MISSION
[Company Name] seeks to make needed money available to early stage [Name of State] businesses to enable our economy to recover through establishment of a seed capital fund:[Name of Fund].
We support entrepreneurs and innovation – the keys to making the world a better place.
Small businesses are known as the primary source of new jobs and innovation.
These businesses need money to start and to grow.
The current economic crisis has interrupted the normal flow of money into small businesses. Small businesses cannot wait. Without an immediate new source of money for these businesses, there will be a series of small business failures and deferred business starts. Not only will there be no new jobs from small businesses, but layoffs will inflate the already record high unemployment rates. Politicians talk about the new ‘green’ economy being the focal point of [Name of State]’s economic recovery; however without money there will be no business starts.
The Company is responding to this serious problem by launching the Fund (hereinafter the “Fund”) to make capital available to small businesses within the State of [Name of State]. Our goal is to raise $[Dollars] from private individuals and to invest it in [Number] to [Number] small businesses within the next 12 months.
Unlike common forms of equity investment, we will contract with small businesses for a share of their revenue in the form of a royalty. Our investment agreement will call for the small business to pay us between [Percentage]% and [Percentage]% on all revenue from sale of their products and/or services. This obligation will continue until the amount of the investment has been paid five times. A number of parameters have been established that control how and when an investment is made in each business as well as how and when this money may be expended to optimize the probability that the investment is repaid in full, thus lowering the risk to the investors.
The current principals of the Company have over [Number of Years] years of experience in small business operations and entrepreneurial funding. The design of the Fund represents their combined knowledge and experience in making rapid assessments of business opportunities.
We are now seeking our own first round of seed financing in the amount of $[Dollars] to cover costs related to securing authorization from the State of [Name of State} to conduct a direct to public offering. Upon receipt, we will raise an additional $[Dollars] to provide funding to five small businesses which will showcase our investment approach. Thereafter we will initiate our primary offering.
Each investor in one of the [Total Number] Round 1 Units will be entitled to participate in [Percentage]% of all revenues received from all of these businesses, falling to [Percentage] upon return of initial investment, with the difference contributed to charities.
[Percentage]% of all profits of the Company as well as all investors will be contributed to charities with the potential for such contributions to exceed $[Dollars].
Seed capital is the first money received into a small business from outside sources. It represents investment money that is at higher risk since it is placed in the early stage of the business life cycle. It is the type of investment commonly used to start a new business before it has proven itself and generated enough revenue to qualify for bank financing.
At the moment, the supply of seed capital is rapidly being exhausted. PitchBook, a private equity-focused research firm, has published a comprehensive set of statistics analyzing private equity investment activity during the second quarter of 2009 that shows that private equity investors are continuing to wait for the investment climate to improve before putting their $400 billion of money to work.
As reported by Scott Kirsner in the July 19th edition of the Boston Globe, “the National Venture Capital Association reported that venture capital firms brought in just $1.7 billion in new capital in the second quarter of 2009 (venture capital firms raise money from wealthy individuals, pension funds, and university endowments, and then dole it out to fledgling companies). That’s a precipitous plunge from $9.2 billion in the same quarter last year.”
In her blog entitled The Positive Psychology of Entrepreneurship, Pamela Rutledge on July 16, 2009 stated: “So far, the government plans to promote economic growth have tried to stimulate a lot of things, but stimulating entrepreneurs doesn't seem to be one of them. It's important to encourage entrepreneurship and not just for economic reasons. Entrepreneurship is the ultimate exercise in developing the attributes that we know from positive psychology to be essential to having a good life: self-competence, optimism, engagement, and resilience.”
Everyone agrees on a broad level that small businesses are vital to the American economy. However, most people would be surprised to know just how important. In fact, small businesses as defined by the Small Business Administration represent 99.7 percent of all the employers in the country and employ half of all private sector employees. More than 45% of the private sector payroll is generated by small business.
The Small Business Administration defines a small business as an independent business with less than 500 employees.
Nationally, over the last decade, small businesses have accounted for 60 to 80% of all new jobs created on an annual basis.
[Name of State] [Total Current Small Businesses in State] small businesses provide economic opportunities to diverse groups of people and bring innovative products and services to the marketplace. In 2008, [Number of New Businesses] new businesses were established.
Small businesses play a particularly critical role in high technology where [Percentage]% of high tech workers, like engineers, scientists and computer programmers, are employed by small businesses.
Small businesses created [Percentage]% of [Name of State]'s net new jobs from [Date] to [Date].
