in years before the IPO or outright strategic sale to Corporate America. Sell the dream!


Productive Prospecting

Okay, now you know about your competition. It is time to make contact with investors. You have your current private, personal, and professional contacts. They are your most valuable contacts, who should not be approached until later. You cannot afford to fail with these folks. Practice the snap and elevator pitches on colleagues and advisors before you present to friends, family, and personal-investor contacts. This way, you’re refining your presentation on prospects you don’t expect will invest—before you go to expectant investors. Who knows, you may get lucky and be surprised when these folks do invest.


Getting the Message Through

You need to get the securities-offering message through to all of your prospects in the most productive manner possible. Productivity here means spending your time efficiently and not wasting theirs. We have found that when talking to investors about a particular securities offering, the average attention span is limited to a maximum of about 7–10 seconds. It’s called a “snap[1]” presentation. You have 7 to 10 seconds to get a potential investor to say “Wow.” After that, they will give you their un-divided attention. Without that “Wow” response at the end of the 7 seconds, you’re just bothering them.


Try this. Say this sentence out-loud. “We are becoming the primary source of quality deal flow for Wall Street and Corporate America. Imagine making one investment and participating in hundreds of IPOs over the next decade.” That’s about 10 seconds. If the investor doesn’t understand the “snap” either the snap is too long, not clear or the potential investor has no idea what you’re talking about, because he or she is simply not familiar with the opportunity.


Unless they express real interest after the “snap”, simply move on.


IF you get a WOW, consider an extension of the snap to the “elevator pitch.”  Develop the quick 30-second to 1-minute sales presentation known as the “elevator pitch” as an extension to the snap. After that pull back and listen. Investors like to talk. They also like a little exclusivity and want to invest before others. The next step is to tell them you’ll send along a private invitation to view and video presentation and the securities being offered. A sense of urgency can be put forth here, but don’t be pushy. The sense of urgency can wait for the follow-up call.


Proactive Prospecting

For most forms of solicitation, the least expensive contact method usually results in the least effective process of producing qualified-investor prospects, which in turn leads to a lower sales-closing ratio. Email spam is the least expensive way to reach a mass audience and is basically a waste of time—along with being a nuisance—and in most circumstances illegal when offering securities. Next is newspaper advertising; this is another avenue to reach a mass audience and generally results in a respectable response rate. Direct mail is probably the next, least expensive—the response rate starts to improve.


If any of the foregoing are employed in a securities-offering context and the securities are not registered or qualified under Regulation D, 506(c)—with Accredited Investor Limitation—Regulation A or A+, SCOR, or CA (1001), the above techniques will violate securities laws. However, once qualified under Regulation A or A+, SCOR, or CA (1001), you can clearly target your mailing to accredited investors who invest primarily in fixed-income securities.


Face-to-face is the most expensive form of solicitation, and the response rate starts to improve greatly. The face-to-face cold call can be used for the solicitation and sales of registered securities or securities that have been qualified for an exemption from registration (i.e., Regulation D, 506(c) (with Accredited Investor Limitation), Regulation A or A+, SCOR, or CA (1001)). The very first face-to-face cold call is obviously the most difficult because you are dealing with the unknown. Dealing with the unknown creates fear as a normal human reaction. You need to ask, “What’s the worst that could happen?” Although very rare, probably the worst outcome is some angry business owner would say, “Get out of my office, and don’t come back.” When you think about it, would you really want this person as one of your investors? (Not likely.) If you get a nasty rejection, be grateful your time is not being wasted and just move on.


Here are a few techniques to clear through the clutter: first, if the prospective investor has a securities-brokerage account, ask them what they like or dislike about some of their investments. Listen carefully to how they respond. You should be able to pick up an indication as to whether or not they are trustworthy, just from this part of the conversation. Make the general assumption that they may be exaggerating. On the follow-up process, its three strikes and you are out. If they cannot commit to your Company’s securities offering by the third contact, move on and never look back. By doing so, you will avoid passing up investor prospects who will commit their funds to your Company. Remember, it’s a numbers game.


