The Perfect Storm

Now it is time to discover how you can gain a substantial edge over all other entrepreneurs seeking capital. Specifically, you will learn how to issue privately placed or publicly placed private securities that can compete directly with other investments financial institutions may offer—i.e., bank certificates of deposit.

The good news is that you have a proverbial “perfect storm” in place for capitalizing your Company, which is based on a dramatic shift in the patterns of five (1–5 below) closely related segments of the securities industry.


  1. The first part of the perfect storm is the present state of currently available cash and the publicly traded fixed-income markets, which includes (but is not necessarily limited to) notes, bonds, preferred stock, commercial paper, and CDs (certificates of deposit). The US fixed-income markets are a little larger than the US equity markets; however, the yield on these fixed-income securities is at a historical all-time low. (The demand for high-yielding investments is at a historical all-time high.) On May 7th 2018, the weeks average was 17.57+ trillion in US financial institutions (M1+M2)[1] earning less than 2.5% per year; (M1+M2) is considered “cash available for investment” on Wall Street (see Federal Reserve Bulletin[2] and Bank Rate™[3]).


The amount of cash available for investment will grow over the next decade due to previously issued government, corporate, and municipal bonds maturing. Currently, individual investors are feverishly seeking high-yielding cash flow from their investments, because they are always in need of additional income to supplement their retirement lifestyle. From the late 1970s throughout the 1980s and into the 1990s, individual investors invested hundreds of billions of dollars in twenty- to thirty-year bonds issued by the US Treasury Department, US corporations (for taxable income), and municipalities (for tax-free income). The yields on these bonds at the time of their issuance were at all-time highs. US Treasuries sold with 14%, 16%, and even up to 17% interest rates, and corporations issued bonds at even higher rates. Municipalities issued bonds at 12%–14% because the interest is not taxable to investors at the federal level, and, furthermore, the interest is not taxable to investors at the state level—if the investors reside in the state that issues the municipal bonds. These bonds are now maturing and being refinanced at substantially lower rates. Investors are receiving very large lump-sum principal payments due to the maturation of these bonds, and they are zealously seeking higher yields than are currently being offered in the marketplace.


Imagine an investor who owned $1 million of tax-free AAA-rated municipal bonds with a 12% interest rate or “yield.” The investor was living on $120,000 in annual tax-free income until the bond matured, as well as received the $1 million principal back from the issuer. Now, the investor can buy the same bond with the same maturity—e.g., thirty years—and with the same quality rating but only with a 4.5% yield. Yes, the investor just took a $75,000 hit on his or her annual tax-free income, or a drop from $10,000 to $3,575 a month (on average), which equates to a monthly loss of $6,250. This is not an unrecognized phenomenon; it is an economic reality based on obligations (bonds) created 20–30 years ago that are now maturing and will continue to do so for the next several years. By issuing competitive high-yielding securities, your Company is able to capitalize on this opportunity now. Knowledge is power. The average entrepreneur has little knowledge about what is happening in these fixed-income markets…but now you do. The question then becomes—what are you going to do about it?


Because financial institutions have market constraints, they cannot offer 7%–11% yields on investor funds by issuing notes or bonds. Banks cannot issue five-year CDs with an 8% yield if they’re lending at 3.5% on home mortgages or 5% on car loans; quite simply, they cannot make money this way. A healthy, publicly traded corporation cannot issue 10% bonds when it can issue them at 5%, as the board of directors would be in breach of their fiduciary duty to the company’s shareholders. Also, retiring baby boomers will be purchasing more and more of these fixed-income instruments—e.g., bonds, notes, CDs, and preferred stock—to supplement their retirement income stream. When this demand exceeds supply for these fixed-income instruments, which is already happening and will continue for some time, they will go on to bid up the prices of these securities, thereby inherently lowering the available yields.


Because your Company is privately held (or even for companies that are publicly traded), you have the ability to set the yield component on your securities in a private placement above the current public market rate; therefore, you will attract the multitude of investors who are hunting for yield, en masse.


In the past, if a management team of a start-up or early stage company attempted to sell and issue these types of fixed-income securities, they would be looked at as if they “need their collective heads examined.” Common equity was the only sensible form of a security to be issued. Yet, when the fixed-income-market demand became insatiable for high yield, issuing common equity became somewhat ridiculous—as it was less attractive to most passive investors. Thus, the dynamic shift in what type of securities you should be selling is revealed. Many entrepreneurs sell too much of their most precious element—common equity—too soon and for far too little, and end up running out of it during subsequent rounds of equity financing. Not only does this scenario defeat the entrepreneur’s goal of wealth attainment, it is unattractive to investors.


