If you are not an Executive Member of our Corporate Engineering Conservatory™ to qualify for investment, we encourage you to do so by clicking the button at the end of this page. Otherwise, please read the below as it pertains to fulfilling your company’s capitalization needs.

 

Based on the information submitted, we have a few suggestions to assist you in preparing to present your deal to us and our co-investors.

 

Please be advised that you must produce a bonafide securities-offering document with a marketable deal structure to present to us and our co-investors to be considered for funding. We, or our co-investors, will not set the terms of the deal; therefore, you must. To legally do so, you must prepare the required securities-offering document not to violate federal and/or state(s) securities laws.

 

The good news is that we’ve made this process as painless as possible, as you’ll soon discover.

 

There are exemptions from securities registration available that will enable you to raise unlimited capital with minimal costs incurred.

 

To accelerate this process, we educate and provide production tools to founders and entrepreneurs within our Conservatory program so that their companies can be properly engineered to mitigate risk and produce hybrid securities to become the “quality deal flow” that we, and our Co-Investors, seek.

 

We suggest you be mindful of pertinent information, as follows:

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1. Regarding your response to the question: "Do any Officers currently serve as Officers of other legal entities (LPs, GPs, LLCs, LLPs, Ltd.s, or Corps)?"

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There are various sources of authority when it comes to definitions of fiduciary duty of officers and directors of corporations or managing members of LLCs, LPs, LLPs & GPs. Suffice it to say, that if one exercises stringent corporate governance and protocols with the review and approval of legal counsel, one can avoid breaches of fiduciary duty. Why is the maintenance of fiduciary duty a concern? A breach of a corporate fiduciary duty to shareholders by officers and directors (or managing members) can result in the piercing of the limited liability protection afforded by the corporation or the LLC, as an entity of personal protection, thereby making the assets of each officer and/or director (or managing member) subject to attachment and seizure, jointly and severally, in the event of a judgment, bankruptcy or court-ordered liquidation to satisfy damages. That’s right… your personal assets can be seized through a court order to satisfy a judgment against, or bankruptcy of, your company and hence, destroy your limited liability protection. 

 

2. Regarding your response to the question: "Does your Company have signed Executive Compensation Agreements with the Mgmt. Team?"

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In a securities-offering document, you must include the relevant biographies and designated responsibilities for each management-team member that has a signed and dated executive compensation agreement. This can be a bit of a catch-22. If the arrangement of your management team is contingent upon financing, it is wise to ensure commitment with signed “Contingent-Commitment Letters” from each potential management team member before you include their backgrounds, biographies, and responsibility statements in a securities-offering document. Otherwise, it could be construed as securities fraud (a criminal offense) with the evidence embedded within your securities-offering document—a very bad thing, indeed. 

 

3. Regarding your response to the question: "Do your Executive Compensation Agreements include an Employee Stock Option Plan (ESOP)?"

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One effective way to attract human capital is to build an executive compensation plan that includes both cash and equity through an ESOP. It’s important to properly illustrate and disclose the executive compensation plan into the pro forma financial projections and tie that disclosure to executive compensation agreement(s), before attempting to raise capital with, or without, an offering of securities. 

 

4. Regarding your response to the question: “Are there any Mgmt. Team Members from the Securities Industry?”

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Consider hiring someone from the securities industry as your new CFO or VP of Finance, who is ready, willing, and able (who has a golden Rolodex) to sell your company’s securities as a bona-fide Officer on your senior-management team.

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A professional from the securities industry can serve as your company’s point person(s) to raise capital internally for your Company. Recognize the fact that, relative to the past, you can easily hire a professional from the securities industry (Series 7 licensed stockbrokers, financial advisors or consultants or Series 65 Registered Investment Advisors), who not only has investor contacts, but skill sets to assist you in raising capital for your Company. The person must be a bona-fide officer, such as; CFO or VP of Finance, of the company to be able to solicit and sell your company’s securities in compliance with federal and state(s) securities laws, rules and regulations. 

 

5. Regarding your response to the question: "Have you sold equity in your company to outsiders up to this point?" and the subsequent percentages sold for the capital received versus the estimated value of your company at the end of year 5. 

 

You may have sold too much of your company, too early, for too little. According to your future valuation assumptions, you've relinquished or given up a considerable amount of value regarding the future shareholder's equity, unnecessarily.