After establishing that the prospective investor is “real” and has interest in your Company’s securities offering, simply give them your sales presentation and hand them a PPM. Remember, the distribution of a PPM is a legal requirement and not necessarily the ultimate sales tool. Although Financial Architect® securities-offering-document templates are written in the sales-tool fashion; ultimately you and your management team must sell the deal.


Prospecting in Every Day Life

In everyday life, you will want your “snap” and “elevator pitch” to create curiosity as quickly as possible. The 7-10 second snap, and 20-30 second elevator pitch, can be followed up with a 5 to 7 minute personal or video sales presentation—something you can send a link to, use on the phone or on the golf course. Pitch the sizzle of the company’s story not the securities offering. Once someone says, “Wow!” about the story, say something like, “You know, we are accepting investors on this opportunity now, before we go public.” (Of course…only if an IPO is in the plan). Pitch it and drop it. Create some mystery here. Remember, you are offering an exclusive opportunity. Keep the mindset that you will choose whom you will let in the deal and not the other way around.


There are billions of dollars out there, looking for good opportunities. Sometimes people want what they cannot have; keep that concept in mind as well. Productive prospecting and good selling techniques are based on asking questions and listening. You have one mouth and two ears, so let the ears do twice the work. Your inquiries should relate to your indication-of-interest efforts in your Company’s securities offering.


The Seminar Approach

The seminar approach is a leveraged way to amplify your message.

For Private Offerings: Consider mailing a seminar-presentation invitation to all of the management team’s personal and professional contacts and selected, company clients or customers—if appropriate. If you use the procedures under Regulation D 506(c), A or A+, SCOR, or CA (1001) or (25102(n), through general solicitation—like mass mailing a letter to accredited investors in and around your geographical area—you may be able to find investors for the seminar. In addition, for some limited private offerings, you should check with your state’s securities regulatory office, as some states allow you to test the waters intrastate (within the state only). If so, you may rent a local accredited-investor mailing list and invite them to a very exclusive and private seminar.


Most marketing or mailing-list companies have access to mailing lists for accredited investors. If you would like to know what an accredited investor is, you can easily find out by visiting the SEC’s website:


You will need to give the marketing company or the mailing-list company your criteria for accredited-investor selections. The accredited investors must have a certain annual-income level and/or have a total, minimum, net worth. Simply look up a few marketing companies in the yellow pages or on the Internet. You will have costs associated for renting the mailing list, mailing to accredited-investor prospects, and for the hotel conference room to hold the seminar. Remember, with a private placement, you cannot advertise the seminar, using the general media.


To get more “bang for buck”—i.e., your invitation dollar—offer a series of dates and times (e.g., 10:00–11:00 a.m. and 1:00–2:00 p.m.). Do this on Friday and Saturday, for the next two weeks. (You do not want to open the window of opportunity too wide with additional weeks.)


If you decide on an evening-seminar format, these programs should be scheduled as follows: 5:30–6:15 for cocktails and 6:15–7:00 p.m. for the presentation. The presentation should last only ten minutes, and time limits should be highlighted in the invitation. Allow an additional ten minutes for Q&As. Cut it off at that point; make them want to know more—on a private basis. Arrange to meet with these prospects in the near future. Be brief and to the point, on each section of your seminar.


Present the Story: in two, short, five-minute steps.


  1. Explain the “world” as it exists within your industry.
  2. Explain the existing “problems” in that world.
  3. Explain the “solution(s)” to those “problem(s)” and how the solution(s) relate to your Company making money.
  4. Explain the “investment opportunity” that now exists by purchasing securities in your Company.


These four sections make up the (1) introduction, (2 & 3) the body, and (4) the conclusion of your seminar and sales presentation to be used over the phone, on the golf course, or in the elevator.


When attempting to conduct seminars, the first problem you’ll probably meet is everyone has an excuse for being absent—e.g., holidays, tax time, kids are out of school, etc. It is now time to start spending some of that seed capital. we would invite only the elite of your management team’s contacts or selected accredited investors to the following events:


Weather permitting, consider a golf outing for attracting your best personal contacts and accredited investors. Make it on a weekday, preferably in the midmorning on a Tuesday or Wednesday—a lot of doctors and dentists take Wednesdays off. Ask the golf-course professional if you can have a 10–10:30 a.m. “shotgun start” with an hour lunch scheduled for 12:00 or 12:30 p.m. (In a “shotgun start,” everyone’s positioned at different course tees and simultaneously starts at the sound of a shotgun fired from the clubhouse; hence, everyone finishes at the same time.)