Over the next several decades, millions of individual accredited investors[4] will be receiving the principle back from high-yield bonds, and they will be seeking high-yielding investments to replace that high-yield income. They will be looking to invest hundreds of billions of dollars in the US economy. Yes, hundreds of billions of dollars—if not trillions; because in mid-1980, the US budget reached over $5 trillion in debt, most of which was financed with twenty- to thirty-year treasury bonds that are now coming due (note: this debt figure does not include corporate or municipal bonds). According to one of our professional sources on Wall Street, as of May 2018, the US had over $17.5 trillion in US financial institutions earning less than 2.5% per year. So are you ready to compete for those funds? 


  1. The second part of the perfect storm is the current state of regulatory reform, since the Jumpstart Our Business Startups (JOBS) Act was signed into law on April 5, 2012. This act of Congress did many things to help stimulate the U.S. economy, but the provision that is most important to capital-seeking entrepreneurs is that the ban on general solicitation, in force since 1933, has been lifted—with certain restrictions. Note: you can legally solicit and sell your Company’s securities to the general public in many ways. Aside from the more well-known IPO (Initial Public Offering), there are additional ways to legally promote your Company’s securities to the general public, thereby enabling you and your company to compete directly with financial institutions for individual investor funds.


The JOBS Act of 2012 has many provisions, but Title II and Title III of the legislation effect entrepreneurs the most. Title III is official titled Regulation Crowdfunding but known simply as “crowd-funding,” and it was quoted by a former SEC-enforcement attorney at an investment-banking conference soon after the JOBS Act was passed into law as being “DOA” (Dead on Arrival). The reasoning for this contrite remark is the burden of compliance is so high it is essentially cost prohibitive.


Note: Although Regulation Crowdfunding is being conducted successfully by some in various stages of a company’s life cycle, it remains our position that the crowd-funding provision may become an administrative nightmare (for you the issuer) and an abused provision by unscrupulous (companies) issuers of securities. If this unfolds as such, issuers will become frustrated with the overburden of state and federal regulation. Investors will shy away from any offering under any provision that attracts bad press. Yes, we know many people currently appreciate the Regulation Crowdfunding provision but that, too, will likely change. We suggest you follow the guidelines and adopt the tactics laid out in the Chapter on Regulation Crowdfunding and be careful to not become the SEC’s crash-test dummy on this one—let others do that for a few years until the compliance burden either lessens through an act of Congress or the cost proves it is too prohibitive.


Not to worry…Title II of the JOBS Act—also known as Regulation D, Rule 506(c)—enables companies to legally advertise and solicit accredited investors nationally, using the general media by lifting the general-solicitation ban that has been in place since 1933. There are, however, hurdles to overcome with choosing this avenue, but they are certainly not insurmountable or cost prohibitive (see SEC Final Rules).


How does one market these securities? Consider two subsequent rounds, if necessary, for your Company’s total capitalization needs:

1. Round 1 is the “Seed Capital” Round. This round can easily be accomplished with use of either Regulation Crowdfunding, Regulation D, Rule 504, Rule 506, or Section 4(a)(5)—Securities Registration Exemptions (i.e., Accredited Investor Exemption)—depending on how well connected to potential investors you are at this time or a combination thereof. Although there are a myriad of choices, as a practical matter, we suggest the following options:

a. Private Solicitation up to $5 Million. Under Regulation D, Rule 504, you can issue securities through a private placement to pre-existing relationships, up to $5 million within a twelve-month period of time[5]. You can allow thirty-five (35) non-accredited investors and an unlimited[6] number of accredited investors to purchase your Company’s securities. The offering must be private. You cannot use the general media or any other marketing efforts that are considered mass-marketing, such as direct mail or e-mail solicitation, for potential candidates.

