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Serial Entrepreneur: Secrets Revealed EP92

[00:00:00] Hey, welcome to Startup Club. You are listening to Serial Entrepreneur Secrets Revealed. We do this every Friday at two o’clock Eastern. And, uh, if you’re listening to it in podcast, you, you might not know this, but you can actually join us on Clubhouse, um, in the Startup Club every Friday at two o’clock and come on stage because it actually is a live show.

And today we will be talking about raising money for small businesses. Uh, you might be in the audience right now, uh, and you are looking to raise money, or you have raised money and you have a story to share with us. We’d love to have you on stage. Uh, today we’re gonna be bringing in a legal expert to help.

Talk us through that whole process. It can be daunting, I can [00:01:00] tell you that. But before we get started, if I could ask everybody on stage and in the audience, we, at the very bottom there, we have the button. Second from the left is, is we’d like you to share this on Clubhouse. And what that will do is it’ll go out to the people on Clubhouse who are interested in the topic of early stage funding, you know, prep and pitfalls, both the legal and the founders.

So we’re gonna have a discussion here with a newbie. I can see there he is. There’s John, John Owens. Yep. He’s got the, the, there’s a symbol that goes on. John, I’m just following you now. I’m your third follower. You’re new to Clubhouse. Don’t worry. We’ve had about, you’re, you’re, you’re not alone. We’ve had a number of authors and even billionaires who’ve come on this show.

And they are new to Clubhouse. You got what’s called your party hat, and uh, we’ll try to be, we’ll try to be nice. But, uh, I wanted to say that I had a great opportunity [00:02:00] to, uh, run a cohort at NSU Lavan Center and with, with, um, with John Owens. And he took sort of the legal side of raising money and I took the practical sort of experience side of raising money.

And we had a great discussion. So again, if you’re in the audience and you were looking to raise money or you have a question about raising money or you’ve raised money and you’ve have a story to share, we want to hear from you. So please raise your hand. John, welcome to the show. Welcome to Serial Entrepreneur Secrets Revealed.

Thank you and thanks for having me. I look forward to our discussion today. . Absolutely. And I, and I liked our, our dynamic in the cohort where you would say something and I would say something, you would say, well, wait a minute, , that’s actually, you need to get some paperwork around that. And it’s not as easy as it sounds.

Yeah. So, but just to, to kick it off, just to, to start, just, just give [00:03:00] us a little bit about your background and, um, and, and raising money for a startup. So we’re talking about our audience here. We’re talking about anyone you know from, uh, a one person show to, uh, a hundred person company. We’re, I think we’re all pretty much looking to raise money this year, so if you could just video your background to kick it off.

Definitely. And, and thanks Colin. And it’s a, uh, it’s a pleasure to speak, speak with everyone here today. Um, a little bit of background about me. I, I am an attorney. Uh, don’t hold it against me. It’s what I do for a living. Uh, been practicing for. Since, since 2006. And initially I started out as primarily a capital markets and m and a lawyer, but primarily capital markets.

So working with public companies, working, um, learning federal securities [00:04:00] laws and state blue sky laws. And over time I started doing more and more work with, uh, with, with entrepreneurs and with emerging companies. Um, from a, from a legal perspective, my background as uh, securities lawyer and capital markets lawyer was a, you know, sort of easy transition because it’s really sort of the core fundamentals of, of, you know, of securities offerings is what happens in Pcbc.

And, uh, but I just really like the energy around. Working with entrepreneurs, uh, working with emerging companies, and also working with the people who like investing in them, you know, diligencing them and, and finding new investment opportunities. Uh, and so, you know, many, many years later, I find myself in a position where I spend a considerable amount of my working time working [00:05:00] on what we would describe as venture capital transactions.

Um, and you know, where I’m, when I’m wearing that hat, uh, you know, certain times I’m representing entrepreneurs and the emerging companies, and other times I’m representing venture catalysts and investment funds and angel investors and family offices when they invest in these transactions. So, , um, I sort of see both sides of, uh, of these deals and, and sort of perspectives from founder’s perspective as well as investor’s perspective.

And I like to think that my clients appreciate, uh, you know, that, that experience and and perspective. But that’s a, uh, that’s me in a nutshell. Well, it’s interesting because, uh, I’ve done the both, I’ve done both as well. Mm-hmm. , I’ve been acquired a number of times in my life. My companies and I have been on the other side acquiring companies, and so it’s a different perspective, [00:06:00] but learning if, if, if you’re, like, if you’re a startup and you’re looking to raise money or you’re looking to, um, be acquired, it’s, it’s good to actually have the perspective or the entity or the individuals or the groups that are investing in your company if you can understand their mental mentality.

you can probably increase your chances of success at that raise. Is it, does that make sense? Very much. Very much. And, and you know, one of the things that we often tell founders is, you know, you want to get right the things that you can get right. And oftentimes that starts with just traditional due diligence items.

I mean, you would, some things you would think are not, um, really debatable or open for discussion, but they actually can end up being some of the, you know, biggest hurdles or gaining issues to raising money or [00:07:00] selling your business such as who owns your company. And, you know, that seems like it would. A very sort of simple and straightforward answer to a question, but that oftentimes is not the case, particularly if it’s not documented correctly.

And so, you know, from a, from a lawyer’s perspective, we’re always coaching clients to, um, you know, ask questions. There’s no such thing as a, a bad question or a dumb question. Um, but to ask questions to make certain that everything is, uh, you know, recorded properly and documented properly. Because it really does help once investors get under the hood of your company.