Ensure your invitations are golf-oriented—e.g., “You are invited to the XYZ Widget Co. 1st Annual Golf Classic.” Make sure your guests know there is no charge for them—e.g., their green and cart fees have been taken care of, compliments of XYZ Widget Co. In addition, be sure to inform your guests of the special-investment presentation to be held at lunch. Be upfront about your intentions to conduct an investment-opportunity presentation during lunch. If you are not upfront about your motives, you will be wasting your money. Investors do not like to be tricked into a sales presentation—most will resent you for it. In all aspects of business, especially when raising capital, honesty is not only the “Best” policy; it is the ONLY policy.


Nine holes should take about two hours to play. After the first nine holes, you will want everyone to gather in the clubhouse for lunch, so you and your management team can give the sales presentation. You want a secondary post-lunch “shotgun start,” so people won’t start leaving right after they’ve eaten and will take the time to hear your Company’s story.


In different parts of the country, golf courses have seasonal and non-seasonal rates. We’ve  seen entrepreneurs drop $5,000 to close the course to the public for the day. (I think that is one of the most professional ways to attract seminar prospects.) Make sure there are complimentary cocktails and hors d’oeuvres, as well as door prizes after the outing—all compliments of your Company. You will want a little post-outing personal-conversation time with your guests. Be sure you and your management-team members “work the room”—i.e., they should be talking to investor prospects, not each other.


You should have eighteen foursomes, which equates to seventy-two potential investors, participating in the golf outing. However, husbands and wives sometimes play golf together—although rarely in an outing—so they would be considered one investor. The actual amount of investors should be between thirty-six and seventy-two. If it ends up that your turnout represents an average of fifty-four investors—actual investors as an average not couples—that is a rather productive way to spend your day. If your cost is $5,000 for the outing and you conduct five outings, you should attract 270 investors on average. This makes for a total investment of $25,000 for the course and $5,000 in mailing, door prizes, etc. If you have your sales skills mastered, you should be able to get half (135) of them to invest at least $10,000 each—that’s $1.35 million. If you are conducting an equity offering, you may be able to secure an additional $1.65 million in debt from your bank for a total capitalization amount of $3 million. (Not bad for a week’s work and a $30,000 investment!)


You also may want to consider a day or weekend cruise. It is the same, basic invitation as the golf outing; however, it is a cruise with gambling or some other type of activity. One of our clients spent almost $12,000 on an afternoon cruise for about fifty doctors and their wives. Just over $600,000 in capital was raised over the next six weeks, primarily from the connections they made on that cruise.


If you can afford ($5,000–$10,000) to give your presentation with professional multimedia, we STRONGLY suggest you do so. With a pre-edited electronic presentation burnt to a DVD, or “housed” in a Secured Securities-Offering Portal on your Company’s website, you can perfect your securities sales presentation. You will want your presentation to be as close to perfect as possible. You cannot afford to make any mistakes because you are spending your seed capital for this sales effort. (You won’t get a second chance to make a first impression.) Besides, you could have your presentation running again in a more private room, off the main clubroom, after the outing and during the cocktail time. On DVD format, give out the multimedia presentation to everyone who attends.


Allow those prospective investors to get a securities-offering document during the event. Most of our client-multimedia pieces contain the private- or public-placement memorandum (PPM) embedded in the DVD or “housed” in a secured securities-offering portal on your Company’s website. Not only is it a very simple and productive way to deliver the “sizzle” with the steak, but it will cut down on hard-copy document-printing costs as well. Also, remember to send a securities-offering document (multimedia or otherwise) to prospective investors if they cannot attend your function. To ensure securities compliance, the content of any multi-media video presentation must be extracted directly from the attorney-reviewed, securities offering document and must have a disclaimer as to securities are sold be private placement only.