It has been projected on July 6, 2009 by Scott Shane, author of You’re the Boss, that an entrepreneur can create one new job for each $31,169 of funding. If we are successful in achieving our goals, the Fund will create [Number of Jobs] new jobs in [Name of State].
The Company is now working toward the establishment of the Fund out of which it expects to make investments of $[Dollars] to $[Dollars] each in [Number] to [Number] [Name of State] small businesses within the next 12 months.
This Private Placement Memorandum describes a private offering to secure $[Dollars] in funding that will be used to set the stage for a later ‘direct to public’ offering to raise $[Dollars]. With this funding, the Company expects to retain legal services of a securities attorney, to prepare all documents related to the ‘direct to public’ offering and to obtain authorization from the [Name of State] Division of Securities to conduct the offering. In addition, the Company will purchase a software license and customize it to manage communications and accounting related to the offering and small business investments.
Upon receipt of approval from the [Name of State] Division of Securities, the Company will conduct a second private offering to secure $[Dollars] in funding. With this funding, the Company will make five investments of $[Dollars] each into selected small businesses. The purpose of these investments is to create showcase investments that can be used to better explain the investment model of the Fund. The remainder of the money will be used to used to launch the ‘direct to public’ offering.
The Seed Capital Fund or ‘Fund’ will represent a pool of money managed by the Company. The Fund will not be established as a stand alone business entity.
Money received from investors for the Fund will be deposited in a number of banks within [Name of State] under the control of the Company.
The objective of the Company is to raise a total of $[Dollars] million in investments. Of this amount it is projected that the Company may expend $[Dollars] dollars, representing [Percentage}% of all investments, in costs associated with the ‘direct to public’ offering. In addition, it is projected that the Company will expend $[Dollars] million, representing [Percentage]% of all investments, in placing investments with the [Number] to [Number] small businesses. This will leave the Fund with net investments of approximately $[Dollars].
The Fund will be created through the conduct of a ‘direct to public’ securities offering. This type of offering is uncommon and not well known. Unlike a private offering, whose sale is limited to people known to the Company or with whom they have previously done business, a ‘direct to public’ offering may be promoted through any public media or other form of communications. Authorization also allows the Company to sell to an unlimited number of non-accredited investors. Unlike a public offering, the securities are not registered and eligible for trading on any stock exchange.
This type of offering requires approval by the [Name of State] Division of Securities. The authorization process is projected to take 60 to 90 days.
It is planned to accept investments as small as $[Dollars] each.
Individual investors in the Fund will participate in [Percentage]% of revenue shares/royalties received from funded small businesses:
- [Percentage]% to the Round 1 Investors
- {Percentage]% to the Round 2 investors
- [Percentage]% to the Direct to Public investors
Each investor will receive a Revenue Certificate reflecting their right of participation.
Each small business investment candidate must:
§ have an office in[Name of State] of [Name of State], but need not be headquartered within the State,
§ have existing cash flow or the potential to achieve cash flow within 12 months of initial funding
To begin the selection process, each small business investment candidate will submit data requested by the Company. As soon as possible, this submission process will be automated, reducing time spent by the Company in evaluation.
The criteria for selection of small businesses to receive investments from the Fund will be based upon objective, verifiable data. No subjective data will be used. Therefore, predictions or forecasts of sales, revenues, profits or return on investment will be used in the selection process. Each criterion is believed by the Company to be an indicator that the small business will probably repay to the Fund all of the money received from the Fund. The criteria will allow prioritization based upon the speed with which a small business may pay back the investment. By way of example, a small business that is qualified to obtain bank financing without requirement of personal guarantees would receive the highest possible score with the Company’s criteria. The majority of criteria are related to the management team of the small business. For purposes of illustration, a simplified scoring system is attached to this Memorandum.
Each submission will be reviewed by the entire Board of Managers and awarded a score. As presently conceived, this initial score will make up [Percentage]% of all points used in selecting investment candidates.
The Company plans to permit the public to participate in the selection process through a ‘crowdsourcing’ process. This process will include publication of the investment candidate’s application, an opportunity for the public to ask questions of the candidate and to make comments and for the public to vote. As presently conceived, the public score will make up [Percentage]% of all points used in selecting investment candidates.
Finally, those investment candidates with the highest scores will be invited to make a half hour presentation to the Board of Managers. This presentation will give the Company an opportunity to validate information submitted with the funding application, to answer any questions and to evaluate the intangible characteristics of each candidate. As presently conceived, the Board score will make up [Percentage]% of all points used in selecting investment candidates.
Those small businesses receiving the highest scores will be offered an investment agreement.
