North Carolina startups and private businesses can now use a new and very effective way to raise funding called Investment Crowdfunding. It is being used by entrepreneurs across the country to raise money from both accredited and non-accredited investors. Our mission is to provide the education and services needed to enable North Carolina startups and existing businesses to get funded using a variety of online private and public offering strategies including Investment Crowdfunding.
BatteryXchange has officially launched their investment campaign
BatteryXchange provides an on-the-go mobile charging solution for cell phone users to stay connected to people and things that matter to them most. Check out their campaign at https://localstake.com/businesses/batteryxchange/preview and learn even more by signing up for a free investor account on Localstake’s platform.
We were asked to write this post by several individuals who had questions. Investing doesn't have to be scary. I got into this space to help create a world for my community, my kids and other people's kids that didn't exist. I want them as members of the community to literally be able to invest in private businesses and startups in their community. This involves educating a large part of the population that has never had access or didn't know they had other options outside of the publicly traded stocks, mutual funds, etc. listed in their brokerage and/or retirement accounts. Most individuals I meet are at least curious about this new world that has recently been enabled by new investing laws and regulations. So this post is devoted to all of you who are new to the early stage / private business investing process and would like to learn more. Not Investment AdviceThe following is not meant to be investment advice or an exhaustive list of what to look for in an investment. It is also not meant to be a detailed list of what all of the terms mean. Rather it is meant to be a starting point for someone new to the process of investing in startups and private businesses to help point them to where they can get answers to their questions. Is this safe? We partnered with a Broker-Dealer platform to form Localstake NC, because as a Broker-Dealer, they are regulated by the SEC and FINRA.
Localstake facilitates the raise process in a way that complies with all laws.
As an experienced and trusted partner, they've helped multiple businesses successfully complete offerings.
All investor information is safely stored on their platform and transactions are conducted digitally (e.g. signing deal docs, transferring investment dollars, etc.) ...meaning it's very similar to your other brokerage accounts.
While investing in this way carries a high degree of risk, including the possible loss of all capital, it also comes with the potential benefits of the following:
Potentially higher returns than the stock market
Opportunity to invest directly where you live
A method to diversify
Never invest more than you are willing to lose and seek guidance from your tax and/or legal counsel to help determine if this type of investing is right for you.
What am I investing in? You're investing in a small team's ability to form and execute a business plan.
Get to know the team through the profiles they create online
Others in the community may know the team members and can provide recommendations
Look at the 'traction points' for what the team has already achieved
See what their plan is for the future
Don't expect to see a business's "secret sauce"... those items that are strategic to its growth that if revealed would provide a competitive disadvantage. However, businesses are required to list factual data and many state their plans or projections with assumptions. Additionally, Broker-Dealer platforms such as Localstake NC are required to perform background checks on directors, officers, key management team members and anyone with significant ownership. While this doesn't provide a gauge on a team's ability to execute, it does provide a level of vetting. How will a business become profitable? This is a loaded question. Let's start with the following.
What kind of product or service is the business selling?
Who are they selling "it" to?
Are people buying because of a need or a want?
What is the price point they are selling "it" at?
How many "its" do they have to sell in order to become profitable?
The good part to investors is that all of these data points and more are typically answered by the business's team on the investment campaign profile they create on Localstake NC. If they don't have an answer to your question listed in the campaign material, no problem. You can ask it directly in the Discussion board which gives the team you are considering investing in a place to answer the question, and the answer can also be seen by other potential investors. What is my potential return?
Businesses can offer equity or debt. Why a founding team chose one or the other to offer is typically a matter of what will pass the Broker-Dealer's Underwriting legitimacy test as well as a business's strategy, philosophy and type of business.
Equity is used so that you own a piece of the company. There is little to no obligation for a company to owe you anything as an investor if the company fails. You are investing in the long term growth of the company (shared risk) which if they take off, could be big to you as an investor. For example, if you invest at a $5M valuation, and then the business is sold at a $50M valuation at exit, you get a 10X return on investment or ROI. (less any administrative fees)
Common or Preferred Shares/Units - Direct ownership upon purchase.