Because, because there is a playbook, right? Like from a diligence perspective, a legal diligence perspective, there’s a playbook. And so often for founders, you know, you know your business, right? Like if you’re, you’re selling widgets or you’re creating widgets, um, [00:08:00] You know that piece, right? That’s the piece you’ve been doing your, your whole life or your whole professional life.

That’s the piece you enjoy doing. You know, there’s a lot of energy around whatever it is. You’re, whatever product or service you’re creating and selling and sort of the last thing that founders want to deal with, or, you know, sort of the mundane paperwork that the lawyers or that the accountants are trying to force them to pay attention to.

And so, um, you know that, that’s always a place where we start. So, diving into this a little bit, but first I just want to, um, refresh the room for a second. We’re speaking with John Owens. He is, um, an attorney who specialize. In transactions as well as securities law. John, the law firm, Greenberg Turig, L l P, um, here in Miami, you’re not far from mush.

John, [00:09:00] if you find you want to reach out to John, um, you could just, um, contact him via LinkedIn or go to his corporate site. Again, John Owens at Greenberg Toric, like, I’m interested from hearing from you because this is very, can be very down, um, daunting. Like as a startup, we don’t often think, oh my gosh, we’re gonna go to somebody, or of your caliber, maybe of your experience.

We just might go to, you know, like our, you know, divorce attorney or whoever it is, our friend who was an attorney, cuz oh my gosh, we’re being very careful about money, but we know we have a viable. , like, like what is your words of witness stem? Like, what is your advice? Like really what should you be doing?

And I’d like to hear it from a business owner’s point of view, and I’d like to hear it from, if you’re, you know, starting to raise money or thinking about raising money, like what is your advice so that we don’t really screw ourself up, you know, a few years [00:10:00] down the line or, or whatever it is. Right. So, so from my perspective, one thing I always tell clients is, you know, if you have a serious business and you’re growing that business and it’s doing well, and at some point you’re gonna raise money for that business, et cetera, you’re going to have to talk to somebody like me, right?

It might not be me, but it’s going to be somebody like me. You know, somebody who is an attorney who has expertise in. , you know, securities offerings, you know, venture capital, corporate compliance. Um, and so the sooner you have those conversations, the better. It’s the same way with accounting firms, right?

Like the sooner you have these conversations and get some guidance, uh, the better. Because inevitably what happens, you know, founders are, like you mentioned, Michele, they’re focused on the bottom line and economics. And for instance, with service [00:11:00] providers like lawyers or accounting firms, they’re, they’re concerned with how much it costs.

And I can tell you invariably that. , it will always cost you at least twice as much, if not more for somebody like me to come in and redo something that was done incorrectly, um, than it would be to just do it from scratch. And so, uh, and also it takes twice as much time or, or at least twice as much time to redo something that was.

incorrectly. And so, you know, there are law firms out there. Ours is one, um, that although we are a very large law firm, we are, you know, used to, and, you know, enjoy working with startup companies. You know, there are plenty of companies that I’ve worked with, you know, from, from inception or, you know, from the time it was just an idea in the founder’s head and they didn’t have any funding yet.

Because at the very least I [00:12:00] can, I can point them in the right direction about things that they should be thinking about, certain documents that they should have, sort of the, the right way to approach it. And, you know, the reality is, you know, like for instance, forming a company, you know, just a basic company formation.

If you’re the only owner of a company, um, you know, these are things. , anyone who’s attending this room can, can actually budget out and afford, right? One of the things, one of the examples I give clients, I say, listen, if you come to my office and we’re sitting down talking and you were to leave my office today, and while you’re, if you’re pulling out the garage, and let’s say you get distracted and you inadvertently hit someone in your car who’s, you know, scooting by on one of these, uh, scooters that are so popular in downtown Miami, um, you know, you get a, you get a reckless driving charge, you get a dui, or you get some type of, you know, [00:13:00] driving infraction, you’ll come up with $5,000 to take care of that, right?

You’ll, you go to ticket clinic, you’ll go somewhere, you can, you know, it, it’s just that, it’s that important for you to not have that type of infraction on your driving record. Um, I could come up with a million other examples, right? Where. , if something is really that important to you, you have an anniversary or something, you, you can come up with a thousand dollars for, um, for something that’s really pressing.

And you know, so when I have conversations with the founder and if they have any hesitation about spending, you know, 800 to $1,500 to make certain that a company, um, just fundamentally starts to get set up correctly, I I, I tell ’em, frankly, listen, you’re, you’re just not that serious about your business because you can, you can come up with that.

Yeah. And so let’s go to the next step. Uh, I’ve got an idea, maybe it’s around this new AI stuff. [00:14:00] And I met a bar and I’m talking to my friends. I’m saying, Hey guys, why don’t y’all kick in 50 grand? I call my mom up, said, mom, can you kick in 50 grand? I go on my LinkedIn, Hey, I’m raising money for my startup.

You know, if you want to come in, let me know. I’m raising half million dollars. Do that. Or am I gonna get in trouble? And I know the answer Yeah. But I’m sort of setting you up for that, right? Yeah, absolutely. Absolutely. You know, one of the things that comes as a surprise to a lot of first time, uh, founders,

that anytime that you are selling, uh, equity or ownership interest in any type of business, in exchange for some type of, um, cash or, or some type of services, it is a securities transaction. You know, I e it is something that state level [00:15:00] and federal level securities regulations governed. Um, you see someone who, who’s run afoul of, you know, Quote unquote, the s e c, the US Securities and Exchange Commission.

