Wednesday, October 5, 2011

5 Ways Social Entrepreneurs Can Raise Money

Legal structure and funding for social entrepreneurs were key topics at the Green Startup Legal Discusson on Day 2 of the San Jose Green Business Academy, with attorneys addressing various aspects of legal set-up for startups. The panelists and topics included:
Glass with coins
Securities Law & Social Entrepreneur Funding

Before introducing key ways in which social entrepreneurs can raise funds, Attorney Jenny Kassan mentioned that current securities laws dictate with specificity how investors can and cannot be solicited. 

(note: a security is a form of investment or ownership that can be assigned a value and be traded.)

Securities laws dictate that companies cannot offer or sell securities unless the securities have been registered with the Securities and Exchange Commission (SEC) and with applicable state commissions. And securities laws only allow sale of securities to accredited investors (i.e. those with net work over $1M or annual income over $200K)---unless one of the narrow exceptions apply. (Read more about this on socaltech.com)

Considering the rise of crowdfunding initiatives, a social entrepreneur startup may wonder---how can I raise money by tapping my friends, family, and the general public---who may not qualify as accredited investors?

5 Ways Social Entrepreneurs Can Raise Money

Attorney Kassan highlighted five ways of raising capital in her presentation. (You can also read more on cuttingedgecapital.com).

(note: considering the specificity of securities laws, it is probably a good idea to work with your attorney to ensure you're money-raising efforts are above board)
1. Try to avoid falling under purview of securities laws. For example, offer donations for a perk, lend money without interest, pre-sell product. 
2. Form partnerships with local governments and non-profits. An example of this is Mandela Foods in Oakland partnered with a local non-profit to raise funds. Enables joint application for certain grants. 
3. Structure the business as a co-op. Most states have certain exemptions for cooperatives, including exemption from securities registration requirements. 
 (note: see Namaste Solar co-founder talk about what it is like to be a co-op here)
4. Do a direct private offering, but have a different audience. This could involve offering an investment without public advertising, or raising capital from unaccredited investors using state exemptions.
5. Do a direct public offering. Do full securities law compliance--like IPO but there is no intermediary. This method may enable entrepreneurs to seek funding from broader base of investors. 

2 comments:

  1. Roger Hamilton
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    ReplyDelete
  2. An encouraging sentiment...Thanks for sharing!

    ReplyDelete

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