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However, we may have a solution. Consider selling and issuing a significantly larger amount of convertible, participating-preferred equity and swap a portion of it (dollar-for-dollar) to retrieve that common class A voting equity, you may have previously sold.  This would give your current common shareholders less common class A equity on conversion, but far more safety in the interim.

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One can easily engineer the stated and participating dividends, as well as, conversion rights to match or exceed the previously expected “Rate Of Return” on the common equity investment. In addition, by doing a dollar-for-dollar (preferred for common equity) swap one can avoid any unnecessary capital gains tax issues for those previous common shareholders, as well.

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Most companies can retrieve over 90% of their previously sold and issued common class A voting equity, net of preferred equity conversion rights.

 

6. Regarding your response to the question: "What is your planned exit strategy?"

 

This is typically the most important issue when approaching any investor. However, if your company isn't properly engineered from the beginning, your planned exit strategy may be unavailable or impractical at worst or the experience will be an arduous, expensive, and time-consuming process, at best.

 

In addition, your founder's ownership percentage may be extremely diluted upon an IPO, possibly making this strategy not worth it.

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Consider issuing only hybrid convertible securities to capitalize your company prior to an IPO or outright private corporate-sale, thereby limiting most of the dilution of equity ownership and voting control.

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Whether planning on an IPO or outright private corporate-sale as an exit strategy, consider engineering your company for an IPO, thereby potentially creating a bidding war for your company amongst potential private corporate-buyers in the private vs. public market. The plan of an IPO becomes the threat to legitimate corp. buyers, because IPO valuations typically run 4 to 5 times that of private sale valuations.

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Consider issuing only hybrid convertible securities, with a pre-defined Maturity Date (Notes or Bonds) or Call Date (Convertible Preferred Equity) to capitalize your company, in order to give investors an assurance or option of an early exit.

 

7. Regarding your response to the question: "What is the number of followers on Social Media for the Co. and Mgmt. Team Members combined?"

 

When seeking an engagement with a Regulated Crowdfunding Portal, most Regulated Crowdfunding Portals require a company to have a social media strength above 10,000 followers to engage the company in selling its securities through the Regulated Crowdfunding Portal. The reason being, is most of them rely on your personal contacts as potential investors to sell your company’s securities.

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However, for capital amounts more than $535,000, the financial statements of the issuer must be audited by a public accountant that is independent of the issuer. Creating audited financial statements is cost-prohibitive for most start-up and early-stage companies.  For further perspective, the median dollar amounts raised under Regulated Crowdfunding is only $100,000[1] per company.

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There are other exemptions from securities registration that enable you to raise capital (privately or publicly) that do not require audited financial statements, such as;

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1. Accredited Investor Exemption-4(5)-(private-offering up to up to $5,000,000);

2. Regulation D, Rule 504,-(private-offering up to up to $10,000,000);

3. Regulation D, Rule 506(b)-(private-offering, for an unlimited amount); and

4. Regulation D, Rule 506(b)-(public-offering to accredited investors only, for an unlimited amount).

5. Regulation A - Tier I (public-offering, up to $20,000,000).

 

Although, based on your Net Working Capital with the estimated Burn Rate, it may seem that you have plenty of time to get the capital you seek. However, securities markets can shift quickly so we believe "time is of the essence" for your company to become properly and sufficiently capitalized. 

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In conclusion, through our Corporate Engineering Conservatory™ program, you can make a qualified decision if a securities offering is right for your company’s capitalization needs, and both learn and use all the tools necessary to produce a securities offering to access the unlimited capital your company needs. 

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1. If not, no worries, at least you’ll benefit from the information provided.

2. If so, the Financial Architect System Production™ component of the Conservatory program will enable you to construct a Marketable Deal Structure and produce the required securities offering document to legally sell securities to us, and our Co-Investors.

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Most entrepreneurs ask us if they can offer securities to their management team’s personal and professional contacts, as well as to us, and our Co-Investors? The answer is yes, as long as the securities offering document has been properly produced.

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Please take the time to review becoming a member in our Corporate Engineering Conservatory™. 

 

We wouldn’t want you to miss out on the enormous amounts of capital available today that is looking for a good home!

 

1 https://www.sec.gov/files/2020-oasb-annual-report.pdf