Um, and it’s, it’s governance and regulatory, um, standards. It’s likely something fundamentally that, uh, falls in that basket. So there, there are a whole suite of, you know, regulations that govern how you have to go about raising money from other people. Um, and so in the example that Colin just gave, you know, the second that you’re there with your, your friends at the bar, um, and you’re talking about, Hey, I have an idea.

Give me some money and I’ll, I’ll cut you in on this idea. I’ll give you some ownership in it. You know, fundamentally you’re talking about securities [00:16:00] transaction and, and you have to make certain. Um, you’re, you’re complying with applicable regulations and, you know, as you can imagine, uh, people run afoul of these regulations.

Often it’s in, and again, for a first time entrepreneur, it can be very easy to run afoul of these regs. And you don’t want to end up in a situation where someone is either suing you because you ran a file this, or they’re reporting you to the s e c, um, and, and makes a problem for you. Because if someone, you know, if you end up with any type of s e c infraction, it can, you know, not only result in some type of fine or in, in a really heinous cases jail time, but it can also restrict your ability to raise money from people in the future.

And so you want to be cognizant of these things and, and, you know, to Michele’s, uh, you know, point, these are things that, you know, a, a securities lawyer. , um, [00:17:00] it’s familiar with, it’s not something that typically, you know, your, your, you know, your traffic ticket lawyer, someone who’s not a practitioner in the space would, would likely be thinking about.

So it is, it is important to talk to the right people. Well, I’m trying to, I’m trying to figure out what’s the most efficient way to get started here. You know, as startups, we, we just don’t have a lot of budget and I think Michele made that clear. Mm-hmm. . So, um, you know, early on, are you able to do some type of structure?

I know safe, we talk about safe investments where it’s a loan, um, and discount to, uh, purchase equities on a further round. Mm-hmm. , is that something that you can do with, and I, and I, and I remember there’s a, this is like a gray line here, but, but is that something you can do without getting filing for, um, A Reg D or Reg A Plus, or Reg cf, and we’ll talk about those late in, in a few minutes, [00:18:00] but I’m just curious, is, is that a in more inexpensive way of doing it?

So in term, from a documentation perspective, people like to rely on safe. So simple agreement for future equity, um, to, to raise money. Um, but it’s still the same regulatory paradigm. So, you know, at the point where you’re issuing a safe and in your company it, it’s still securities transaction. And so the question is how are you going about complying with the applicable regs?

Now, in large part, when you’re raising money, um, for instance, the whatever type of transaction expenses you have, uh, are typically handled based on who the investors are. So, so let’s say that you have a really, you know, hot. and trending tech company that, you know, is getting a lot of attention and, and [00:19:00] people want to invest in it, um, to the extent that you’re getting some very sophisticated investors and sophisticated VCs involved.

So at the point where you’re getting, you know, sort of, you know, sophisticated sort or Silicon Valley or, um, institutional type investors looking at it, what they would expect to bake all of your transaction costs, you know, your lawyers, your accountants, you know, whoever else they would expect to bake those type of costs into the transaction itself.

Um, you know, if you’re dealing with friends and family, you know, not so much the case, but, but you know, to take a step back, yes, it’s, it’s still a security securities transaction. And typically what would happen, um, like at our law firm, People will sit down. Like I, I sit down and have conversations with people all the time where I’ll sort of walk them through the mechanics of an offering and the mechanics of what it is they’re trying to [00:20:00] accomplish.

Um, you know, in a way like a traditional lawyer would call the consultation. So something where they’re not getting charged for, right? You sit down and sort of talk about, listen, this is what you’re trying to do. Um, and this is how you typically would, would go about, um, you know, achieving it. Uh, a lot of times law firms will have, uh, creative ways of working with startups.

So sometimes law firms will defer fees for certain amount of time. Um, you know, oftentimes there’ll be some type of trigger, like, you know, law firm fees will be deferred for the earlier of six months, or the company raises $200,000 or, you know, some sometimes like that, right? So it’s, it’s. You know, I, I think the message that I would relay or convey is have the conversation with somebody first.

Right. And, you know, get, get [00:21:00] sort of a lay of land of, um, what your options are in terms of getting good advice. Uh, because again, it’s a lot, you, you can end up in some really bad situations if you don’t get, um, you know, good advice on it. And, and again, the, the encouraging thing is that venture capital is not new.

And the people who are, you know, the professional service providers like me who are practicing in the space are used to doing it. So it’s a common conversation that we have with, you know, a founder who’s really concerned about their budget and really concerned about their timelines and, you know, their, their legal spend.

Yeah, I think the, the method that I’ve enjoyed the most over the last 25 years has been raising money from sophisticated investors. Um, under Regulation D we do, we did a private placement memorandum, uh, years ago. [00:22:00] Uh, and we actually raised 12 million. Um, we did the private placement memorandum.

It was, it was interesting because it was a document that really articulated our business plan. Mm-hmm. , but also had a list of risk factors associated with it. And then we ended up filing with multiple states, our reg, reg, you know, reg D with multiple states. Cause we had multiple investors from multiple states.

And, uh, it, it worked pretty well. We were able to raise the money just using my LinkedIn, um, contacts, which was, I thought was interesting. And, uh, you know, can you talk a little bit about Reg D, reg CF, reggae Plus and just sort of breakdown. Those three areas, unless I’m missing one. Am I missing one there?