This is the first step in re-establishing a trust relationship with your personal and professional contacts, as well as establishing new trust relationships with freshly acquainted, accredited investors in your community. These are simply examples of how you can “capture” your seminar audience. You should tailor your [creative] seminar ideas to your particular region and/or situation.



The Follow Up

Everybody hates the follow up. This is where rejection happens. Fear not…for your Company’s securities-offering documents’ deal structure should sell itself. If your sales presentation is indicative of your own risk—e.g., “If this project fails, we lose not only my money but my house as well.”—investors will feel much better about cutting a check or signing a personal guarantee on a bank loan.


Ask for the money. We know that is obvious to some, but most never have the guts to ask. There are many closing techniques for this. However, remember you’re not selling used cars. Your approach should be soft and slow—e.g., “What level of financial commitment do you feel most comfortable with—$25,000 or $50,000? No… Would $10,000 be more comfortable?” If your prospect’s response is a flat “no,” don’t ask, “Why not?” In an inquiring tone, just ask, “Oh?” You want to ask open-ended questions. You want to find out what the real objection is. (You will not know unless you persist.)


Don’t ask, “When can we come by to pick up the check?” This makes you seem too eager and is likely to make the prospect reluctant to invest. Don’t ask, “Why don’t we have lunch next Tuesday, and we’ll complete the transaction then.” Start it off with, “Would you like . . .” Rephrase it in a softer, sophisticated tone—e.g., “Would you like me to stop by this afternoon to pick up your investment?”  “Would you like to have lunch next Tuesday, and we’ll complete the transaction then?” By taking this stance, you’re at his/her service in a very professional manner—e.g., “Would you like to put this investment in your self-directed IRA, to avoid a potentially large capital-gains tax?”


Incidentally, some people do not think of their IRA as money; they think of it as an asset—a long-term investment. This is because, more often than not, they were sold the investments within the IRA as such. Sometimes they don’t know those investments can be sold to produce the cash available for an investment in your Company’s securities. (See the Corporate Engineering Conservatory™ on techniques and procedures to attract qualified plan funds, such as IRAs, SEPs, and Keoghs, to capitalize your Company.)


In the follow-up call, you need a reason… Don’t say, “I’m calling to just follow up and see if you have any questions about our securities offering.” That is an incredibly unprofessional remark. Don’t call until there’s a reason! Reasons would constitute reaching certain milestones in your project or in the capital-raising effort itself. Let’s say you were raising $300,000 in equity and there’s only $150,000 left. That would constitute a reason to call. Let’s say your prototype product has a newly developed technology or application added to the product. That would also constitute a reason to call. You want to keep your very best prospective investor(s) informed. You should call or contact them by mail or email every thirty or sixty days—just on a friendly “Thought we would let you know how the company is progressing…” kind of call. Investors appreciate this. You are letting them know you are still around, truly committed to the process and moving in a positive direction. Only create a sense of urgency and a “call to action” or commitment if it feels right during the conversation.



Electronic Posting on Various Websites

This issue is dynamic and changes often. Please refer to the Corporate Engineering Conservatory™, which has instructions and links to various websites where you can post your completed securities-offering document. Those postings won’t get you very far though. That’s why we allow a select group of investors into our Corporate Engineering Conservatory™—the private password-protected area on the website, to view securities offerings of our portfolio companies in Commonwealth Capital Income Fund-I.  We provide a nest of angel investors who appreciate how we engineer companies and conduct due diligence. We provide this as a valuable tool that enables you to access many accredited investors inexpensively.


Hiring a CFO or VP of Finance

The third part of the “perfect storm” lies with recognizing that one can hire—relative to the past—securities professionals who have investor contacts and skills sets to assist you in raising substantial amounts of capital for your Company. As aforementioned, this is not a pre-requisite for raising substantial amounts of capital for your Company. This part of the process is generally reserved for companies doing third- or fourth-round financing. One should have ample seed or development capital on hand and/or sufficient cash flow from sustained operations, before considering this part of the process. Remember, this is an additional option, primarily for early or later stage companies—not a requirement of the process. As a rule, this option is rarely used for start-ups, but of course there are exceptions to every rule.


