There are only three ways to legally raise capital in the United States.  When we refer to raising capital we mean traditional working capital used to build “for profit” organizations.  We do not consider grant monies available from governmental or other organizations a form of capital for a start-up, early stage, or even seasoned companies.  However, we do encourage the attainment of such funds, under the right circumstances, which means after you have raised enough capital to get involved with the red tape associated with those programs.  We consider any commercial lending activity as part of a capitalization plan or deal structure, which would include SBA sponsored bank loans and lines of credit. 

To legally raise capital in the United States, you must do one of the following:

1.) One could produce a business plan and submit it to institutional sources of equity and/or debt capital, such as; venture capital firms, commercial banks, pension funds, trusts, endowments, insurance companies, angel investors, family offices, etc. and allow them to offer the terms of the financing.  When they make the offer of terms by issuing a term sheet to your company, it is not considered a securities offering, because your company is not making the offer.  On average, these single sources of capital fund less than 1.5% of all the projects or companies they review, and they rarely fund start-ups.  They most often will demand voting control of the entities that they fund. 

2.) An alternative and more successful way to raise capital is to conduct a securities offering.  There are only two ways to legally conduct a securities offering within the United States: 

• Register the securities on the federal and/or state level or

• Issue a private placement, by qualifying for an exemption from federal and/or state registration. 

Under the Securities and Exchange Act of 1933, as amended, and in the interest of promoting entrepreneurship within the United States, the federal government and most state governments allow small issuers to legally solicit and sell limited dollar amounts of securities, under certain circumstances, in the private and public markets without the need to fully register such offerings.  Full registration of your company’s securities is an extremely expensive process and for most small issuers it is cost prohibitive, henceforth, the need for the exemptions from registration for the small issuer.

To legally conduct a securities offering in the United States you must produce a securities offering document that either qualifies as a registration statement, or qualifies for an exemption from registration.  Registered offerings can be advertised through the general media, while private placements cannot be advertised.  The private placement of securities under Regulation D, 4(2), and/or 4(6) of the Securities and Exchange Act of 1933 will generally be exempt from registration if the document provides for sufficient disclosures and disclaimers and where compliance with the “Notice of Sales” filings requirements are adhered to.  Both offerings must be accompanied by a securities offering document that complies with the various federal and state(s) laws, rules, and regulations.  Both offerings can be sold by your management team or through NASD Member firms.