I dunno. Yeah, so I think, so from, from a lawyer’s perspective, the way that we think about the, the regulatory paradigm of phrasing money is, is, is actually pretty simple. So anytime there’s a transaction where [00:23:00] you’re raising money when to your company, one, one of two things is happening. Either the transaction, uh, and the securities being issued are registered or they are exempt from registration for some reason.

So when you see a company doing an I P O right, public, a private company is now going public, they’re doing an ipo, um, that is a registered transaction. The securities are being registered so that you can buy and sell them. publicly, like as a, as a, as an investor. Most of the transactions that are taking place for a startup company are going to be transactions that are not registered, but they are exempt from registration.

And so in each case, the question is how is the transaction exempt from registration? So whenever you hear someone talking about, for instance, [00:24:00] reg D, reg D is uh, a set of a set of rules under section, uh, you know, four a two of the Securities Act. So the actual exemption is section 4 82 that essentially says, you know, this issuer is issuing securities in a private way that does not require registration.

And so, you know, sort of the natural question that follow that as well. , how do I know that I’m, you know, adequately satisfying this, this, you know, this paradigm that I’m actually selling privately in a way that’s not going to require me to register? And the answer to that is, okay, well you follow the rules that are set forth in, you know, rule 5 0 6 and, and Reg D, right?

So when you’re conducting an offering that’s in compliance with Reg D, what you’re doing is you are [00:25:00] issuing securities in a fashion that is exempt from registration, and you’re relying on the rules that are set forth, the Reg D, which is basically a, a checklist. Um, so that you’re informing the s e c Yes, I’m, you know, this company is selling securities, but it’s selling it, selling securities in a way that’s exempt from registration.

And we know that it’s exempt from registration because we. , um, you know, we are, we’re complying with the laundry list of rules that are set forth and, and under, under Reg D. Um, and then, you know, there’s subsets of ways to comply there. You know, there are purely, you know, private transactions. There are ways, you know, where you are not doing any type of, um, general solicitation to people you don’t know.

Uh, there are ways to do offerings under 5 0 6, reg D where you are, um, soliciting others. Um, and [00:26:00] then, you know, similarly when you get into crowdfunding or even, you know, with, with Reg A plus, those are other, um, you know, exemptions. Those are other, you know, rules that provide certain exemptions from registration that allow you to sell, sell securities to investors.

Now I, I know Reg D is sort of limits it to sophisticated investors, but Reg A plus ns, reg cf, you can now solicit to anyone. Is that correct? Well, technically you can, you can utilize Reg D to, you know, to sell to, um, unaccredited investors, but they’re, they’re just rules around it. You know, there are limitations on how many unaccredited investors you can issue to, and they’re also rules around, um, you know, what type of information you’re [00:27:00] required to give to these investors.

And, you know, one, one of the biggest, um, you know, one of the biggest considerations anytime that you are selling securities in your company is, uh, you know, are you providing accurate information? to your investors and sufficient information to your investors, you know, is the information that you’re providing, um, not false?

Is it not misleading? Is it, you know, are you omitting information, uh, that would otherwise present your, your information as being false or misleading? And those are the things that, you know, all of these regulations are really trying to cure. Um, you know, in terms of offerings, the most common in terms of exemptions that are relied upon, uh, you know, reg D is, is I think by far the most [00:28:00] common one because those are situations where you’re selling to an identified group of investors that you, that you have some type of relation with, relationship with.


when I see, uh, issuers want to focus on, for instance, Reggae Plus, uh, that, that’s a company where you have some, you know, some people in the founder group who are familiar with the capital markets and familiar with running public companies and, and sort of want to find a way to fast track their, their way there.

Um, you know, sort of the, the other end of the spectrum, uh, is, is sort of the crowd crowdfunding space where, you know, the, the issuer and founder may not have connections with, you know, any sophisticated investors and sort of looking for, you know, a way to, to raise [00:29:00] money when without, you know, with a lack of sort of connections to, um, VCs or, you know, sort of institutional investors.

And it’s interesting, I, I know recently about, I think two years ago, roughly, or maybe it was three, um, they opened up Reg cf, so you could raise up to 5 billion. under the Reg cf. Um, and again, with Reg cf, it, it’s a lot easier than Reg a plus and a lot less expensive, I presume. Is that the, the advantage? Um, um, I think, uh, I, I, I think it, I think it’s sort of your mileage may vary type of situation.

You know, I, I, for people, for issuers who, um, have used Reggae plus, uh, I think they can, they can do it as efficiently. I, I, I wouldn’t say it’s less efficient, um, to do a reg [00:30:00] a plus and, um, a Reg CF and, and maybe Reg CF is a little bit more user friendly. Um, you know, from a, from a lawyer’s perspective, we just see a lot less, you know, typically if someone is getting us involved, , it’s probably going to be, uh, you know, a more traditional exempt offering under, you know, reg D.

Um, and then you’ll see, uh, again, sort of people are a little bit more familiar with the capital market space. Then we start to see sort of Reggae Plus. And then, you know, much, much, much less frequently is when we see the, the cf. And I, and I I should add for those listeners here, cuz you know, we’ve, we’ve, we’re going in pretty deep into the weeds here.

Uh, but there are platforms out there like our crowd and start engine who have a lot of these things semi worked out. [00:31:00] Um, they may not have everything worked out, but they’ve got a lot of these pieces worked out. And I’m certain John, if someone were to come to you, they don’t need to know they need this or that.

They just wanna know they wanna raise $5 million. Right. So That’s Right. Right. So then you would just try to analyze their situation and figure out, okay. In my recommendation would be, do the following based on what you’re telling me, that’s cor That’s correct. And, and oftentimes at the point where I’m having the conversation with a founder, they have likely had conversations with potential investors, right?

