This presentation discusses raising capital and the role of investment banks. It outlines sources of capital including non-dilutive options like loans and grants, as well as dilutive options like funding from friends/family, angels, venture capital, and private placements. It explains considerations for seeking equity capital such as how much is needed and losing company autonomy. It also defines accredited investors and exceptions for friends/family and equity crowdfunding. The presentation provides an overview of private placements and notes risks of raising money from non-accredited investors. It emphasizes the benefits of professional investors and outlines corporate housekeeping needs and factors for selecting an investment bank.

1. Raising Capital
and the Role of an
Investment Bank
November 17, 2015
Metrowest TechSandBox
John Piret, Ph.D.
Jeffrey Barnes

2. This presentation has been prepared solely for informational
purposes does not purport to be all-inclusive or contain all
information that a company may require or desire in seeking
financing with prospective investors. The presentation includes
information that reflects certain assumptions based on the
experience of the presenters and the regulatory environment at
the time of the presentation. These assumptions, while prepared
in good faith, may prove to be incorrect for a variety of reasons.
When seeking and securing financing, always retain qualified
legal counsel.
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3. Sources of Capital
• Non-dilutive – Boot strap, Small Business Administration
(SBA) loans www.sba.gov , business incubators, commercial
bank loans, grants, business plan competitions
• Dilutive – FF, Angels, venture capital/private equity groups,
Private Placement
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4. Considerations when seeking Equity
Capital
• How much do you really need and why do you need it
• Equity investors become owners of the company
• Professional investors will likely require a board seat and an exit
strategy (M&A, IPO)
• You will lose autonomy and will have to answer/report to
shareholders
• Always retain qualified legal counsel and formally document
agreements with all investors
• Research potential investors to ensure appropriate fit
• Investors shall be Accredited (some exceptions)
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5. Considerations when seeking Equity
Capital
• Sale of securities subject to anti-fraud provisions
which prohibit deceit and mandate “full disclosure”
(i.e., disclose everything which is material to the
proposed investment)
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6. Accredited Investors
The federal securities laws define the term “accredited investor”in Rule 501 of Regulation D
and as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act as:
• a person who has individual net worth, or joint net worth with the person's spouse, that
exceeds $1 million at the time of the purchase, or has assets under management of $1
million or above, excluding the value of their primary residence;
• a person with income exceeding $200,000 in each of the two most recent years or joint
income with a spouse exceeding $300,000 for those years and a reasonable expectation
of the same income level in the current year;
or
• a bank, insurance company, registered investment company, business development
company, or small business investment company;
• an employee benefit plan, if a bank, insurance company, or registered investment
adviser makes the investment decisions, or if the plan has total assets in excess of $5
million;
• a charitable organization, corporation, or partnership with assets exceeding $5 million;
• a director, executive officer, or general partner of the company selling the securities;
• a business in which all the equity owners are accredited investors;
• a trust with assets in excess of $5 million, not formed to acquire the securities offered,
whose purchases a sophisticated person makes."
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7. Accredited Investor Exceptions
• Friends/family stage - Rule 504 of Reg. D
• Equity Crowdfunding – Reg. CF
• Private Placement or non-public offering (up to 35 non-
accredited investors may participate) – Rule 505/506 of Reg. D
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8. Friends & Family
• Rule 504 of Regulation D allows up to $1M to be
raised from non-accredited, non-sophisticated
investors
• Regulated by state (not Federal) securities laws
• Compliance with Rule 504 involves preparation of
costly and complex disclosure documents
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9. Equity Crowdfunding
Title III Regulations
• Allows unaccredited investors to purchase equity in startups
(up to certain limits)
• Permits a company to raise up to $1M over 12-month period
• Title III regs not expected to be formal until mid-2016
• Crowdfunding will have to occur through a SEC-
approved/registered fundraising platform or intermediary
• Regs include legal and financial obligations including
preparing/filing Form C with SEC, financial reviews/audits,
annual reporting and recordkeeping once round is closed
• SEC estimates cost for company raising $500K to $1M will cost
between $44k and $94K for offering and $3K - $13K annually
for SEC compliance
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10. Private Placement
• Rule 505 of Reg. D allows up to $5M in securities to be issued to an
unlimited number of accredited investors and up to 35
unaccredited investors in a 12-month period
• Rule 506 of Reg. D allows unlimited amount of securities to be
issued to an unlimited number of accredited investors and up to 35
sophisticated, non-accredited investors
• Comprehensive private placement memorandum, risk factors, and
financial statements disclosed to investors
• Offering must be conducted without general solicitation and
advertising
• Securities are restricted
• Company files a Form D with the SEC within 15 days of the first sale
of securities
• State filing and compliance also required
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11. Thoughts on Non-accredited Investor
Financing
• If friends or family receive stock in exchange for their money (no
matter how small the investment) it is likely deemed a securities
offering and subject to regulation
• Many securities lawyers will not represent a company that is
conducting an offering to non-accredited investors because of high
risks
• Some professional investors will not invest in a company with non-
accredited investors
• If challenged, offering could raise problems during VC financing,
sale of company, or IPO
• At IPO, SEC will study all equity issuances and require company to
address any deficiencies or violations, which can hold up or kill IPO
• Although raising $$ from non-accredited investors is possible, risks
often outweigh the benefits
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12. Benefits of Outside “Professional”
Investors
• Raise sufficient capital to fund R&D and/or business growth
• Expertise/experience/wisdom – Sounding board
• Industry contacts
• External accountability
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13. Corporate Housekeeping
• Business plan detailed and thorough (use of proceeds and path to
commercialization/profitability well thought out
• Capitalization table complete and accurate
• Clean financial statements and reasonable forecasts
• Protect IP (patents, trademarks, copyrights)
• Corporate governance in order (articles of incorporation, bylaws,
business licenses, board minutes
• Company agreements/contracts in order (IP, office lease, customer
and supplier contracts, employee non-compete/non-intervention
agreements, key employee contracts
• Retain legal counsel and familiarize yourself with typical VC terms
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14. Role of the Investment Bank
• Early stage financings (angel, seed, VC) don’t require an IB.
Amount of raise typically doesn’t justify fee. Officers of
company can raise capital
• IBs can serve as intermediary for crowdfunding
• IBs typically retained for larger VC/PEG financing rounds,
valuation services, private placements, Initial public offerings,
mergers & acquisitions
• If IB retained in early stage, usually boutique firm for contacts
and/or business consultation
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15. Selecting an IB
• Licensed with Financial Industry Regulatory Authority (FINRA)
and National Association of Securities Dealers (NASD)
• Banker (Registered Representative) and Broker/Dealer (firm)
have clean records http://brokercheck.finra.org/
• Relevant industry experience
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