b. Public Solicitation up to $1 Million. Regulation Crowdfunding under Title III of the Jobs Act of 2012 enables you to publicly solicit and sell up to $1,000,000 in a 12-month period, with various restrictions. In addition, Regulation D Rule 504, if constructed to a maximum offering of $1,000,000 in a 12-month period, (Rule 504  can be up to $5,000,000 by the way) can offered at the same time as the Regulation Crowdfunding offering is being    Or the Regulation D Rule 504 private placement memorandum can be easily modified to register the offering at the state level under the Small Corporate Offering Registration (“SCOR”) exemption in various states, where available.[7] Simply check with your secretary of state for SCOR availability. Under SCOR, you can issue up to $1 million in securities through a public placement to an unlimited number of both accredited and non-accredited investors within a twelve-month period of time. Some start-up, early stage, and even a few later-stage privately-held companies simply do not have the investor connections to raise the “seed capital.” If this is the case for your Company, consider registering the securities at the state level—e.g., SCOR—to attract and to build an entirely new pool of individual investors. This process involves submitting an application for registration with the state(s) regulatory authority where the securities will be solicited. By registering the securities at the state level, you will be allowed to advertise your securities offering through the general media within that state. Now you’re in head-to-head competition with financial institutions for individual investors based on the ability to provide a higher “current yield” and a consistent cash flow to such investors. Regulation Crowdfunding and “SCOR offerings” enable you to advertise in your regional Wall Street Journal, Investors’ Business Daily, Barron’s, and local newspapers, as well as radio and direct-mail advertising. Imagine investors calling you to inquire about funding your Company. This is very positive. Although emails may be a legal means to solicit securities within your state, emails to stranger rarely, if ever, work.

2. Round 2 is the “Development Capital” Round. This round can be easily accomplished with the use of Regulation D, Rule 504, Rule 506, or Section 4(a)(5)—Securities Registration Exemptions (i.e., Accredited Investor Exemption)—depending on how well connected to potential investors you are at this time. Although there are a myriad of choices, as a practical matter, the following options are suggested:

a. Private Solicitation—Unlimited Amount—Nationally. Under Regulation D, Rule 506(b), you can issue securities and raise an unlimited amount of capital through a private placement to pre-existing relationships, within a twelve-month period of time. Additionally, you can allow thirty-five non-accredited investors and an unlimited number of accredited investors to purchase your Company’s securities—with no “accreditation verification” (hassle) necessary. The offering must be private. You cannot use the general media or any other marketing efforts that are considered mass-marketing, such as direct mail or e-mail to solicit potential candidates.

b. Public Solicitation–Unlimited Amount–Nationally (Not an IPO). Under Regulation D, Rule 506(c), you can issue securities through a public placement to an unlimited number of accredited investors within a twelve-month period of time. However, under Rule 506(c) you cannot allow any non-accredited investors to purchase your Company’s securities. By limiting the offering to accredited investors only, you can use the general media or any other marketing efforts that are considered mass marketing for solicitation, such as direct mail or e-mail. There are fairly stringent “accreditation verification procedures” that must be adhered to under this option; however, one can integrate a previous Rule 506 private placement into the Rule 506(c) offering as long as the accreditation verification procedures are first met under the previous Regulation D, Rule 506 offering. Note: Rule 506(c) is a new provision under Title II the JOBS Act of April 5, 2012 (see SEC Final Rules).

c. Public Solicitation—Unlimited Amount—within the state of California. Under California Corporation Code Section 25102(n), California corporations only can issue securities through a public placement to an unlimited number of investors who reside in the state of California using general solicitation through the general media within the state. However, we suggest limiting the offering to accredited investors only, as a practical matter, because it is better to have those who can sustain a loss—just in case your Company fails. In order to qualify, an entrepreneur can either form his/her corporation (“corp.”) in the state of California if he/she has yet to form the entity in another state or may register the corp. in the state of California as a “foreign corp.” if the entity is already formed in another state. You do not need to move yourself or your Company to California to use this exemption. You can use a Resident Agent—a person and place in the state of California.


It has always been our position that the allowance of non-accredited investors in purchasing securities be limited, if not entirely excluded, in the initial stages of a company’s existence. This is generally wise not only to reduce regulatory burdens but more importantly to relieve entrepreneurs of administrative headaches. This two-step approach is an extremely important strategy. Thus, the Financial Architect® program product line has been styled in a progressive fashion in order to enable you to accomplish your overall capitalization goals with relative ease…and at a fraction of the normal cost involved.


  1. The third part of the perfect storm rests in the amount of talent available to help you along your journey. Here, I am referring to already highly trained individuals in the securities industry who are finding it more difficult each year to make a decent living in their present positions in large securities-brokerage-and-investment-banking firms. Although highly trained in and mentally geared for their professions, you might be surprised how many of these financial professionals would love to be part of your Company at the senior-management level.


