For more than 80 years, people have wanted to allocate a portion of their portfolio, even just invest 10k, to an attractive, high-risk / high-reward company. The problem was that until the JOBS Act was approved a couple of years ago and the rules were written even more recently, it was necessary to be a venture capitalist or a private equity firm to see those offers from the ground floor (unless your cousin you receive cash in your new social media company). The game has changed, and you can now see private offers offered under Regulation D, Rule 506 (c) if accredited. Companies that qualify for the exemption can now make a general request for accredited investors.
Progressive startups will win, and must adjust quickly to take advantage of the new law. If an emerging company can get its offer against the average investor, the chances of winning to complete a fundraiser, even faster than a venture capital group could fund the same company, will be very likely. The risk group used to have all the action, and the average investor was lost. Losing was the norm. But the norm has changed. The positions at the level of the low floor used to be exclusive for those who were “aware”. No longer. The average investor is now on par with the big ones.
Some startups to avoid are those that do not offer risk mitigation. If a startup offers risk mitigation, the chances of untapped private investors subscribing to fundraising increase dramatically!
Company after company are launching their private fundraising to support their growth using Rule 506 (c). Therefore, structures of unique agreements are being demanded. Structures of single agreements, for example, that offer a “wait and see” option to convert a capital share into the company at the discretion of the investor will become more popular. Such structures allow investors to enjoy an interest rate while they wait and see if the startup is triggered or acquired for a premium. And if it does not, well, that’s where the unique structure would apply.
To be clear, startups must provide risk mitigation to investors in order to really stand out from the crowd. Investors want agreements designed to stand out from the crowd. Indeed, agreements that provide coverage for investors in the best of the two scenarios: allow investors to jump into a high potential technology investment, but without the typical exposure to risk. Knowing that there are millions of investors in the United States, the key to any startup is to generate traffic and be able to monetize it quickly. This means that online portals are needed that:
- Qualify potential investors,
- Provide complete disclosures of the offer to investors,
- Issue serialized offer documents to investors,
- Provides investors to complete subscription documents, and
- Accepts online money investment transactions.
In an era in which private capitalization has not been chained, those who ‘know how’ to take advantage of the new law can help open a path for compliant general requests. But without an online entry, it’s impossible!
The future is now, and for those investors who previously blocked the flow of operations, there simply is not a smarter way to invest. It’s like a modern gold rush for both parties: investors and fundraisers.
Online Investing for Beginners 