Like either you’ve had the conversation with potential investors and the investors are trying to push you into doing a particular type of offering or structure the deal a certain way, or you just, or you haven’t, you know, you’ve attempted to have conversations with investors and haven’t had any, or haven’t had much success with it.

Um, and, you know, and, and, and sort of have questions there. But, but [00:32:00] typically there’s been some type of conversation or, you know, the founder has, um, you know, an inkling of an idea about how he or she wants to, wants to raise money and, you know, it. It can, you know, there are a lot of variables, you know, how much money are they trying to raise?

What stage is the business in? How has the business been funded thus far? You know, have they, you know, has the founder been bootstrapping the business? Or is, you know, is the business mature enough that it’s actually, you know, has operations and you know, the operations have enough revenues to support, you know, its functions.

So that’s exactly what we do. Colin, you know, someone will come in and they’ll describe the business, describe where the business is, describe why they want to raise money, how much they want to raise, what’s it for, and we sit down and think through what, what the most effective way to achieve it [00:33:00] is. But I would say, um, you know, it is a strong percentage.

I don’t know that I can put a number on it, but it, it, it is not uncommon for. A founder to show up in a conversation with me, like with some type of term sheet in hand because an investor or investors are, are sort of interested and have been prodding them in one direction or another. That’s great. And if you’re in the audience and you have a question for John, oh my gosh, we are so lucky to have you on, on the stage here, John, and sharing all this wealth of information.

And, uh, it’s free to ask, you can just raise your hand and come join us on stage and, and ask the question or, or you’re thinking about raising money and you have a particular scenario. Uh, and we can, uh, John could answer or I could answer or Michele around, uh, based on our experiences as to what you might consider or what structure might be beneficial for you.

So again, please feel free to raise [00:34:00] your hand. Otherwise I’m gonna keep going here. Michele. Well, I have a question. You wanna go? Go ahead. Yeah. Yeah. So, you know, I’m gonna take it from the other side, John. So a lot of us, you know, that participate, a lot of the members here on Startup Club, they, they might work for a startup.

Mm-hmm. , right? Mm-hmm. . Mm-hmm. . Um, it may be a situation where they’re like loving the company and they have an opportunity to invest. Hopefully it’s an opportunity where they’re getting options. Mm-hmm. , you know, and, and we’re all hanging out. We’re a tight-knit group, and the boss says, Hey, you know, you’re, you’re working really hard and I know I’m not paying you market rate.

I’m gonna give you 10% of the company. Mm-hmm. , all right. And all this happened over a beer and nothing happens. Like, oh my gosh. Like wh w which, what should happen? Like, what should happen in that scenario where we’re working for this startup, we’re either investing and we’ve been [00:35:00] promised actual shares, or we have options like what should we be looking for to protect our own interests?

Mm-hmm. . So one of, it’s a very, it’s a very good question, and the implications are actually a lot broader than just that. Uh, just that example. So, and again, I I, I don’t know if I said when we started, but you know, I’m a lawyer. Um, you know, you can’t take anything that I’m saying as sort of specific legal advice as sort of general legal advice.

So in, so in any case, if you’re faced with this, you know, make certain, you actually talk to a lawyer who can look at your specific facts. Um, but generally speaking, right, for, in this type of situation, you always want to have whatever the understanding is committed to some type of agreement to have it committed in writing, [00:36:00] um, at the very least, to have it committed in an email or, you know, somewhere where there’s a clear record of.

you know, you know, to form a contract, there has to be a meeting of the minds and a clear meeting of the minds. Um, and so again, I say it’s, it’s broader than just the example that Michele presents because it, it, you know, it can happen in that scenario where you’re talking about, you know, a founder, onboarding employees and sort of saying, Hey, listen, I really, you know, you’re a great coder.

You’re a great, you know, you know, you would be a great resource for this team. I want to bring you on board and I want to give you, you know, 2% of the company, et cetera, et cetera. And, and, and, you know, if I’m the employee in that situation, I’m immediately saying, okay, I, I, I need to see an offer letter. I need to see documents.

You know, I need to see something that, [00:37:00] um, See in a water agreement that clearly lays this out. Right? Um, but that’s the case in any type of, um, contracting situation, right? Like if you were buying the securities, it would be the same thing. If you want to have just, if it was just a conversation about your employment agreement itself, if it, if it had nothing to do with equity, right?

If it was just, you know, I’m going to be a, a software engineer on your team and the arrangement is going to last for six months and you’re going to pay me X amount per month, then, you know, committing it to an actual agreement is in writing is something that you want to do. And as we’ve all experienced, sometimes that can lag with, you know, with an emerging company, with a startup because the founder has 50 million things that.

the founder is trying to, uh, to [00:38:00] do on a daily basis, oftentimes without having back office or HR or, you know, assistance to sort of help document things. But if you’re the employee in that situation, a potential employee in that situation, you just have to be very stubborn and dogmatic about, um, you know, seeing it in writing.

Because again, from, from a lawyer’s perspective, if it, if it’s not in writing, then it’s not real to me. Um, and so, you know, yes you can in, in a lot of states and a lot of places you can potentially have a verbal agreement, you know, et cetera, et cetera. But, you know, good luck going to court and how much time and money you would spend trying to sue somebody to prove something that hasn’t been committed in writing.