The goal of the Fund will be to invest all monies raised within 12 months from the date this Offering is completed. No money will be held or reserved for follow on funding. Small businesses receiving investments from the Fund will need to make arrangements on their own to raise additional money from other sources.
The last $[Dollars] of the Fund will be invested through a contest. Participation in the contest will be limited to those small businesses who have already received an investment from the Fund.
Similar to the selection process used in picking other investment candidates, in stage one of the contest, businesses will compete by completing an online questionnaire. Each business will receive a score that reflects the ability of the business to pay back the investment. The public will again be invited to score all businesses. In each case, the small business will have an opportunity to demonstrate improvements made since receipt of funding and improve its score.
In stage two of the contest, the [Number] businesses with the highest scores will participate in a series of events where they are judged by expert and celebrity panels. Those businesses demonstrating the highest credibility, integrity, and teamwork will win the contest. An information package will be developed on each finalist and featured in local, regional and national press. A recording of the contest will be packaged for television, cable and DVD distribution.
Winners will be announced at an event in the form of an awards dinner. At an event, the winners of the will be announced. With $[Dollars], winners will be eligible for one of [Number] investments:
[Number] $[Dollars]
[Number] $[Dollars]
[Number] $[Dollars]
Each selected small business will be offered an investment contract where they will be required to attain a set of milestones in order to receive all allocated funding. For example, if a business is offered an investment of $[Dollars], only $[Dollars] shall be paid upon signing the investment contract. The remainder of $[Dollars] shall be transferred to the small business in one to three installments if the milestones are achieved.
Each milestone will represent an objective threshold involving improvement in management, advance of sales, reduction of costs and mitigation of risks. These milestones shall be set by mutual agreement of the small business and the Company.
Milestones must be completed within 12 months after the business is selected or the money set aside shall be returned to the Fund for investment into other small businesses. Therefore, if a small business fails to perform, the Fund will not experience a complete loss of money allocated to that business.
A use of proceeds statement shall be set forth within the investment contract. In the event the small business spends money outside of the investment contract, the principals of the business shall be personally responsible for its repayment.
As presently conceived, each small business shall also grant to the Company the right for investors to purchase any product or service of the small business through the Company at a discount of [Percentage]% off of the business’ lowest price.
Businesses receiving investment funding will pay back the Fund by paying a percentage of their revenue (off the top line, not off of the bottom line).
As envisioned, the Fund will receive between [Percentage]% and [Percentage]% of the small business’ revenue until such time that the Fund has received an amount equal to [Number] times the invested principal ([Percentage]% ROI).
Throughout the selection process, workshops on raising seed capital will be offered. Participants will be shown how to improve their business in such a way that they have an improved capability of being selected for funding.
After selection, another series of workshops will be offered to each small business on topics related to success: planning, strategy, management, marketing, sales and operations. Each workshop will be taught by local experts. Workshops will be directed towards achievement of success milestones. In some cases, attendance of the workshops will be a milestone.
Veteran entrepreneurs will be matched up with the small businesses to participate in management, sit on their board of directors or act as advisors and consultants. Assistance will be provided in team formation and development. Again, the use of these experts may be specified as a milestone.
The Company will also act as a social enterprise by making charitable contributions on three levels:
- Out of the profits of the Company
- Out of the profits of investors in the Fund
- Through the contributions by small businesses receiving investments from the Fund
The Company will donate [Percentage]% of its profits to charities, foundations, and community programs that promote entrepreneurship and innovation. At the present time, the Company has not selected any charities to which it will make these contributions, however it is considering among these charities [Name of Charity].
In addition [Percentage]% of the profits earned by each investor will be set aside for contributions to charities. The Company plans to make half of these contributions within the State of [Name of State]. The remainder will be directed to charities, foundations, and community programs that promote entrepreneurship and innovation.
Finally, the selection process will include points for the charitable activities of each small business candidate. In the event that a small business is selected to receive funding, its performance milestones will include support of one or more charities through in-kind or cash contributions.
The Fund will be managed by the Company which in turn will be managed by four individuals, each of which shall be on the Company’s Board of Managers.
Day to day operations will be led by [Name].
The Company will be supported by a Board of Advisors.
The Company is a limited liability company organized under the laws of the State of [Name of State].
The Company will be owned by [Number] individuals with ownership held as follows:
[Name] [Percentage]%
[Name] [Percentage]%
[Name] [Percentage]%
[Name] [Percentage]%
Board of Advisors (collectively) [Percentage]%
100.00%
The Company will be operated as a for profit social enterprise. This is a new approach to doing business in which a business incorporates within its mission the conduct of activities for the social good. The Company will achieve this objective through its investment in small businesses and through its charitable contributions to entrepreneurial and innovation programs and selected charities.