The securities industry has become—and continues to be—commoditized. This means the cost of the process, product, or service is being brought down to its lowest level possible—because said items are standardized and automated—to the greatest degrees possible…at the time. Because of the advent of online trading, investment-portfolio management, and information available on the Internet, those time-flexible investors can easily learn how to manage their investment funds without the need for professional advice. As a result, firms in the securities industry have been cutting costs to compete for the still-available hands-on advisory business. Services are being increased and prices decreased. That’s good news for the average investor but bad news for the industry—especially for the financial-advisor profession. Most investment portfolios are managed in “fee-based accounts” that started out with annual fees of 2%–3% in the 1990s and are now down to as low as 0.25%–1%. (They could continue to move lower.)


Let’s analyze this further. Let’s say the fee for the average account size under management is 1%. At most investment firms, the average commission payout to the financial advisor is 35%. Therefore, a new financial advisor will need to attract and raise a lot of capital, just to eat. To be fair, most firms will pay a salary for one or two years for the “Financial Advisor Trainee,” but if the commission payout doesn’t warrant the salary paid to the financial advisor, he/she is let go.


Let’s say a financial advisor can raise $20 million in the first two years of employment. Assuming the 1% fee with the 35% commission pays out, the financial advisor will start off the third year at $70,000 in income. The financial advisor had to raise only $192,307/week, on average (52 weeks per year x 2 years with no time off) for an annual income of $70,000 in the third year. What’s the big deal, right? Imagine having to sell securities at a rate of $200,000/week with nothing special or different about them! The financial advisor is selling the same commoditized services as everyone else in the industry. They’re all fishing in the same publicly traded pond. No one has an edge over anyone else. As an informed investor, why would we want to move my funds from one firm to another? In addition, what happens to our friendly financial advisor when markets crash? Investors move into other things, like real estate and private placements of new companies. What happens when markets rise? Investors don’t move from one brokerage house to another for no reason. However, they do feel wealthier when markets rise. In riskier ventures, it is easier to get them to invest a small amount of their total portfolio. Money doesn’t disappear—it moves. Get ahead of the movement with a securities offering that will attract capital.


In the securities industry, its common knowledge that 82% of all new trainees leave the industry after their twenty-fourth month. As a licensed twenty-two-year professional in the securities industry, we saw these trends coming some time ago; that is why we decided to get out—ahead of that wind of change. The point is financial advisors now have to kill themselves to eke out a living within the framework of the securities industry. The average cold-call quota for the major Wall Street firms is two hundred a day—a thousand a week—and it’s closely monitored. Can you imagine what kind of degrading work that must be? Fail to make the calls? You’re fired—period. Make sure your desk is cleaned out by close of business. And, oh, by the way, thanks for opening accounts for all your friends and family members.


What does this mean for you, concerning raising capital for your Company? We think you can answer that yourself.  Do you think these financial advisors would like to be part of your Company’s senior management team, starting out with a respectable base salary—not to mention some semblance of self-respect for their intellect and investor contacts—or continue to slug it out over the phone like dogs fighting over a bone? Do you think they may know individual investors who would be interested in investing in your Company? Do you think they have the selling skills and compliance knowledge to handle the task? Could you afford one or two if they each raised $200,000 a week, a month, or a quarter for your Company?


The fact is most of these young professionals are caught in proverbial high-end sweatshops; they are looking for a way to use their knowledge—most would jump at the chance to become part of the senior-management team of a promising start-up or early stage company. Most have the selling skills to pitch securities and handle the administrative compliance to get the job done. Better yet, there are many “seasoned,” former professionals from the securities industry who have huge contacts (for capital and otherwise) who are just itching to get back in the game—part time of course. Imagine your board of directors or board of advisors having one or more of these heavy hitters fulfilling the need of high-level introductions to your firm. Get creative here!


