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Raising Early-Stage Capital from Your Personal Network
What do Regulation D rules govern?
The Securities Act of 1933 requires all securities transactions to be registered with the Securities and Exchange Commission. Regulation D is the portion of the act outlining the circumstances that exempt a transaction from these requirements.
These exemptions are designed to allow smaller companies access to capital markets without the burden of prohibitively high registration costs.
The Purpose of a Private Placement Memorandum (PPM)
A PPM is offered to fully inform investors regarding all aspects of a registration-exempt transaction of stocks or other securities. This document is neutral in tone and factual in nature, and it is distinct from persuasive marketing material. Among the disclosures in a PPM, companies include:
- A description of the business, its structure, and its strategy
- Outlines of prior financial performance and future prospects
- Risks of investment
Smart money is capital controlled or invested by financial industry experts, banks, or institutional investors (funds or companies that invest on behalf of individuals).
The ‘smart’ in smart money refers to the industry expertise and informed positions these investors hold, and from the influence their investments wield on market trends.
Funding Rounds: Seed and Series A
Seed funding and Series A funding are the earliest stages of investment in a startup.
Seed funding is typically the first outside capital a startup raises to finance the realization of an idea, and often comes out of personal funds or from contributions made by friends and family. Some startups do secure seed funds from venture capital firms or angel investors.
The Series A round focuses on soliciting greater funding from venture capital firms after an idea secures initial traction. A startup needs to demonstrate a viable strategy for long-term financial success to secure interest from investors at this level.