This process involves hiring professionals away from the securities industry as your company’s point person(s) to raise capital internally for your Company. Recognize the fact that, relative to the past, you can easily hire professionals from the securities industry who have investor contacts and skill sets to assist you in raising capital for your Company. As previously mentioned, this is not a prerequisite for raising substantial amounts of capital for your Company. This part of the process is generally reserved for the “post-seed-capital round” of financing for most companies. One should have ample seed capital on hand, sufficient cash flow from sustained operations, or both before considering this next step in building your Company.  Remember this is an additional option, primarily for middle to later-stage companies and is not a requirement of the process. As a rule, this option is rarely used for start-up companies; nevertheless, there are exceptions to every rule.

At the end of 2017, there were 630,130 registered representatives (stockbrokers) of broker dealers in the U.S.[8] There isn’t any easily accessible published data on the annual turnover rate for stockbrokers in the U.S., however, it is our experience that it is quite high in the earlier years of one’s career than in later years. Those in their early years of their career tend to have a very high attrition rate, upwards in the neighborhood of 80%. Those in their later years, tend to have a much lower rate in the area of 20%. Those with years of experience would be far more valuable for your Company to bring on as CFO or VP of Corp. Finance, a senior management position. Hence, there are probably over 120,000 viable candidates for you to choose from at any given time, giving you a superior edge in the capital raising process.


  1. The fourth part of the perfect storm is the amount of acquisition opportunities available in increasingly shifting markets, industries, and the general US economy. Today, whole companies, management teams, and assets are moving at incredible speeds. The demographic landscape of baby boomers nearing retirement is the primary catalyst for this phenomenon. Company founders nearing retirement must exit their companies through outright sale, leveraged-management buyouts, or divesting of individual assets. Growth through acquisitions has become a standard and the right securities can be used as currency to acquire companies, assets and entire management teams.


Currently more founders and owners of companies are looking to retire and must exit their companies through outright sale, leveraged-management buyouts, or divesting of individual assets. With the correct deal structure, one can find and acquire whole companies, individual assets, management teams, and properties—intellectual or otherwise. You can use your Company’s securities as currency to purchase these assets; however, this strategy may only be effective if you are issuing hybrid securities you plan to list on a publicly traded securities exchange in the near future, normally within twelve months.


Think of it this way. Assume you want to buy a competitor or strategic-alliance company. Under most circumstances, a seller lists the asset(s) for sale at a certain price. Suppose the asking price of the acquisition target is $5 million. Well, if you raise capital (“cash”) to buy this asset company, and you happen to be a savvy entrepreneur and negotiator, you would probably offer something less than the asking price—much like an offer to purchase real estate. You may value the company at only $3 million…and if neither party is willing to negotiate on price then the transaction ends, which is most often the case.


Imagine an alternative to offering cash for less than the asking price as mentioned above. Imagine stylizing a preferred-equity round (you can refer to this new preferred-equity offering as “Series B”) specifically designed to purchase the company for the full asking price. You offer to “secure” the Series B preferred equity with the assets of the selling company to enhance the safety of the transaction for the seller. If the seller “balks at the offer” it may reveal that the assets may not be truly worth the asking price; therefore, you may then be in a powerful position for negotiation. To use the preferred equity as the currency to purchase (e.g., acquire) the assets or the whole company, simply state the benefits of the preferred-equity ownership. The benefits of preferred-equity ownership include the following: the Series B preferred equity is directly secured against the acquired assets; the preferred equity is an investment in a growing company in an industry the seller understands; the stated quarterly dividends are much higher than alternative fixed-income investments; the annual participation in net profits enhances the overall return; and the conversion option into the common equity is available to realize a potential capital gain if the acquiring company (e.g., the buyer) is ever sold.


  1. The fifth part of the perfect storm involves the technological innovations that enable you to be in control of the entire capital-raising process. Friction free capitalism has arrived and if you know what you’re doing you can take full advantage of this incredible phenomenon. More importantly, you will no longer need to rely on the expensive expertise of outsiders who profess to know what they are talking about. You will no longer be at the mercy of an uncompetitive market for investment banking, legal, and accounting services. You will rule with the knowledge you obtain here!


Note: the following three basic problem issues that arise when it comes to raising capital through the solicitation, sale, and issuance of securities:

  1. Affordability of the high cost of securities-offering document production.
  2. Deliverability of the offering to many investors, in compliance with federal and state(s) securities laws, rules, and regulations.
  3. Marketability of the proper deal structure to investors so they invest.