Convertible Note - A type of debt which can convert to equity at a discount.
Simple Agreement for Future Equity (SAFE) - You invest in the company now, and your investment will be converted into equity at a discounted valuation when a future equity raise occurs.
Debt is typically used to fund short term (usually 1 to 5 year) needs. However, there are exceptions to this which are beyond the scope of this article. When you loan the company money via a debt offering, you aren't listed on the cap table and don't own a piece of the company. You are agreeing to provide capital and expect to be paid back regularly over time.
Loans/Promissory Note - e.g. invest and receive X% interest (typically 8-15%) annually, principal and interest is repaid monthly or quarterly
Revenue Share - return paid as a percentage of actual business revenue e.g. invest $X and receive 1.5X your investment over Y years (typically 3-5) paid monthly or quarterly
Convertible Note - Typically pays any principal + interest at the end of the note's term (1-3 years is usual) usually upon investor request OR this interest is added to your principal investment amount upon conversion to equity (e.g. conversion event = usually upon the note's term, sale of company, subsequent raise of $X amount, etc.)
Startups or High Growth Ventures typically issue Equity. Main Street Businesses typically issue Debt. So where does that leave us?
We're here to help. We enjoy providing education to new and existing investors. Investing doesn't have to be a daunting process.
We know we couldn't answer everything in this post, but we appreciate answering questions. Check out our Invest and Get Funded pages as well as other areas of our site. Feel free to send us your questions, [email protected]. Your question and our answer may end up on our site with your permission, so by asking, you're helping out the next person too.
Our Community is Innovative The concept is so foreign yet strangely familiar. We pass the buildings and bustling entrepreneurs in our communities. They and their teams serve us coffee as we sit at tables made by a company built by entrepreneurs, while looking at our email, calendar, and news feeds on our phones...apps, phone components, and even the digital data that transports the communication...all made by entrepreneurs. Did you know several of the innovators who developed the tech we all use reside right here in our state? Everything we use to live out our day to day life was at some point created by someone who had an idea and turned it into a business. Most of these entrepreneurs will need to seek funding at some point in time beyond what they can provide themselves. That's where trouble seems to start for several entrepreneurs, but they have an incredible asset directly in front of them and most have no idea it exists. Do you know what it is? It's You... ...and me and potentially everyone in the community. I was invited to perform a lunch and learn educational session at a co-working location near Charlotte. In these settings I give people the disclosures that I'm not an RIA, attorney, etc. so I can't provide them or anybody else investment or legal advice. My job is one of education to businesses, investors and the partner network which serves both. It's always neat to see individuals in these sessions connect the dots. In the middle of my session one of the attendees said [ I'm paraphrasing a bit] "Wait! Will, are you telling me that if one of the potential high-growth businesses in our co-working space puts out a public offering, I can see that offering from my cell phone and literally take $500 of my money and invest in them?...and if they really take off, I have the potential for VC-like (Venture Capital) returns?" I responded,"Yes, the opportunity is now possible...and it's not just high growth ventures. Its also 'Main street' businesses like the coffee shop you love, the brewery you visit, the restaurant or other store that you go to. These all have the potential opportunity to raise capital from anyone." Her response: "That is so cool. I never knew I had the opportunity to do that, but it makes so much sense. Why hadn't we been doing this before?" My response: "Exactly what I said when I 1st learned about it 3 years ago. Your response is similar to many others I've spoken with once they hear this is possible." It became possible a little over 3 years ago Entrepreneurs now have the ability to seek capital from anyone, starting with those who know, love, like, and trust them. It doesn't matter if who they know are 'accredited investors' or not. Businesses can seek capital from wealthy investors and everyday investors using a variety of offering types, providing them the opportunity for returns assuming the business is successful. Real Estate, "main street" businesses and yes, even potential high growth startups can raise capital from their crowd. Individuals with various risk profiles have the opportunity to find investments tailored to their preferences.