Yeah. And I, I also believe that ambiguity is our enemy. As startup founders, we really want to motivate our employees and those around us. . And if we don’t put it in writing, we don’t do it correctly. [00:39:00] They’re just not gonna believe it exists. You can say, I’ll give you 5% of a company, but if you actually put it in writing, you’ll stick it on Carta and people can actually see their shares.

It makes a huge amount of difference. Well, we do want to jump over to, uh, Carol. Carol, thank you for, for being brave and coming on stage. Uh, do you have a question, a thought about this topic or, or just what, what would you like to talk about today? Um, thanks for, um, having me up and yes, it does require bravery for me to cut, get on stage and, and speak, but my questions won’t be answered unless I open my mouth.

So we love it. We love it. . Absolutely. Absolutely. And there, there are no such things as bad questions. Well, what you were saying, um, I listened to, to, I think I came in at the beginning and I have bad ad adhd really bad. And at certain point it was like my brains fried. If I was in class, I’d [00:40:00] be sleeping. I was about to navigate away.

But I’m like, this is really good information that I need. Like I definitely need it. I spend a lot of time in the, um, business credit groups and real estate groups, and I’m trying to formulate my business now. Um, I have two different businesses. I have the job that I do that is a great potential business, and then I have my real interest, which is real estate.

And in the real estate, I recognize that I need to do something like syndication, which is a, the for the what I wanna do. , which is above my pay grade and I don’t know how or where to get started. And so I heard you speaking about the different, um, series to, you know, under what, what works and what does.

That’s where I started be becoming a little bit lost in the sauce. Um, so I guess my question to both you and Colin [00:41:00] would be, at what point do you, at what point and under what circumstance do you consult an attorney, like either of you to say, I need help starting my business to, to create it such that when it gets to that point, if it does, that it’s saleable or investible?

From, from my perspective, you on day one, you know, the sooner the better because you know, if you’re having a conversation with an attorney who. You know, it’s used to working in this space, is used to working with startups and used to working with venture capital or preparing companies to go public or preparing companies to be sold.

They can pretty quickly tell you, you know, like I have conversations with people all the time where I say, listen, okay, I understand where your business is. You may not be, you know, the business may not be at the point where you’re actively engaging council to [00:42:00] help with certain things. You know, you know, I have that conversation with people all the time where I say, listen, you know, these are the things you want to sort of focus on in terms of forming your company and that we could potentially help with that.

And these are some other things to think about. But you know, once the company has grown a little bit or you’ve hitting certain milestones and you know, let’s revisit and have the conversation. again. You know, I think a lot of times when people think about talking to lawyers or even to accountants or bankers or other service providers, they’re thinking about it being, you know, sort of ongoing, um, ongoing advice, ongoing, um, you know, ongoing bills, you know, on sort of ongoing.

And that’s typically not the case. You know, like legal advice can be very bespoke to your situation and to very specific tasks, right? Mm-hmm. , it can, it can be, it [00:43:00] can be as simple as, okay, at this point right now you’re just simply trying to set up your company, you know, to set, you know, is it, you know, you’re set up an llc, set up a corporation, like you’re, you’re just trying to set it.

So I’m actually in Go about it. Yeah. Yeah. I’m actually in certain groups right now where that’s, and, and it’s all over, you know, social media, clubhouse, Instagram, a lot of providers, service providers showing how to build business credit and how to set yourself up. But again, I realize that that’s credit, which is a loan and not an investment.

But at the same time, you are setting your, you’re formulating your business such that it is, um, set up, um, formulated right, in terms of the, the foundation. But how do we know that? Just because these are a list of, of steps to do that they are in compliance with someone like yourself who is going to look at your business probably a year or two [00:44:00] or five years down the road and said, well, you, you thought you did everything right.

But for what we’re trying to do now, it’s not good. Mm-hmm. , well, I, I’ll say this. The good part is, um, the good part is, is that the better the business is and the better the prospects of the business and upside of the business, the more leeway, um, you get with potential investors, potential business partners.

Um, it’s sort of like, it’s sort of like a, you know, I don’t know if you follow sports at all, but like for, for a sports analogy, um, you know, if you’re, if you’re a LeBron James, you, you don’t have to practice the same way that everybody else does, right? Like, you’re, like, you know, somebody’s gonna look at it and they’re, they’re gonna want you to be on their team sort of regardless.

And I mentioned that to say that there are very few items from, for instance, like a corporate [00:45:00] documentation perspective that can really be fatal to a company, you know, typically. There are things that can be fixed if they aren’t done correctly. Mm. And if an investor is genuinely interested in your company and genuinely interested, and mind you, when you’re talking about a startup, you’re, you know, you’re talking about investors who are really sort of like partners, right?

Because they’re, they’re not, they are not going to profit from your business immediately. Like it, it’s in their best interest to help you grow the business. And so, you know, typically an investor who’s really a good partner is going to help you identify the problems that you have in your corporate documents or whatever it may be, and, you know, help you address those issues.

Right? Um, again, you know, you know, certain problems are, are, are bigger than others. Like if, if you have a person who is. [00:46:00] out there sort of fraudulently raising money or something, then, you know, an investor’s not gonna want to cure that or not be like, they’re gonna run the other way. Mm-hmm. . But if it’s, you know, you know, you’re missing some signatures on, um, you know, some commercial agreements or something like that.

Like it, like those are things that they would try to help you work through and that, and that’s why I say it’s better to have a conversation. You know, the sooner you have conversation with lawyers, the less, um, redoing of things and less fixing of things that were done incorrectly you have to do. Which means, you know, less money and less wasted time when you have somebody that’s interested.

