Now is an excellent time to raise capital using a Reg D private offering.
The SEC has created Regulation D Rule 506c which lifts the ban on general solicitation and enables companies to reach more investors. This creates an opportunity to reach an additional group of investors, yet they still need to be accredited. Private placement leads are accredited investors, the exact group of people that can participate in your private offering.
It can be challenging to locate private placement leads unless you purchase a leads list.
You can buy one from www.salesleads.tv or www.accreditedinvestorleadscom. These lists will include people that have made either $200,000 individually or $300,000 jointly with their spouse over the past two years and are likely to do so again in the current year. Those that don’t meet the income requirements may be included if their net worth, excluding their primary residence, is over $1 million. Companies armed with a private placement lead list can confidently reach out to investors without worrying about violating general solicitation rules.
Regulation D Rule 506c lifted the ban on general solicitation, but it may not be the best offering type for every company.
It enables advertising of an offering to the general public, so long as only accredited investors actually participate in the offering. Companies that have local, non-accredited investors that want to participate cannot use this offering type. For example, if your business banker, lawyer, or CPA want to participate but do not meet the income requirements, they can under Rule 506b. This enables companies to raise capital from people in their sphere of influence then target accredited investors for the remaining capital raise.
Taking Private Placement Leads into Consideration
When using Regulation D Rule 504 or Rule 505, it is also important to obtain private placement leads to call on. These rules do not allow for advertising or general solicitation so companies that call on non-accredited investors can be in violation and lose their exemption if they start calling or marketing to them. A scrubbed list is extremely important for avoiding these types of incidents.
Companies can also locate accredited investors by establishing a referral base with local professionals. People like lawyers, CPA’s, bankers, and investment reps are excellent sources of leads. They work with people that have a higher net worth on a daily basis and may be aware of who is looking to invest. The trick is that these relationships take time to build as you need to establish a level of trust. For example, a lawyer is not going to refer one of their clients to someone they just met. The relationship needs to be established first. If you plan on issuing a private offering in the future, start building the relationships now. If you are ready to launch, this is a long term strategy that likely won’t produce results within a short time frame.
You can also attend investment group meetings and ask to present your deal. These groups have local accredited investors in them, many of which actively invest. Make sure to follow up with everyone you meet to take the deal all the way through closing.