Preparing a Regulation D securities sale involves seven steps to raising capital:
1. A Great Business Idea.
2. A Great Business Plan: A full copy of the business plan should be included in the PPM (see below) as an Exhibit. See sample business plans.
3. Investment Layout & Disclosure Documents: Most entrepreneurs are not experts at raising capital, thus typically have poorly structured investments. An improper investment structure will portray an unprofessional image to potential investors. The first step in an offering is properly developing the structure. Structuring usually includes, setting stock price or note amounts, determining how much of the company to sell (in equity transactions), which Reg D program to use, setting the maturity date and rate of return for promissory notes (in debt situations), share allocations to principals (so they maintain a set amount of control in the company), minimum and maximum offering amounts which set the effective range of the offering, minimum amount of investment per investor, etc.
4. Document Creation: Preparing an offering involves the creation of the Regulation D Offering documents.
These documents include:
5. Form D SEC Filing: The Form D is the form filing that is sent to the SEC in Washington, DC. It notifies the SEC that you are using the Regulation D program and provides them basic information on the company and the offering. Note: It is not an approval document or registration, rather it is a filing that notifies the SEC that you have a Regulation D Offering in place.
6. Marketing and Capital Acceptance: The offering is now ready for marketing to investors. The JOBS Act of 2012 has reversed a 80 year old rule whereby solicitation or advertising to investors was strictly prohibited. Investors can now advertise their offerings to accredited investors provided they file Form D and notify the SEC that they intend to use general solicitation; and
7. State Form D Filing: Also called “Blue Sky” Filings, most states require a specific form to be filed along with a copy of the SEC Form D and some require a copy of the PPM. Nearly all states charge a fee ranging from $50 to $1,500. In most states the form does not need to be filed until capital has been received from an investor in that state. After receiving the capital you typically have 15 days to file the appropriate documentation, with a few exceptions like New York, who requires filing prior to raising capital.