Um, cuz I can tell you from experience like , you could work, you know, you could work on building your business. It could be a year, it could be 10 years, like, you know, just amount of time you could put into it. And. the second you have an investor that’s [00:47:00] willing to put several million dollars into your business, you are going to want that money into your business yesterday.

Mm-hmm. . And, and now like, and now like the I that didn’t get cross, uh, dotted and the ts didn’t, didn’t get crossed three years ago, are now, you know, things that you were sort of putting on the back burner. You know, I know I need to do this. I know when I talked to a lawyer, they say, didn’t, they said, I need to do this.

Um, and then money appears and everything is, you know, now a rush to get it done. Right. And so that’s why I say just the sooner, the better. And, you know, when you’re dealing with good and ethical lawyers, like they’re not gonna sit there and try to take, you know, money from you, you know, to, you know, for no reason.

Right? Like, they’re gonna say, listen, this is, this is the best way to go about setting up the company. And, you know, . If you need to come back in six months or a year, then we can do that. Um, you know, when [00:48:00] you talk about, you know, and, and I want to be clear, because one of the things you mentioned was, for instance, like potential lines of credit and things like that.

Like there’s, like, primarily what we’re talking about here are, you know, instances where you are going out to investors to raise, to raise money. Um, yes, there are other ways to finance a business. Um, you know, for purposes of operations, you know, there are government loans and assistance programs or, you know, traditional bank loans, you know, going to, you know, you go to go to a bank and, and ask for a business loan.

You know, those, those are, those are things that businesses have used historically. Um, you know, that’s, that’s a little bit outside of. of what this conversation is. Correct. And then in, in, in those cases, that’s when, you know, it’s really a [00:49:00] conversation from a, you know, from, from a business plan perspective and, um, you know, having some type of business consultant or financial advisor, you know, sort of sitting down when you’re making your business plan, thinking about the best ways to raise money for the business.

And so at the point where someone’s talking to me about these things, they’ve already made the decision that, you know, the, the method that they want to deploy to raise money is we want. , you know, go out to investors to give them some type of equity in the company. And that’s why I said the difference between what I do for work now is employment is my employment, it’s my own business, but it’s my, it’s my job.

Mm-hmm. . Um, and the other thing being real estate, um, I’m here in southwest Michigan, so, um, it’s very kind of, uh, small town, [00:50:00] but it’s a resort area. And so there’s, um, a real estate project that I’ve got my eyes on and have spoken with the city about, but I just seen something similar got completed, and that was like 26 million.

Um, and I’m looking to do something like that. Of course, I don’t wanna be on the hook for 26 million business loan, or it would, it’s not even a thing, but Right, right. I wouldn’t. and I’ve spoken with the city, they’re looking for people to come and say, okay, here’s my proposal. Well, I think I’ve even looked stupid going there to say, here’s my proposal if, if I can’t back that up.

Right? Right. But if, if I knew the nuances about raising capital, you know, like what we’re talking about here, then I would feel more, more secure that I’m, not only do I have a great idea, but I know the resources to get it executed. Right. And, and you know, and in a project like [00:51:00] that, you know, what, what we’ve been, you know, sort of talking about or what I think,

you know, like in the, in the tech space for instance, you’re talking about raising money into a business and that business is the operating business that’s going to, that’s actually going to use that money in real estate. For instance, the project you’re talking about, that may be something that’s more akin to.

Um, you know, you, you might be a fund manager, like you may be raising money from other people for the purposes of investing in something else and developing it. And so, you know, in, in your case, it’s definitely a situation where you would want to, um, you know, really in part it’s, it goes hand in hand. Like you start working on a business plan and sort of thinking about what you want to do in terms of, um, you know, what’s the ultimate goal?

What’s the [00:52:00] actual business that I’m running here? Like, is it, you know, just the acquisition of this property? Is it the development of this property? Is it all of the above? You know, sort of what’s, what am I trying to accomplish? Um, and then, you know, sit down with a lawyer that’s going to help you map that out.

And there, I, I don’t think there are any two ways around it that like your inclination is absolutely right. Like you have to sit down with a lawyer that’s gonna help you. , um, structure it and think about how you could go about raising money to do it. Yeah, and I think you brought up a good point there, Carol, that this whole idea about signing yourself up, you know, if you go out and do an SBA right now, you’re gonna personally sign in your, your home, your assets.

Um, right now, I just looked on the internet, it’s, it’s 9.75 to 10.25% on a government backed SBA loan where you’re personally putting up collateral. Yeah, we’re talking about John, we’re talking about when we do these investments, you don’t personally sign on ’em, you’re not guaranteeing the investment.

And the the second thing though, I would [00:53:00] add, and we never really touched upon liquidation preference, but that’s something to consider as well when you’re doing these types of raises. Um, I do want to get to, uh, Mr. Metaphysical . I can’t get your actual name. Thanks, drowning College. But I do want to get, I do want to get to you next and have some time, but thank you Carol, for those, that line of questioning and, and hopefully.

John was able to give you some, uh, some feedback. We are, we only have about seven or eight minutes left, so Mr. Medic Physical, thank you. Thank, thank you all for having me. Thank you all for doing this room as well. Um, can you all hear me? We hear you loud and clear. Okay. Um, yeah. Yeah. I do gotta say Mr.