Technological innovations now enable you to be in control of the entire capital raising process.

  1. Online deal structuring and securities offering document production—for legal counsel review.
  2. Secured Securities Offering Portals
  3. Secured Employment Offering Portals
  4. Multi-media securities offering videos
  5. Tracking PPM distribution compliant with regulatory protocols.
  6. Friction free PPM distribution and subscription agreement and payment execution.

One legally viable alternative to submitting business plans to financial institutions exists, which includes creating a securities offering—with a “marketable deal structure”—and selling it to individual investors in compliance with federal and state(s) securities laws.


No matter how you look at it or what route you take, the capital-raising process takes time, money, and effort. You may be thinking that it would not cost much to send business plans to venture-capital firms. Yet, consider the cost of failure (e.g., you and your management team’s time and energy) to receive the funding from these sources—it takes 9–15 months (on average) to be turned down, and only 0.77%[9] of entrepreneurs actually receive the funding they stipulate. The costs of this route could be extreme for your Company. In addition, if you receive funding from venture capital firm(s) it may be extremely costly long-term, because if your Company does become very successful, the venture-capital firm(s) may have taken more equity from you and your founders than you really needed to give up in the first place.


You may be asking, “Why does this need to be so complicated?” The regulators of federal and state securities are interested in mitigating securities fraud, so they set up hurdles one must surpass. Most entrepreneurs will not go through this process because they actually believe there must be an easier, softer way. The truth is there is not. Take heart—if this were easy, everyone would be doing it—you would have to work twice as hard for the same result.


I am often asked, “What are the common denominators that differentiate those who succeed in raising capital from those who do not.” Ironically, I wrestled with this question for some time. I’ve concluded that dedication, focused concentration, a take-no-prisoners attitude, as well as a total commitment to the process of a series of related securities offerings are the common denominators for those who succeed. Conversely, the common denominators for failure are self-entitled entrepreneurs who do not know what they are doing or expect someone to do this for them. In fact, this is true on all fronts for operating a successful business, not just for securing capital. As it happens, the answer to the aforementioned question is exactly the reason Financial Architect® and the Corporate Engineering Conservatory™ was created in the first place!  And yes, I’ve never been accused of being politically correct, the truth rarely is.


Unlike most venture-capital firms, we’ve taken the mystery out of the application and funding process. We’re upfront about what we want to invest in and why. Most of you will be able to understand our venture-capital-fund model and appreciate the innovative way we reduce risk for our investors. Without this model, there’s simply no way to justify the inherent risk with investing in start-up or early stage companies.


In addition, we won’t leave you hanging on and frustrated with endless due diligence. Our philosophy is simple. If you can do what we request of you through our process outlined below, there’s a very high probability that we’ll invest in your company or find a broker dealer who will. See Platinum Access under Venture Funding at the top of our website


One final comment before we move onto the mechanical process of raising capital. You only get one first bite at the apple. If you do this without the proper deal structure, without the required disclosures within a securities-offering document that qualifies for the proper exemption from registration or without the marketing fire power to get the job done…you may ruin any chance you have to go back to the apple. Most securities-offering documents we see are not only a joke (deal structure-wise) but are also potentially illegal due to “boiler plate” documents that are highly insufficient—even when produced by an attorney—to claim an exemption from registration and, therefore, are dangerous from a regulatory standpoint. Your investment-in-time now—ensure you do this right the first time around—will enable you to take many more bites of the apple over time.

[1] For definition of M1 and M2, see




[5] Once the offering has been officially terminated, at any time within the twelve-month period by filing your final FORM D- Notice of Sales, you will need to wait six months from that termination date to be able to sell again claiming the exemption from registration under Regulation D or SCOR.

[6] Although your Company has the ability for inclusion of an unlimited number of accredited investors, once you have passed the 2,000-investor mark, your Company becomes an SEC-Reporting Company, whether your Company’s securities are publicly traded or not

[7] SCOR offerings are currently not available in Alabama, Delaware, Florida, Hawaii, Nebraska, and Washington D.C.


[9] This fairly well-known statistic in the investment-banking community is called a “venture-capital industry norm.” The National Venture Capital Association (NVCA) used to track this and similar statistics, but they now have either been restricted to members only or eliminated from public access. See Chapter 5 for our calculations.