Black Business Guide To Raising Capital, Mini-IPO Investing Rules
For most Black business owners their chances of raising capital or getting access to early-stage seed funding is a big startup problem.
“It’s not all entirely Black businesses fault.”
Data collected by Richard Kerby, a partner at Equal Ventures, determined that as many as 81% of VC firms don’t have a single investor that is a Black person.
Finding that nearly 50% of Black investors in the industry are at the associate level or lowest level for VC firms.
Only 2% of VC partners are Black, which could explain the technology industry diversity problem among major technology firms in the United States today.
On April 5, 2012, at the time President Barack Obama signed into law The Jumpstart Our Business Startups Act, or JOBS Act, which is a law intended to encourage funding of small businesses in the United States by easing many of the country’s securities regulations.
It passed with bipartisan support and gave new hope for how Black business owners could get access to early-stage capital and set up for mini-IPO advantages.
Mini-IPO Investing Rules
The potential of Regulation A+ allows “the public” to invest in your privately owned business.
1, which would consist
of securities offerings of up to $20 million in a 12-month period,
with not more than $6 million in offers by selling security-holders
that are affiliates of the issuer.
• Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.
Before beginning any process to get funding, every business should be in compliance.
Such as registration with the Secretary Of State is current and an operating business address is searchable in Google maps, etc.
It will be necessary to get educated on the limits for the number of shareholders an issuer is allowed when raising crowdfunding. For example, while an eligible corporation may elect to be an S corporation. To be eligible would require the corporation not have more than 100 shareholders.
The business needs to also be visible online to potential investors, the company’s website should be highly searchable and mobile friendly with good search engine return results for target keywords.
Typically, an Alexa.com global rank under 1 Million and U.S. rank under 500k demonstrates that the company’s website receives enough traffic to sell products, goods, and services from their own website.
“If the company’s website is not receiving enough traffic, potential investors typically will not want to invest.”
Even with millions of social media followers or not, the primary concern should be to evaluate if the company’s own website receives enough traffic to sell products, goods, or services over anything else.
The purpose of accessing funding through mini-IPO under Reg A+ is to turn friends, followers, and family who buy from your business into investors!
“You will be cutting them in on a piece of the action.”
Before we continue let’s establish that a mini-IPO under Reg A+ is different than IPO under Reg D, which can only accept investments from Accredited Investors.
The ability to utilize Reg A+ allows you access to non-accredited investors.
What is a non-accredited investor?
Anyone making less than $200,000 annually (less than $300,000 including a spouse) that also has a total net worth of less than $1 million when their primary residence is excluded.
Also to confirm the status of a “non-accredited investor”, individuals have to claim that their investment portfolio doesn’t exceed 10% of their net assets.
The main difference by comparison between Reg A and Reg D is that when a company raises capital under Reg D they can only accept investments from Accredited Investors.