INTRO TO PRIVATE CAPITAL

Prepared Specifically For: Minority ATC (Access to Capital)February 24, 2016Dar’shun Kendrick, Esq./MBAKendrick Law Practice, LLC

The Numbers• $17.B in angel investing in

2009 to 57,255 businesses• $4B in VC funding in 1982

Almost $300B in 2007• $1.6 T in private equity overall

from 2000-2009• Quarter before last saw MOST

private equity investment in a quarter since early 2000s

What is private capital?

• Hedge funds• Venture Capital• Leveraged Buy outs• Angel investors• F & F• Convertible notes

What is NOT private capital?• Rewards based crowdfunding• Grants• Publicly held companies• Traditional loans

The Securities Act of 1933 vs. 1934

1933• Created out of Great

Depression• Established the SEC

(Securities and Exchange Commission)- www.sec.gov

• Regulates initial offerings

1934• Regulates on going reporting

requirements• Has fraud provisions that

apply to 1933 Act, i.e. initial offerings

2 Options when selling “securities”

Register(IPOs, stock exchanges, etc.)

ORFind an exemption(Either to “securities” or transaction)

*Some issuers cannot use an exemption

Parties Involved in an Exemption

• The almighty S.E.C.• Broker-Dealers (Investment

Act of 1940)• Investors (institutional, angels,

VCs, family and friends, family offices)

• Issuer (Company raising funds)

• Financial Team: Lawyers, accountants, business consultants, etc.

What does DK do?

Issuer > Broker-Dealer > Investors > DK > Issuers/Investors AND Issuers/SEC

Ways to Raise $$ Through an Exemption

• Mini-IPO (Regulation A+) of $20-$50MM

• Regulation D (3 rules)• Equity based crowdfunding

So can you just start raising money (in exchange for equity) from investors,

including family and friends?

PIECE OF ADVICEHire a knowledgeable securities attorney.

Pitfalls• Corporate form set up has to be specific and in a certain order• “Time triggers” for solicitation• Agreements that you will need to have to investors (limit on the secondary

market, unregistered security disclaimer, risk disclaimer, PPM, etc.)• Financials required to be provided to investors• Founder protections to be discussed (Dilution and bad math caused a company

who thought they owned 66% of a company to go down to less than 10%)• M & A strategy needed for an exemption that allows for “general advertising”

under a Reg. D exemption• State “blue sky laws” requirements• REMINDER: The S.E.C. can recommend CRIMINAL PROSECUTION to the

Department of Justice, like the I.R.S.

Thank you!Dar’shun Kendrick, Esq./MBAKendrick Law Practicewww.kendricklaw.net(678) 739-8109Find us on social media