Back in 2010, as the CEO of a seven year-old software company, I decided to move from Boston to Wilmington, NC. We had Fortune 500 customers, a steady growth rate, and a comfortable backlog of contracted work with recurring revenue.
Having spent some time at Fort Bragg during my days in the military, I knew this area worked well for me personally but also had business reasons for making the move. I needed to raise additional capital and thought that moving to Wilmington might position my company as a bigger fish in a smaller pond of potential investors.
Our target raise was between $1M-2M and if you’ve been around the block a few times you probably know that’s a uniquely difficult amount to secure. It’s too high for many angel investors and too low for most venture capital groups. After making the rounds with a short list of potential investors that agreed to talk with me, I never did end up raising money in North Carolina.
What about bank loans, you ask? The problem is that a commercial loan for $1M-2M requires buildings, equipment, or other hard assets to be put up as collateral, and in many cases, a personal guarantee. With previous investors in the mix, I didn’t want to secure the entire loan myself and as a software company with very few physical assets to use as collateral, we were effectively out of good options.
Unfortunately, this scenario is all too common.
So how did I make it through all those years, including the crash of 2008? My only option was to borrow $3M over three loans from three different unregulated venture debt banks. Interest rates on two of the loans were around 12% and the third was 16%, plus warrants. Welcome to the world of unregulated fintech and venture debt.
I did what I had to do and took my lumps but it was during this process that I started tracking a new mode of financing called investment crowdfunding. While there was a decent amount of chatter about it as early as 2010, it was actually written into law in 2012 as part of the JOBS Act. It took North Carolina another four years to adopt intrastate crowdfunding regulations under the NC PACES Act but when it became law in 2016, I had already done my homework and was ready.
However, before I could move forward with a crowdfunding effort, SunTrust Bank unexpectedly refinanced my venture debt loans at 6% and worked with us on the “lack-of-collateral” issue. Of the hundreds of banks I’ve spoken with since founding my company in 2003, they were literally the first that appreciated the strength of our business enough to offset the lack of collateral. Needless to say, I love SunTrust Bank.
After refinancing and enjoying sustained profitability, we ended up self-financing our continued growth. While we ended up not needing to use investment crowdfunding, it piqued my interest for a number of reasons and I couldn’t let it go.
Instead, I turned my focus to building new software to support the NC PACES Act and became the first (and currently, only) platform in North Carolina to receive a letter of effectiveness from the NC Secretary of State. We are now working with North Carolina companies to leverage the new regulations through this technology in a way that helps mitigate many of the funding issues described above.
I routinely talk with fellow small business owners across the State about investment crowdfunding and I’m finding that my company’s story is not unique. In fact, according to Crunchbase, there were only 18 equity and non-bank debt investments made in North Carolina between $1M-2M in 2018.
Point being, if you are an existing business in need of capital, you should consider investment crowdfunding.
- With at least 12 months of audited or reviewed financials, and the proper approval from the State, you can raise up to $2M.
- It’s you who decides the terms of the deal before presenting the offering to investors – not the other way around.
- Not only can you avoid the typical gatekeepers you find with banks, VCs and angels groups, but you can potentially tap into a powerful pool of investments dollars represented by customers and other constituents who already love your offering.
If investors are more likely to support going concerns with actual revenue and proven products/services, and you need to raise money in North Carolina, explore investment crowdfunding as an option. I think you’ll be glad you did.