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Published On: Tue, May 26th, 2020

Ron Bauer Lists Unconventional Ways to Raise Capital in a Time of Crisis

As the COVID-19 pandemic has swept across the world, forcing people and businesses into lockdown and injecting an incredible amount of uncertainty and skepticism into the marketplace, funding and loans for entrepreneurs and small businesses has dried up. 

The federal government is doing its part by authorizing $349 billion in forgivable loans through the paycheck protection program (PPP) in its latest coronavirus relief bill. However, it remains to be seen how easily businesses will be able to access those funds, at least through the major banks.

Ron Bauer, a Venture Capitalist and Entrepreneur, and the founder of Theseus Capital, says major banks put up additional hurdles for business owners to scale when the PPP was first introduced, hurdles which were not supposed to be in the government’s program. Due to those measures, many businesses have not been able to access the funds they are desperate for and entitled to.

One workaround in that regard may be to turn to online lenders and finance platforms like Lending Club, PayPal, and Intuit, which are also able to accept and process applications for the PPP. These companies have modern systems for handling these requests and aren’t throwing up all of the additional roadblocks that the major banks are. 

photo/ Gerd Altmann

Aside from those loans, entrepreneurs and businesses have a few other options at their disposal for raising money during the pandemic, one of the most prominent of which is through crowdfunding, an industry that is headlined by platforms such as Kickstarter, Indiegogo, GoFundMe, and Patreon. 

Crowdfunding raises tens of billions of dollars annually and has been instrumental in bringing products to market in several industries, including tech, gaming, film, and design. Earpiece translators, smartwatches, jackets bursting with design features, and affordable 3D printers are just some of the products that may never have seen the light of day without crowdfunding.

For defined products, Ron Bauer says crowdfunding often works through a reward-based system, whereby those sending in funds are routinely given access to special versions of those products that might be signed by the developers, have additional features, or come with other goodies. In other cases, funds may function entirely as donations, which is typically the case during nonprofit crowdfunding campaigns.

For an entrepreneur that needs to fund their business in general, rather than the creation of a specific product, crowdfunding can still be useful. In these instances, it routinely operates through an equity-based system whereby funders are given a small amount of ownership in the company. 

Companies with active social media platforms may also want to promote a Patreon page through which their fans or customers can make donations whenever the mode strikes them. 

Going the Regulatory Route

If crowdfunding doesn’t sound like a viable option or a good fit, there’s still the regulatory routes, which include Regulation D and Regulation A+. In the case of Reg A+, which is part of the JOBS Act and which went into effect in 2015, private growth-stage companies can raise up to $50 million in a mini-IPO.

Unlike with Regulation D, which can only be funded by accredited investors, Reg A+ is open to funding from any and all Americans, which confers several advantages. According to Ron Bauer, whose Theseus Capital guides entrepreneurs and businesses through the complicated investment life cycle, one of the biggest benefits of a Reg A+ is that your own customers can invest in your company, effectively turning them into brand ambassadors that are likely to promote your brand and sing your praises at every opportunity. 

The resulting ownership structure of the company may likewise be more appealing to entrepreneurs, as many investors will own small chunks of their company as opposed to larger institutional investors owning bigger chunks, which are frequently a requirement for their investment. 

Regulation D offers another quick route through which entrepreneurs can raise money, though one with some additional regulatory hurdles and limitations, though the rewards are also greater. Whereas tier 1 Reg A+ offerings can only raise up to $20 million, Reg D offerings can raise an unlimited amount of capital. 

Limitations include the stipulation that only accredited investors (the richest few percent of Americans) may participate unless the Reg D offering is made using the rules under paragraph ‘b’, which discloses that up to 35 non-accredited investors can take part in the offering, but that they must be able to demonstrate sufficient investing acumen. 

Furthermore, Ron Bauer adds that a Regulation D offering can’t be publicized in those instances, which is likely to hinder a company’s ability to raise money. Regulation D can also be quite costly, with marketing and legal fees potentially pushing into the tens of thousands of dollars.

While major banks have left small businesses out to dry during the pandemic, other institutions and even individuals have taken up the call to ensure that important funding reaches the businesses and entrepreneurs that need it most.

Author: Jamie Cartwright

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