[Biography of each Manager]
[Name] will hold the title of Executive Director and will lead day to day operations. His bio is set forth above.
The Company will recruit a Board of Advisors comprised of ten (10) individuals. A list is currently being compiled of individuals who hold a reputation for honesty and integrity and who are knowledgeable with regard to operation of small businesses.
Through this Offering, The Company seeks to raise [Number] ($Dollars) by sale of Revenue Certificates in the Fund that will entitle the investor(s) the right to participate in the revenue distributions from funded businesses.
Offering: $[Dollars] / [Number] Units
Securities Offered: [Percentage]% participation in Fund Revenue*
Offering Price: $[Dollars] / [Number] Unit / [Percentage]% participation in Fund Revenue*
Termination Date: The Offering will terminate on or before [Date], unless earlier terminated or extended by action of the Board of Managers.
* Each owner of a single Unit will receive a Revenue Certificate that will entitle the holder to participate in [Percentage]% of the Revenue of the Fund until such time that distributions equal the amount of investment at which time participation shall be reduced to [Percentage]% with the difference contributed to charity.
If the Company is successful in achieving its objectives, an investment of $[Dollar] may result in a pay back in excess of $[Dollars] over a period of [Number] years.
Securities will be sold only to persons who are acceptable to the Company and who represent that they meet the definition of an Accredited Investor established by the U.S. Securities and Exchange Commission.
This Offering has not been registered under the Securities Act of 1933 (the "Act"). The Offering and the proposed sale of the Securities described herein will be made privately to qualified investors in reliance upon the exemption from registration provided in Section 4(2) of the Act and Regulation D promulgated there under and, where available, upon similar exemptions from state registration requirements. Accordingly, this Offering is made without public solicitation to a limited number of persons on behalf of The Company. The securities or Units acquired through this Offering may not be transferred by a holder except in compliance with all applicable federal and state laws.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
If any of the following risks actually occur, the Company’s business, financial condition, results of operations and/or the scope of its operations and anticipated expansion could be materially and adversely affected. In such case, an investor may lose all or part of his or her investment. Additional risks and uncertainties not currently known to the Managers may also have an adverse effect on the Company’s business and the information set out below does not purport to be an exhaustive summary of the risks affecting the Company and its management of the Fund.
An investment in the Fund is suitable only for financially sophisticated investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses which may arise there from and which may be equal to the whole amount invested.
Government Authorization. This plan is dependent upon receiving from the [Name of State] Division of Securities an authorization to conduct a direct to public securities offering. Without such approval, the Company may be able to complete a private offering limited to accredited investors, however it is expected that such approach to conducting a securities offering may not result in raising the full $[Dollars] and/or it may require more time and money in which to complete the offering. All of these situations would necessarily result in a reduction of distributions to investors and may be of such magnitude as to prevent the Fund from being formed resulting in a complete loss of money invested in this Offering.
Current Economy. The plan of the Company is to obtain investments into the fund from individuals within [Name of State]. The current economic crisis will limit the number of individuals who may invest in the Fund and the amount of their investment. If the economy remains the same or worsens, the Company will experience greater difficulty in raising the desired funds and may not be able to do so. In such event, the potential number of investments in small business and related revenue will be reduced.
No Prior Operations. The Company is newly formed and has no prior operating history. Its operations are subject to the risks inherent in the establishment of a new business enterprise.
Risk of Fund Operation. The Company and the Fund is subject to the usual risks involved in the development and deployment of a new service, including (i) occurrence of unanticipated market, technical and social issues; and (ii) dependence upon key management, marketing and technical personnel.
Risk of Introducing a New Type of Service. To the knowledge of the Company, it is the first to operate a Fund through which it will derive income in the form of revenue sharing. Therefore, the Company and the Fund is subject to the usual risks of introduction of a new service into the marketplace.
Competition. There are few businesses in [Name of State] or within the United States who have investment funds and may seek to invest in the small businesses which are the target of the Company and the Fund. It is possible that such businesses may offer investment money at a lower price than that offered by the Fund. In addition, small businesses may find other sources of fund by working directly with individuals, institutions or other money sources to obtain needed capital. As a consequence, the Fund may not be able to find enough businesses that need investment capital and are willing to pay the price for money charged by the Fund in order to carry out its plan of operation. In such event, the Fund will not be able to attain its objectives and distributions to investors will be reduced.
Dependence upon Key Personnel. The success of the Company's business is and will continue to be largely dependent upon the active participation of its existing management. There are no assurances of their continued involvement with the Company.