How do you hire one or two of these highly trained professionals who have investor contacts? Put an advertisement in your local newspaper, or use any other familiar method when seeking talented employees. This is not rocket science; it’s what Wall Street firms do every day. If you believe hiring a real CFO or VP of Finance is appropriate for your Company at this stage, and once you have started the securities offering document production process, you should immediately start the hiring process by placing advertisements in the employment section of your local newspaper. Alternatively, if you’re in a small city, consider placing one in the newspaper of the closest large city. Collect resumes for the first two weeks; set up and conduct interviews in weeks three and four. By the time the interviewing process begins, your securities-offering-document draft should be complete. You can then show a prospective CFO or VP of Finance what he/she will be expected to sell. If hired, they will need to add their biography to the Management team in the securities-offering document.


What happens to your new CFO or VP of Finance once the capital is raised? First of all, many entrepreneurs feel they need to raise only a certain dollar amount of capital, and the business will then fund its own growth. Rarely is that the case. Typically, to grow a company to its full potential, there is a consistent need for additional capital. You will need your CFO or VP of Finance to plan, prepare, and oversee your Company’s ongoing, financial needs and capital-raising efforts—as well as handle administrative-compliance duties of any securities offerings. The CFO or VP of Finance does not replace a Controller. A Controller is generally someone versed in accounting practices such as a CPA, who “accounts” for all the financial transactions of the company. On the other hand, the CFO or VP of Finance plans for future capital needs, researching what capital and financial structures are best suited for the company to meet its goals. The CFO or VP of Finance will generally oversee all securities offerings, refinancing efforts, leasing arrangements, and franchise sales if applicable. The point is the CFO or VP of Finance’s work is rarely done. If your Company grows, affording the CFO or VP of Finance is never a problem. Your Finance Department may just be the cornerstone of your Company’s success, not a beast of burden.


This third part of the “perfect storm” simply recognizes your freedom to hire former (early retirees from the securities industry) or current Financial Advisors away from Wall Street firms in any town, city, or village that has a branch office of investment firms, for a reasonable base salary and benefits.


Where’s the Money?

A prominent securities attorney once asked me why US east and west coast entrepreneurs are so much more likely to attract and raise risk capital.  The answer is “It’s simply cultural. Do you think it is easier to raise money in New York or New Guinea—San Diego or Sudan? If investors are not in your backyard, you need a new backyard.” Remember, there’s nothing like a face-to-face meeting with those who have the money to risk.


Most entrepreneurs are under the illusion that, due to the advent of the Internet, they can reach a mass audience of potential investors with relative ease, which they may—in time. However, there are more reasons why they may not. As previously mentioned, we allow a select group of investors into Corporate Engineering Conservatory™—the private password-protected area on the website, to view securities offerings of our portfolio companies in Commonwealth Capital Income Fund-I.  The reason we have done this is that it is a very inexpensive way to reach an audience of potential investors—broken down by areas of interest. However, start-up and early stage companies need to solicit and sell securities—first to the management team’s personal and professional contacts then reaching outward in a geographical sense. By advertising the securities locally, you will be able to meet personally with potential investors. More importantly, they will be able to meet with you—a critical element in developing the trust relationship. Without establishing a trust relationship, you simply will not receive funds.


The best place to start is within your areas of influence “professionally”…then geographically. As aforementioned, conduct a private seed capital round through friends, family, personal, and professional contacts, then expand the deal structure to a preferred offering with a high-stated dividend, to locally advertise in the general media.


Now you are competing head-to-head with financial institutions for individual investors—based on the ability to provide a higher “current yield” and consistent cash flow to investors. SCOR offerings qualifying for soliciting your Company’s securities through the general media enables you to advertise in your regional Wall Street Journal, Investors’ Business Daily, local newspaper, as well as direct mail and/or radio advertising. Imagine investors calling you to inquire about funding your Company. This is an extremely important strategy. Except for the Oil & Gas Producer™—SCOR is not available for mineral extraction projects; it’s a regulatory thing (not our fault)—all Financial Architect® programs enable you to accomplish this registration process with relative ease and at a fraction of the traditional cost.


Raising sufficient development or expansion capital is generally done by selling participating-preferred shares to new investors in your local community, advertising the securities in the local newspaper, or through a direct-mail campaign. Before the Internet, advertising the securities in the local newspaper—“Tombstone” ads—was the way Wall Street investment banks notified potential individuals as well as institutional investors.

[1] Developed by CEO Space International