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Raise Capital on Your Own Terms
How to Fund Your Business without Selling Your Soul
Jenny Kassan (Author) | Jenny Kassan (Author)
Publication date: 10/09/2017
You're an entrepreneur with a great idea. But your business needs money. So, do you max out your credit cards, borrow from friends and family, and do everything yourself? Or do you make a devil's bargain with some venture capitalist who'll demand a tenfold return and could easily take your business out from under you?
No and no! You don't have to bootstrap, and you don't have to sell out! Jenny Kassan says the landscape of investment capital is far larger and more diverse than most people realize. She illuminates the vast range of capital-raising strategies available to mission-driven entrepreneurs and provides a six-step process for finding and enlisting investors who are a match with your personal goals and aspirations. The plan you create will inspire you, excite you, and help you achieve your dreams!
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You're an entrepreneur with a great idea. But your business needs money. So, do you max out your credit cards, borrow from friends and family, and do everything yourself? Or do you make a devil's bargain with some venture capitalist who'll demand a tenfold return and could easily take your business out from under you?
No and no! You don't have to bootstrap, and you don't have to sell out! Jenny Kassan says the landscape of investment capital is far larger and more diverse than most people realize. She illuminates the vast range of capital-raising strategies available to mission-driven entrepreneurs and provides a six-step process for finding and enlisting investors who are a match with your personal goals and aspirations. The plan you create will inspire you, excite you, and help you achieve your dreams!
Jenny has over two decades of experience as an attorney and advisor for mission-driven enterprises. She has helped her clients raise millions of dollars from values-aligned investors and raised over one million dollars for her own businesses. Jenny is certified as a coach by the International Association of Women in Coaching.
She is the author of the forthcoming Raise Capital on Your Own Terms: How to Fund Your Business without Selling Your Soul
(Berrett-Koehler, October 2017).
Jenny earned her J.D. from Yale Law School and a masters degree in City and Regional Planning from the University of California at Berkeley.
She serves on the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies. She submitted the petition to the SEC that led to the passage of the 2012 JOBS Act and was present at the White House signing ceremony.
Jenny is also a fellow at Democracy Collaborative and the co-founder of the Force for Good Fund.
Before becoming a securities lawyer, Jenny worked for eleven years at a nonprofit community development corporation in Oakland, where she served as staff attorney and managed community economic development projects including the formation and management of several social ventures designed to employ and create business ownership opportunities for low-income community residents.
Jenny is the President of Community Ventures, a nonprofit organization dedicated to promoting the economic and social development of communities. She also co-founded the Sustainable Economies Law Center, a nonprofit that provides legal information to support sustainable economies.
Jenny is a director of Berrett-Koehler Publishers. She is a member of the Content Advisory Panel of Conscious Company Magazine and serves on the advisory boards of Lioness Magazine and Investibule.
Jenny Kassan Consulting is a certified B Corp and member of 1% for the Planet.
—Marjorie Kelly, Executive Vice President, The Democracy Collaborative, and author of Owning Our Future
“Raise Capital on Your Own Terms is a crucial, powerful resource for businesses and communities that need money to make their dreams come true. There are so many investors out there, especially young investors, who are looking to move money off Wall Street and into businesses in their community. Jenny shows you how to connect with them so you can build a better world together!”
—Kate Poole, Founding Member and Leader of Regenerative Finance
“An insightful, practical, enriching book for entrepreneurs and organizations looking to build their businesses without the financial support of venture capitalists. A much-needed alternative voice for entrepreneurs!”
—Aner Ben-Ami, Managing Director, Candide Group
“Raise Capital on Your Own Terms is a perfect motto that speaks directly to entrepreneurs. We have all that we need to create a better funding system for entrepreneurs, and Jenny lays out the path forward. Pick it up, read it cover to cover, and set your sights on the future.”
—Vicki Saunders, founder of SheEO
“Jenny Kassan's new book turns the way entrepreneurs should look for investors and capital upside down. Raise Capital on Your Own Terms gives an alternative route from the traditional investors and venture capitalists. It is a book for any entrepreneur, but especially mission-driven ones.”
—Alicia Robb, PhD, founder and CEO, Next Wave, and Managing Partner, Next Wave Impact Fund
“Jenny Kassan is an expert on raising capital from friends, customers, and community and a leader at incorporating codesigned terms of investment that work for everyone.”
—Morgan Simon, author of Real Impact
“Jenny Kassan is the go-to small business advisor. With this book, she shares her proven strategy for helping businesses raise capital on their own terms, in alignment with their own values, by guiding them to finding like-minded, supportive investors.”
—Kristin B. Hull, PhD, Director, Nia Community Fund
“Jenny Kassan's book is both inspirational and practical. It is inspirational because it lifts the shroud of mystery over raising capital and thereby encourages the entrepreneur to apply her vision and energy to this critical area. It is practical because she walks the reader through the process in well-written, bite-sized chunks; there are plenty of practical tools to aid the process. This is a must for those new to raising capital as well as many who may think they are ‘old hands'!”