Regular Pay Back Potential: Businesses offering revenue shares at 1.5x or 2x returns, or real estate with dividends may be attractive to individuals who prefer investments that offer to pay them back regularly. Businesses may also offer a perk to make the investment more attractive and to market their business.
Example: A food truck, brewery or boutique may offer a 1.8x return + perk where for a $500 investment the investor gets 10% off the entire purchase once a month when they bring in their friend.
I won't dive into all of the mechanics of how revenue shares can be use by all types of businesses, but just know they are incredibly flexible.
5x, 10x, 100x, 200x+ Multiplier Potential: If another person prefers high potential gains (high risk), they might prefer to invest in potential high growth startups.
Example: If the next potential Unicorn offers a public raise early on when their valuation cap is say $5M and Exits/has an IPO at $1B valuation 7-10 years later, the investor shares would be worth $20,000 for every $100 invested.
A Unicorn (company with valuation of >=$1B) is a rare find, yet the opportunity exists. We have companies across our state who have achieved those types of valuations and also have several who never become Unicorns but still provide the potential for 5x, 10x, and other high multiple returns.
In either case,
Businesses have more options to source capital than they did before.
Individuals have more opportunities to invest in businesses who have the potential to provide them returns they didn't have access to before.
Anyone who gets into investing in this way needs to know that investing is very risky and no one should ever invest more than they are willing to loose because there is never a guarantee for any return. So what world are we creating? We're creating a world where almost all individuals in the community have the opportunity to invest in almost any business in their community, from their favorite places in town to visit to the potential next high growth startup. People have the opportunity to literally shape their community by the businesses they invest or don't invest in. They have the opportunity to the potential returns from the growth of their community. I hear from people everyday that they want to be connected to the community where they live. They want to live in communities where they raise their families together with their neighbors who become friends... or even if they don't have kids, they want to experience life together with their neighbors who become friends. They want to give back. Most just never knew that they could be even more vested where they live simply by investing in businesses in their community. So this brings up a very important question... "What is your why?"... In my opinion, it's the most important question I ask every founder. So it's only fair I share My Why. My Why is I want to create the world I want future generations to live in... for my kids, my friends' kids and others in my community, including those I'll never meet. I want them to have the opportunity to do the same, simply by investing in those they know, love, trust and who are creating something of value that is sustainable in every sense of the word. To me that's community. At the end of the day, Margin = Mission. What's your why?
How does Investment Crowdfunding help solve the "lack of access to capital" problem?
What is Investment Crowdfunding?
How can anyone be an investor in early stage ventures and their favorite business around the corner?
How do businesses who want to raise capital benefit from Investment Crowdfunding?
How does Investment Crowdfunding make the raise process easier for accredited investors?
How does Investment Crowdfunding make it easier for greater participation from potentially all individuals?
How does the overall NC entrepreneurial ecosystem benefit?
These questions and more are discussed in the podcast. Legal Disclaimer This post is for information purposes only and should not be regarded as a recommendation of, or an offer to sell or as a solicitation of an offer to buy, any financial product. Such offer will only be made by means of formal offering documents and other definitive documentation, and any potential investor should read such documents carefully, including all of the risk factors relating to the investment, before investing. Investments involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Investments May Lose Value - No Guarantees - Securities and Investments are not FDIC Insured.
this new world of businesses using media and technology to raise capital from
both accredited and non-accredited investors, what are the legal compliance
rules for companies, team members and their marketing and sales agents when
preparing for and conducting a Regulation CF offering?
Who can you talk to? -
What can you say? -
When can you say it? -
Where can you say it? -
How should you say it?
By watching this recorded webinar by Innovate Capital Law, CrowdfundNC, and Localstake you can learn more about the do’s
and don’ts of raising capital using SEC Regulation CF.
this webinar is a general educational event and does not constitute legal or
other advice tailored to any specific person or offering. Consult an experienced
securities attorney to advise how the principles discussed in the webinar apply
to your business and offering.