Know the Law: What Are My Current Options for Raising Capital?

John Bentas
Counsel, Corporate Department
Published: Union Leader
July 4, 2016
Insights - Featured Image - Corporate

Q:  My small business has been doing very well recently and I would like to expand my operations.  I would prefer to fund my expansion without adding debt.  What are my current options for raising capital?

A:  Congratulations on the success of your business.  With the passage of fairly recent laws and regulations, now is a great time to look for investors and raise additional capital to fund your business expansion.

I will start with some of the newer alternatives for raising capital, as those are getting all the press recently.  In the last few years, some enterprises have been raising capital without issuing ownership interests.  This is generally called crowdfunding.  Think of kickstarter.com or Indiegogo.com.  In short, an enterprise raises money through a website and gives those donors some “token of appreciation.”  It can be something like a sample or just donor recognition, but not any ownership in the enterprise.

More recently, the SEC has adopted rules that will allow companies to raise capital by selling ownership interests through the Internet.  This is a big shift from traditional crowdfunding, and some have called it “equity crowdfunding.”  It allows your company to raise money via the Internet, but it comes with a very complex set of requirements and certain limitations.  Therefore it may be right for only very particular circumstances.

In addition to the new methods mentioned above, the traditional methods of raising capital still exist.  Those include private capital raises that are exempt from registration with the SEC as well as registration with the State of New Hampshire Bureau of Securities Regulation.  Raising capital privately can be accomplished through discrete capital raises from friends and family members or a non-public subset of particular investors who are sophisticated and relatively wealthy (often called “accredited investors”).  These traditional forms of capital raising also come with their own limitations and rules, including a prohibition on general advertising (such as on the Internet).   Since these methods have been around for quite a bit longer though, they are better understood and have been somewhat streamlined in practice.

Lastly, the SEC has modified one of the most popular traditional offering methods to allow for a general solicitation, including on the Internet.  Much like the newer methods of capital raises, that also comes with further limitations and compliance requirements beyond the traditional method.

As with any capital raise, whether it is done in the traditional fashion or by the newer methods, you should consult with accounting and legal advisors.