—Vince Siciliano, CEO, New Resource Bank
“This should be the Bible for entrepreneurs building a small business. It makes the daunting task of raising capital from a variety of sources easy to navigate through clear and detailed planning advice and the exploration of innovative legal options and ownership models that align what's possible with one's values and purpose. These proven strategies from a national expert can empower everyone with a business plan while helping evolve capitalism into something more conscious and regenerative.”
—Michael Kramer, Managing Partner, Natural Investments and coauthor of The Resilient Investor
“If you want your business to be happily funded, forget the venture sharks, the bands of angels, the miserly bankers, and other investment scallywags who will put you through hell before they give you a penny. No one has done more to create simple and practical techniques for community entrepreneurs to finance their businesses than attorney Jenny Kassan. This book, which synthesizes two decades of experience assisting hundreds of clients, is essential reading for anyone who needs capital yesterday.”
—Michael H. Shuman, author of Local Dollars, Local Sense
“A major problem plagues the entrepreneurial sphere. Many of the best businesses don't reach their potential because the entrepreneurs behind them don't understand the range of options available to them for raising capital. They've not been empowered with information about how to raise capital in a way aligned with their own vision and goals. This book is a solution to that problem. It's an invaluable and groundbreaking resource that I would recommend to all entrepreneurs to expand their thinking and develop their unique right approach to raising capital. We have needed this book for a very long time, and now it is here.”
—Tara Mohr, author of Playing Big
“This book is a must-read for all those embarking on an entrepreneurial journey to manifest their dream business. It is wise and user-friendly and addresses both the inner stories or beliefs and outer challenges that tend to create self-limiting outcomes. It opens possibilities to consider diverse kinds of investors and details how to reach them. Accessible and clear, it lays out all one needs to know about how to raise capital to support your dream with integrity and purposeful vision and without sacrificing control or authority. It's terrific!”
—Nina Simons, cofounder of Bioneers
“The process of raising money often dehumanizes both sides; they become caricatures consumed by fear of failure mixed with greed. Jenny Kassan outlines a path where business owners or startups can retain their integrity and raise capital on their own terms, ones that make sense with investors who appreciate the real value created by business owners. A more local, more grounded, more connected kind of economy is what the legal techniques described in this book guide us toward. This is the kind of world I want to work for. I am glad to be in her orbit.”
—Kevin Jones, cofounder of Socap, Good Capital, and Neighborhood Economics
“Jenny Kassan fulfills a desperate need for entrepreneurs seeking capital. Her book addresses the emotional, psychological, and practical barriers to seeking funds in an interconnected and easy-to-understand way. I can't recommend this book enough.” —Nikki Silvestri, founder and CEO, Soil and Shadow
“I'm so excited about this book! Jenny Kassan has been at the forefront of the community capital field, and readers could not find a better coach, mentor and guide to this innovative way of raising capital. Prepare to have your old notions of how to raise capital turned upside down!”
—Amy Cortese, author of Locavesting
CHAPTER 1
busting the myths
FORGET EVERYTHING YOU THINK YOU KNOW
The amount of misinformation and confusion out there about raising capital from investors is staggering! I cannot tell you how many times I have been at presentations by “experts” and listened with amazement as they confidently informed the audience of “facts” about capital raising that were completely incorrect. If experts like lawyers and finance specialists are so often wrong on this topic, imagine how hard it is for the layperson entrepreneur to get the full and correct picture.
I have been on a mission for years to rectify this situation, which is why I wrote this book. Because so many lawyers and other so-called experts seem to be too lazy to take the time to understand the full spectrum of capital raising options and because they also seem to be unwilling to admit when they don’t actually know something, entrepreneurs are constantly making huge mistakes with their capital raising efforts that can cost them time, money, and even their business.
Why am I so well qualified to give you the truth about capital raising? Due to an accident of my career path, my approach to capital raising is different from that of most lawyers.
I started my legal career as in-house counsel at a nonprofit organization in Oakland, California. While I was there, I worked on lots of very interesting projects, such as building a mixed-use transit-oriented real estate development and starting and running businesses that were subsidiaries of the nonprofit, with the goal of creating jobs and wealth in the low-income community where the nonprofit was based. After eleven years, I left to join a small boutique law firm that focused on helping mission-driven businesses (aka social enterprises—any business that makes a positive impact in the world through its products or services, its contribution to its community, its treatment of its workers and suppliers, and/or its commitment to caring for the environment) start up and raise capital. The founder of the law firm was one of the nation’s top securities lawyers. I barely knew what securities law was! He taught me that securities law is what governs how businesses can raise money from investors. I started to learn about securities law, and found it fascinating. So, even though I had eleven years of experience as a lawyer, I approached this area of law with a beginner’s mind. I had never learned all the conventional wisdom about how securities law is practiced. (Luckily, the founder of the firm was very open minded and entrepreneurial, so he didn’t fill my head with the conventional wisdom either.) Though I didn’t know it at the time, I was approaching securities law in the way described by Dorie Clark in this quotation from her book Stand Out:
Every field has useful guiding assumptions. Received wisdom saves time—you don’t have to reinvent the wheel . . . but it can also be a trap, preventing you from exploring new ideas . . . You don’t succeed by following the rules and thinking exactly like everyone else; you need to ask “what if?” and “why not?” . . . What would [an outsider] make of how things are typically done? . . . Might there be a new or different way of doing things?9
This attitude allowed me to see possibilities that other securities lawyers didn’t seem even to be aware of.
