Perhaps in a more perfect world, entrepreneurs could build their businesses for the sheer, unadulterated joy of it. There is, after all, much to recommend in the entrepreneurial lifestyle - the freedom, the flexibility, the lifestyle, including being your own boss. Of course, there's also the long hours, the late nights and the tax hassles - but I digress.
In reality, entrepreneurs are in business to make money, and the real bottom line of entrepreneurial success is the bottom line of an income statement. While we probably all agree that there are lots of things in this world more important than making money - family and friends, religious beliefs, personal peace and good health - the simple fact is we're not going to get very far in business if we don't have the money we need to make our business go and grow.So whether we like it or not, money is an issue for the small businessperson. Almost every company finds itself in need of fresh capital at one stage or another. Resources for the entrepreneur range from friendly relatives with a few dollars to lend, to significant long-term relationships with venture capitalists. However, one resource that is often overlooked is private placement, an option that has been employed by some 15 percent of last year's Inc. 500 companies.
A Regulation D private placement allows you to issue equity or debt without going through the expensive and time-consuming process of registering with the Securities and Exchange Commission (SEC). But the filing of private placement documents is also a complicated process, as regulations and restrictions vary according to the size of the placement and the state in which it is issued. In Idaho, for example, it is illegal to raise money through a Regulation D private placement.
Since most business owners don't have the time or expertise to write their own private placement documents correctly, they often rely on others to do it for them, or worst yet, make their own deals. Qualified attorneys are another option, but they may require months to complete the process and charge $8,000 to $20,000 for the work - money that the business owner doesn't have in the first place. Another option is to find a company that specializes in preparing private placements, such as First Capital Advisors L.C. in Provo, which can do the same work faster and for less money.
According to Miles Pitcher, who owns the company with Joseph Ollivier, there are three key questions they ask of business owners who are looking for money through private placement:
- How much money do you need?
- How quickly do you need it?
- What are you willing to give up to get this money?
"Anyone who is looking for private placement money needs to know, very specifically, the answers to these questions," Pitcher said.
Another important element in securing capital through private placement is a well-developed business plan. "We want to know if this business is a good idea or a good opportunity," Pitcher said. "An opportunity is an idea that has been carefully cultivated and well-planned. There are lots of good ideas out there, but there aren't nearly so many good opportunities."
It also helps, Pitcher noted, if the business has a proven track record.
"The key to the success of private placement is not in the drafting of the documents," Pitcher said. "The key is the business itself - those who are running it and their ability to make their dream happen. That's really the difference between success and failure. Private placement is just a tool."
But it can be an important tool for a cash-poor business. If you decide to pursue a private placement and need to hire someone to help with the necessary documents, make sure that they have a thorough working knowledge of federal and state security laws. Ask to see a sample of their work, or better, ask for some references from people for whom they have done work in the past. You're entitled to that kind of information, particularly for such an important issue as raising money.
Even though it isn't, admittedly, the most important thing in the world.