Voting Control. The investors in this Offering have a right to participate in revenue of the Fund, but have no equity interest in the Company and no control over the affairs of the Company or the Fund.
Reduction in Cash Assets. It is expected that the Company may expend up to [Percentage]% of the money raised through the direct to public offering on costs of the offering. Therefore, as little as [Percentage]% of the money raised will be available to the Fund to invest in small businesses.
Limited Transferability of Securities. The investor should be fully aware of the long-term nature of his or her investment in the Fund. The investor must bear the economic risk of its investment for an indefinite period of time. The securities or Units may be transferred only if certain requirements are satisfied and only subject to the consent of the Company, which shall hold a right of first refusal to buy the equity interests and may impose investor suitability standards. The securities have not been registered under any federal or state securities laws, and the investor has represented to the Company that it is acquiring the securities for its own investment only and without a view to their resale or distribution. The right of the investor to sell the securities will be subject to restrictions imposed by the federal and state securities laws, as well as restrictions imposed pursuant to the Subscription Agreement. The Company will be under no obligation to assist an investor in this Offering in registering the securities or in obtaining an exemption from registration requirements.
Determination of Offering Price. The price of the securities being offered hereby was determined by the Company based upon a large number of assumptions regarding future events which may or may not come to pass. Accordingly, the price per Unit indicated in this Memorandum must be considered in terms of the likelihood that all of these future events may occur and the accuracy of the assumptions in terms of their impact on future value. The price for securities in this Offering bears no direct relationship to the current book value, assets or earnings of the Fund or any other objective criteria of value.
Assuming that The Company successfully completes this Offering and raises the full $[Dollars] dollars, it is anticipated that the capital will be expended as follows:
[Name] $ [Dollars]
[Name] $ [Dollars]
[Name] $ [Dollars]
[Name] $ [Dollars]
Attorneys Fees $ [Dollars]
Other Costs $ [Dollars]
$ [Dollars]
Certain statements in this Private Placement Memorandum are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature are forward-looking. The words ‘anticipate’, ‘believe’, ‘expect’, ‘estimate’, ‘forecast’ and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statements contained herein concerning the Company’s operation and management of the Fund, economic performance and financial conditions are subject to known and unknown risks, uncertainties and contingencies. Forward-looking statements are included, for example, in the discussions on systems development, milestones and market acceptance.
All forward-looking statements involve risks and uncertainties, many of which are beyond the control of the Company. Such risks and uncertainties may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are based upon management’s estimates of fair values and future costs using currently available information. Therefore, actual results may differ materially from those expressed or implied in those statements.
The Company has developed a distribution projection that will commence after completion of this Offering which is based upon the following key assumptions:
- The Company will complete this Offering by [Date].
- The Company will hire legal counsel who shall represent the Company for a fee less than $[Dollars].
- The Company will receive authorization from the [Name of State] Division of Securities to conduct a direct to public offering on or before [Date].
- The Company shall complete a Round 2 private offering for $[Dollars] by [Date].
- The Company shall make investments of $[Dollars] each into [Number] different [Name of State] small businesses.
- The Company shall commence a direct to public offering and raise $[Dollars] by [Date].
- The Company shall commence funding on average [Number] businesses a month for a period of [Name] months
- The average investment in each small business shall be $[Dollars].
- All businesses shall achieve all milestones set forth within its investment agreement.
- Each small business shall accept the investment in exchange for a commitment to pay the Fund a percentage of its revenue between [Percentage]% and [Percentage]% of all revenue.
- The Company shall conduct a contest that shall be completed by [Date].
- Each small business shall commence earning revenue upon receipt of an investment out of the Fund.
- Each small business will achieve pay back of [Percentage]% of the investment within [Number] years.
- The Fund shall commence distributions monthly upon receipt of revenue share of each small business.
- The Company shall contribute [Percentage]% of its profits to entrepreneurial and innovation programs.
- Each investor shall contribute [Percentage]% of its distributions to charities upon receiving total distributions equal to the amount of their investment.
NO ALLOWANCE HAS BEEN MADE IN THESE ASSUMPTIONS FOR THE PROBABLE FAILURE OF A CERTAIN PERCENTAGE OF THESE BUSINESSES TO ATTAIN PART OR THE ENTIRE OBJECTIVE OF REPAYMENT OF THE INVESTMENT AND EARNINGS EQUAL TO FOUR TIMES THAT AMOUNT. THE INVESTOR MAY CHOOSE TO ASSIGN A PROBABILITY OF BUSINESS FAILURE IN MAKING HIS OR HER INVESTMENT DECISION.