Most lawyers try several different practice areas and find that there is one area of law that they really enjoy. For me, that was securities law. There was something about it that I found fascinating, fun, and exciting. I was completely hooked on learning as much about it as I could. I read every book I could get my hands on, talked to every securities lawyer I could pin down, and read the actual statutes, rules, and case law. Believe it or not, a lot of lawyers never bother to do this. It is amazing all the things you can find when you really read this stuff. I’ll give you a nerdy example of this: There was a young aspiring lawyer who was apprenticing for me. I asked her to look something up in the California securities statute. She said, “Jenny, have you ever noticed Section 25102(e) of the statute? It is a provision that exempts privately offered debt from the usual compliance requirements!” We were both really excited to discover this little nugget in the law that would make it a lot easier for some of our clients to raise capital.
I spent years studying the law of capital raising. I assumed that all securities lawyers knew the same things I did, but I found out that many of them don’t. This is because there is a certain well-worn pathway for raising capital that is relatively easy for lawyers to follow for their clients. This is the pathway used by businesses that are raising money from professional investors like angels and venture capitalists. Most lawyers don’t bother to learn any other pathway. This is a real shame, because there are many others. I love to help entrepreneurs figure out the exact right one for them.
So forget everything you think you know about raising capital from investors. I promise you that this book contains legally correct information and contains basically all of the legally correct information about how small businesses can raise money from investors—not just the truth, but the whole truth. Of course, as I noted earlier, the law does change from time to time, so please check the readers’ resources website for updates. (See the resources section at the end of the book for details on how to access it.)
LET’S BUST SOME MYTHS
Let’s bust some myths about what it means to raise money from investors. Here is some of the conventional wisdom that you’ve probably heard or read on the Internet:
1. You can only raise money from investors if you are going to grow your business very fast and have a “liquidity event” (sale of the company or initial public offering [IPO]) in which the investors make thirty to fifty times their initial investment.
2. Try to delay offering equity to investors for as long as you can because that is the most expensive money you can get.
3. Even though you have to give up a lot of ownership and control when you raise money, the good thing about it is that your investors have experience and contacts in your industry, so they can advise you and make great connections for you.
4. The investors set the terms of the investment—you are at their mercy.
5. If you raise money from investors, you have to give up control, and your investors become your boss.
6. Once you have investors, you must put their interests first, above those of all other stakeholders, or you risk being sued.
7. Investors consist of very wealthy individuals and organizations. They are all looking for basically the same thing, and you need to tailor your business to fit what they are looking for.
Although these statements are true for certain types of investors and investments, they are not universally true. In fact, in my experience (having helped my clients raise millions of dollars and having raised several hundred thousand for my own business), the following statements are true:
1. The vast majority of investors are satisfied with a financial return that is much less ambitious than what angels and venture capitalists demand. (Note that studies of the venture capital industry demonstrate that actual returns are much lower than the hype would suggest.) And most investors consider a lot more than financial return when making investment decisions.
2. You can design any type of investment offering you want—it does not have to be “expensive.”
3. It is possible to raise capital (equity or debt) without giving up any control.
4. Investors can get healthy returns from steady-state businesses (i.e., ones that do not grow explosively). A liquidity event is not required for investors to get paid back.
5. The “smart money” that supposedly comes from professional investors (i.e., all that expertise that we are told they have) is questionable. Some professional investors can be a huge asset to the companies they invest in; others will take the company in the completely wrong direction. The founders often know a lot more about the right direction to take their business than an outside investor does.
6. It is possible to design a company and its financing strategy in a way that reduces the likelihood of lawsuits for failure to maximize investor return.
7. The universe of investors encompasses far more than angels and venture capitalists, and each investor is unique.
Let me quote one investor I know, Kate Poole, so you can really get a sense of how truly opposite of the stereotypical investor a real investor can be:
I lived at an anti-capitalist commune in Thailand and got really fired up about how capitalism was destroying people and the planet. I wanted to do something to fight capitalism. I found out that my family’s wealth was invested in huge evil mega-corporations that were destroying the planet and communities and extracting wealth in an unhealthy way. I organize other young people with wealth to shift control of capital to communities that are most affected by economic and climate crises, especially racialized wealth extraction. As a white inheritor of wealth, I want to invest back in the communities wealth has been taken from.10
I hope that you are starting to believe that raising capital from investors can be very different from the much-hyped venture capital model celebrated on the cover of Fast Company magazine.
In the next chapter, we will dive into determining how ready you are to raise capital.
