Corporate Finance & Securities

Raising Capital in Washington State: Part 4

In a recent post I provided an overview of raising capital under Washington States WAC 460-44A-505 (Rule 505). Today, I’m going to explain another exemption provided for by Federal and State law under which a company can raise capital, Rule 506. The basics of Rule 506, codified in WAC 460-44A-506, are as follows:

1) There is no maximum offering amount;

2) You can sell to an unlimited number of accredited investors;

3) You cannot sell to more than 35 non-accredited investors (you don’t want to sell to any non-accredited investors, however).

Disclosure Requirements

As discussed in our last post, the Securities Act of 1933 and 1934 were primarily put into place to protect investors in the wake of the stock market crash of 1929. In light of this, the most important factor in any securities offering is...

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Corporate Finance & Securities

Raising Capital in Washington State: Part 3

Recently, I provided an overview of raising capital under Washington state’s WAC 460-44A-504 (Rule 504). Today, I’m going to explain another exemption provided for by federal and state securities law under which a company can raise capital.

The Washington Uniform Limited Offering Exemption (ULOE), codified in WAC 460-44A-505 (Rule 505), allows for an offering amount up to a maximum of $5,000,000 regardless of the location of investors. Additionally, this type of offering requires that:

1)      The offering cannot be sold to more than 35 non-accredited investors, regardless of residency;

2)      You can sell to an unlimited number of accredited investors;

Disclosure Requirements

As discussed in our last post, the Securities Act of 1933 and 1934 were primarily put into place to protect investors in the wake of the stock market crash of 1929. In light of...

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Business Startup

Federal Shutdown Leaves Small Businesses Without SBA Loans

Unfortunately, we’re beginning to experience the effect of the federal government shutdown in a wide range of industries. As the shutdown drags on, small businesses are without the ability to acquire Small Business Administration (SBA) loans that were available to these businesses just weeks ago. As reported in the Puget Sound Business Journal, many Seattle-area business deals are currently on hold as their loan paperwork sits on empty desks at the SBA.

These SBA-backed loans are a significant source of financing for small businesses looking for money to grow their companies. Not only does this shutdown affect the small business borrowers and the jobs their creating, but it is also affects companies that specialize in arranging and advising on these SBA...

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Corporate Finance & Securities

Raising Capital in Washington State: Part 2

Last week we provided an overview of raising capital in Washington State. Today, we are going to dive into one exemption provided for by Federal and State law under which a company can raise money.

The Small Offering Exemption (SOE) provided for in WAC 460-44A-504, allows you to raise up to $1,000,000 regardless of the location of investors. Additionally, this type of offering requires:

1)      The offering cannot be sold to more than 20 non-accredited investors within Washington;

2)      You can sell to an unlimited number of accredited investors and investors residing outside the State of Washington (subject to the $1,000,000 offering limit);

Disclosure Requirements

As discussed in our last post, the Securities Act of 1933 and 1934 were primarily put into place to protect investors in the wake of the stock market crash of...

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Corporate Finance & Securities

Raising Capital in Washington State: Part 1

You’ve exhausted all sources of funds for your business: family loans, bank lines of credit, and other sources of small business capital. However, you need additional capital to expand, grow and take your business to the next level. It’s time to start thinking about raising capital from investors through a securities offering.

This is the first post of my new series on raising capital and the various options available for your business.

As a brief primer, you should know that all businesses considering a securities offering must comply with federal and state securities laws. The Securities Act of 1933 and 1934 were put in place to protect investors after the market crashed in 1929 and prior to this point in time, securities were chiefly governed by...

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Corporate Finance & Securities

Private Placements: A Look into the Nature of Offerees

Typically, when you sell a security you must register the sale with the Securities and Exchange Commission (SEC). However, Section 4(2) of the 1933 Act exempts “transactions by an issuer not involving any public offering.” In these transactions, better known as private placements, the 4(2) exemptions apply to accredited investors, who are deemed by the SEC to be  sufficiently sophisticated and have sufficient bargaining power so as not to require the protection afforded by federal registration, as well as institutional investors who have obvious sophistication and bargaining power. You can learn more about the private placement exemption here.

In 1953, the SEC fought against Ralston Purina Co. over whether Ralston’s security offering to its employees was exempt under 4(2). Ralston argued that an...

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Business Startup

Is Revenue-Based Investing Changing the Investment Landscape?

Regardless of your position, entrepreneur or investor (or both), you’ve likely noticed that the investment landscape is changing. There’s a move away from traditional venture capital and institutional funding toward  micro-VC and super angel funds—smaller-scale versions of VC funds, typically in the $10-50 million range, that make a wider range of smaller investments.  Furthermore, due to the roller coaster nature of financial markets, exits are being drawn out longer  than the traditional three to five year range. This means angels are not seeing returns as quickly as they did in the 1990s and early 2000s. Not to mention, there’s another potential change on the horizon with the emergence of companies like kickstarter.com and recent legislation, including the JOBS Act which includes the CROWDFUND Act.

As a result,...

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Business Startup

Want to Learn More About the History of Crowdfunding?

I recently stumbled across a Forbes article that provides a very informative look into the history of crowdfunding. The article uses a handy infographic created by Fundable and Earn MBA Degree. Much of the discussion as of late in the SEC has surrounded the JOBS Act that was passed in April 2012. One part of the JOBS Act is crowdfunding, an innovative way for small businesses to use online, fundraising platforms to pitch their businesses to investors.

The article highlights the shift in traditional marketing and “pitching” of businesses, with a focus on building a broad base of supporters before, during, and after the launch of your business. If you want to learn more about the history of crowdfunding, check out the full Forbes...

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Business Startup

What kind of business formation is right for You?

Selecting the best entity for a given venture involves a number of considerations including (1) taxation, (2) owner liability, (3) governance, (4) capital structure, and (5) potential exit strategies, to name a few.

Below is a primer on some of the various entities that are available for Washington businesses. We have highlighted some of the main features of each of the primary entity options.

The Sole Proprietor A sole proprietorship is a business that is owned and controlled by a single individual or a married couple. A sole proprietorship is simple to form and operate, but the business owner(s) is personally liable for all of the business’ debts and any claims brought against the business. Sole proprietorships are flow-through entities—i.e. the owner must...

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Business Startup

Will Startups Ditch Traditional Venture Capital Funding in Favor of Alternative Financing Options? One Survey Says No

Much of the startup financing chatter over the last few months has revolved around the passage of the JOBS Act, and its impact on startup financing in the US. With the passage of the JOBS Act came crowdfunding, an innovative way to raise capital for businesses. Many believe that crowdfunding will become the most popular financing strategy—a movement away from the traditional venture capital firms. However, a recent survey may change this belief.

A recent update to a 2010 survey conducted by law firm Dorsey & Whitney polled more than 300 startup executives about how they plan to fund their business. Here are some of the reasons why startup CEOs may continue to seek traditional venture capital financing.

Survey Highlights

A Rise of...

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