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There are a number of rules governing how U.S. companies raise money.

These rules are not intended to slow down entrepreneurs but to create a market environment that is credible and conducive for entrepreneurs to attract capital.

While there are a number of rules that could be relevant to your situation (a corporate attorney can best advise you), your education about fundraising should start with an understanding of "accredited investor" qualifications.

In general, under the Securities Act of 1933, entrepreneurs who seek to sell stock in a business should register the securities with the Securities and Exchange Commission, plus comply with other, often complex federal and state regulations. Although that may seem daunting to a startup company such as yours, the SEC provides some exceptions. One of the ways to bypass some regulatory requirements is by soliciting wealthy accredited investors, also known as "qualified investors."

Regulation D of the 1933 Securities Exchange Act defines accredited investors as individuals who have a net worth of $1 million or income of at least $200,000 in the two years before investment. For couples, the prior income requirement is $300,000. The SEC notes that income requirements are met only if there is a reasonable expectation that income levels will be maintained in the future.

Accredited investors also can include banks, insurance companies, small business investment companies and corporations, charitable organizations or partnerships with assets exceeding $5 million.

The thinking behind the financial means test is the presumption that wealthy investors are sophisticated about the risks associated with privately held company investments and can "afford" to lose the entire investment.

Granted, families of more modest means invest in startup restaurants, retail establishments and service companies all the time without meeting accredited investor tests. They can without attracting regulatory attention because companies are generally permitted to raise money from up to 35 nonaccredited investors, plus an unlimited number of accredited investors. Still, the SEC does require that companies reject nonaccredited investors who are not financially sophisticated and don't understand the risks associated with the investment.

I believe that successful entrepreneurs have good judgment. They make decisions with care and turn away from seemingly easy solutions that compromise management's integrity.

If you do accept money from any other investor, for that matter, you have an obligation to protect their investments. That starts with being brutally honest with yourself in determining how much money it will really take to get your company to the safer ground of cash flow break-even. This way, you can develop a funding plan that best matches this reality.

Too often, first-time entrepreneurs make the mistake of raising too little money to be viable. They purposely minimize dollar requirements to investors to present a better, though not entirely truthful, story. Ultimately, this kind of live-for-today approach causes investors to lose money and entrepreneurs to lose their beloved companies. Honesty matters.

 

 

What do you do when you are seeking Sponsorship Dollars, but offered product instead. Giving product is considered an in kind donation.

Obviously, you would rather have the money, right? What if the company is unwilling or unable (probably because their yearly sponsorship budget is maxed out or committed to other events and projects) to give you money, but offers to give you product instead?

Keep in mind that if you did your research and the company is a good match, then you may be able to use the product. Don't get upset or give an automatic "no." Take the time to think about what is being offered and truly consider it. Follow the same exact procedure in closing the deal if you decide to take the product. Instead of using dollar amounts, use product amounts.

Remember this is about building relationships for future partnerships. If this event goes well and you take care of the Sponsors, the next event that you have the product donation could turn into a monetary donation or both. Take care of the sponsors and they will take care of you in the long run!

So, product or in-kind donation can be a very good thing. An example: airlines typically give in-kind donations of flight passes that can be auctioned off or given away. Alcohol companies typically give in-kind donations of alcohol; this is not to say that they won't give money (because they will), but be open to product donation. It can help eliminate some costs from your budget. It will only help you to make contacts, build relationships, and have the best event possible.

It is all about being persistent and never giving up. Don't give up until the opera lady sings - and not even then!!

 

 

I hope that you take these mistakes to heart when submitting proposals for sponsorship. As I believe that knowledge is key and with knowledge you will succeed.

 

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