Metaphysical, not to be confused with meta for Facebook, whatever, but , uh, yeah, I changed my name. I hear it. So, um, well, my nickname on this platform is meta, so that’s why you see it on the profile. But basically, um, I have a, [00:54:00] I have a gentleman I was hiring for attorneys on LinkedIn, um, last, sometime last year, and one of ’em stepped up and said that, um, he’s not really represented me, but he says that he’s connected to a lot of overseas investors in a wealthy network.

and that I shouldn’t worry about any amount of money that he’s constantly saying he’s working things out, things of that sort. My concern is money laundering. Um, I, I’ve also worked as an insurance agent in the past, and so is there any way to protect against money? Is there any, first of all, are there any laws that could cause my business to just lose the complete business due to like criminal happenings overseas that I, I’m not aware of?

And then is there any way to protect against that? Yeah, I think, you know, primarily you have to know who your investors are and you know, the short answer to your questions. Yes. Like they’re, [00:55:00] they’re rules around the steps you need to take to verify who it is is investing in your business. Um, so that’s, you know, from a securities law perspective, that’s the case.

But also just from a general, you know, , you know, just from a general, you know, like Patriot act and you know, just. You know, you ask money laundering laws, right? Um, so you know, that’s something that you have to protect against, you know, it isn’t clear. Um, you know, oftentimes when people are raising money, uh, you know, you may want to use like a, a license or registered broker who has a specific process for doing it.

I mean, it’s not uncommon for, um, I, I have to be careful what I say here, because you like, you know, I think you have to have a clear understanding. You have to have a clear understanding with, [00:56:00] you know, if this is, first of all, if you have not entered into, you know, an engagement letter with this lawyer with respect to what services the, the person is providing and what services you’re paying for, , um, sort of back to the conversation with Michele earlier about sitting at the bar and people sort of coming up with numbers that that’s the space you’re in, right?

Like there needs to be a clear understanding about who’s doing what and why and how and for how much. Um, but you know, again, not to give, I can’t give you specific legal guidance on that question. You’d have to, you know, engage me too, . It sounds pretty complicated there. Yeah. But, but definitely, but I, but I think, you know, one, one of the things I, I tell clients pretty often is if something doesn’t feel right to you, it [00:57:00] doesn’t feel right for a reason.

Right. And so, you know, I, you know, you want, anytime you’re engaging with anyone, it could be a lawyer, it could be accountant, it could be, you know, whatever, a commercial party to your business, you want to have it in writing. Exactly. , you know, what it is is going on and what you’re paying for. And again, like you are responsible for knowing who your investors are in your business.

So, you know, and, and there are ways to establish protocols and checks and balances for vetting who it is that’s investing into your business. Okay. Yeah. So John, I’ve gotta, uh, jump off in three minutes. Um, it’s interesting cuz my, my, the meeting that I’m having is, um, the very first meeting of the directors for the charity called Help for Ukraine Club.

And we applied for a 5 0 1 about eight months ago. [00:58:00] And, uh, it’s a charity that’s directed at, uh, city in Ukraine called Ola, where we have our programmers and our, our office staff who work out of that city. And, um, just curious, like we’re. We’re gonna try to raise money, obviously, for the charity. And are there any rules around not-for-profits and do we have to file, um, s e c documents or any of that kind of stuff?

For a not-for-profit? Yeah, not non-profits have their own completely, you know, I mean, it’s related because again, it’s social security’s transaction fundamentally. Um, but there are specific rules that govern, um, qualifying as you know, for, for lack of a better term, a nonprofit, uh, that, that definitely need to be complied with.

And, uh, admittedly I am not an expert in that space. You know, believe it or not, there are lawyers who, that’s all they do every day, [00:59:00] all day. is no, we have, we have a lawyer. We have a lawyer who, who’s dedicated to that. But I thought I would just throw that question out there thinking could we be making a mistake?

Cuz I think once we’ve got our 5 0 1 uh, approval and we go on the platforms, I believe we’re okay to solicit. It. Um, but I just thought you might have, uh, an information put on that note, but I it’s, it’s still, yeah, it’s still secur, it’s different secur these transactions. It’s still, you know, still securities transactions, you know, that, you know, you need to make certain that the, the state and federal regs are being complied with when you’re raising money into it.

Well, John, I have to say that, um, this last hour you’ve shared a wealth of information and if you, if you came in late in the show, you definitely wanna listen to the replay or you can check it out your, out on your favorite podcast network. It’s under Serial Entrepreneur Secrets Revealed. Every week we try to, you know, put together a, a speaker or a discussion, a topic and figure out what it is that serial entrepreneurs [01:00:00] do over and over again to succeed.

And, you know, one of the things that successful businesses do is they raise money and they raise money the right way. And having somebody like John. At your back, you can make a big difference. If somebody does wanna reach out to you, John, what would be the best way? Um, either at LinkedIn you can find me or they can just email me directly, um, at owens john gt

Well, I truly am thankful and uh, I’m looking forward to you working with you on more cohorts at the nsu, the Allen La Van Center, and, uh, absolutely what great topic, and I think we all benefited today and you’ve really helped it, the startup community. Thank you very much. Oh, thank you. And thanks for having me.

I hope that everyone got something out of our conversation today. No, thank you. Thank you, John. Thank you. But thank you all very much. Absolutely. And we’ll look forward to having you back again. So everyone, um, [01:01:00] all the members, thank you for attending today and your very thoughtful questions. Um, be sure to go to the website,, sign up for the email list and also our gift to you.

Feel free to peruse our over 200 blog posts, um, recorded sessions, and also find serial entrepreneur on your favorite podcast network. So thanks and everyone, have an amazing weekend. Thank you.


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