For your Information

Accredited Investor
Regulation D Rule 501

• Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:
• Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of 5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
• Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
• Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
• Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
• Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000;
• Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
• Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and
• Any entity in which all of the equity owners are accredited investors.
• Affiliate. An affiliate of, or person affiliated with, a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.
• Aggregate offering price. Aggregate offering price shall mean the sum of all cash, services, property, notes, cancellation of debt, or other consideration to be received by an issuer for issuance of its securities. Where securities are being offered for both cash and non-cash consideration, the aggregate offering price shall be based on the price at which the securities are offered for cash. Any portion of the aggregate offering price attributable to cash received in a foreign currency shall be translated into United States currency at the currency exchange rate in effect at a reasonable time prior to or on the date of the sale of the securities. If securities are not offered for cash, the aggregate offering price shall be based on the value of the consideration as established by bona fide sales of that consideration made within a reasonable time, or, in the absence of sales, on the fair value as determined by an accepted standard. Such valuations of non-cash consideration must be reasonable at the time made.
• Business combination. Business combination shall mean any transaction of the type specified in paragraph (a) of Rule 145 under the Act and any transaction involving the acquisition by one issuer, in exchange for all or a part of its own or its parent's stock, of stock of another issuer if, immediately after the acquisition, the acquiring issuer has control of the other issuer (whether or not it had control before the acquisition).
• Calculation of number of purchasers. For purposes of calculating the number of purchasers under Rule 505(b) and Rule 506(b) only, the following shall apply:
• The following purchasers shall be excluded:
• Any relative, spouse or relative of the spouse of a purchaser who has the same principal residence as the purchaser;
• Any trust or estate in which a purchaser and any of the persons related to him as specified in paragraph (e)(1)(i) or (e)(1)(iii) of this section collectively have more than 50 percent of the beneficial interest (excluding contingent interests);
• Any corporation or other organization of which a purchaser and any of the persons related to him as specified in paragraph (e)(1)(i) or (e)(1)(ii) of this section collectively are beneficial owners of more than 50 percent of the equity securities (excluding directors' qualifying shares) or equity interests; and
• Any accredited investor.
 
• A corporation, partnership or other entity shall be counted as one purchaser. If, however, that entity is organized for the specific purpose of acquiring the securities offered and is not an accredited investor under paragraph (a)8 of this section, then each beneficial owner of equity securities or equity interests in the entity shall count as a separate purchaser for all provisions of Regulation D, except to the extent provided in paragraph (e)1 of this section.
• A non-contributory employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 shall be counted as one purchaser where the trustee makes all investment decisions for the plan.
• Executive officer. Executive officer shall mean the president, any vice president in charge of a principal business unit, division or function (such as sales, administration orfinance), any other officer who performs a policy making function, or any other person who performs similar policy making functions for the issuer. Executive officers of subsidiaries may be deemed executive officers of the issuer if they perform such policy making functions for the issuer.
• Issuer. The definition of the term issuer in section 2(a)(4) of the Act shall apply, except that in the case of a proceeding under the Federal Bankruptcy Code (11 U.S.C. 101 et seq.), the trustee or debtor in possession shall be considered the issuer in an offering under a plan or reorganization, if the securities are to be issued under the plan.
• Purchaser representative. Purchaser representative shall mean any person who satisfies all of the following conditions or who the issuer reasonably believes satisfies all of the following conditions:
• Is not an affiliate, director, officer or other employee of the issuer, or beneficial owner of 10 percent or more of any class of the equity securities or 10 percent or more of the equity interest in the issuer, except where the purchaser is:
• A relative of the purchaser representative by blood, marriage or adoption and not more remote than a first cousin;
• A trust or estate in which the purchaser representative and any persons related to him as specified in paragraph (h)(1)(i) or (h)1(iii) of this section collectively have more than 50 percent of the beneficial interest (excluding contingent interest) or of which the purchaser representative serves as trustee, executor, or in any similar capacity; or
• A corporation or other organization of which the purchaser representative and any persons related to him as specified in paragraph (h)(1)(i) or (h)(1)(ii) of this section collectively are the beneficial owners of more than 50 percent of the equity securities (excluding directors' qualifying shares) or equity interests;
• Has such knowledge and experience in financial and business matters that he is capable of evaluating, alone, or together with other purchaser representatives of the purchaser, or together with the purchaser, the merits and risks of the prospective investment;
• Is acknowledged by the purchaser in writing, during the course of the transaction, to be his purchaser representative in connection with evaluating the merits and risks of the prospective investment; and
• Discloses to the purchaser in writing a reasonable time prior to the sale of securities to that purchaser any material relationship between himself or his affiliates and the issuer or its affiliates that then exists, that is mutually understood to be contemplated, or that has existed at any time during the previous two years, and any compensation received or to be received as a result of such relationship.

  Note 1: A person acting as a purchaser representative should consider the applicability of the registration and antifraud provisions relating to brokers and dealers under the Securities Exchange Act of 1934 (Exchange Act) and relating to investment advisers under the Investment Advisers Act of 1940.

  Note 2: The acknowledgment required by paragraph (h)(3) and the disclosure required by paragraph (h)(4) of this section must be made with specific reference to each prospective investment. Advance blanket acknowledgment, such as for all securities transactions or all private placements, is not sufficient.

  Note 3: Disclosure of any material relationships between the purchaser representative or his affiliates and the issuer or its affiliates does not relieve the purchaser representative of his obligation to act in the interest of the purchaser.

Stages of Documentation

There are several stages of documentation required by most funding sources during the venture capital process . The primary documents are outlined below and may be submitted in rough form to RSH and we will organize and prepare assist on this effectively. :

• Market Feasibility Study:
  Basic research done principally by you (the Entrepaneur) to identify a market niche for the product or service to be offered. Please include:
  • Identify-Who, what, where, when, why,
  • The Dynamics- how it is going to work
  • Your Competition and
  • other factors effecting the proposed business operation prior to investing large sums of money, or proceeding with a "missionary marketing" venture with little or no chance for success.
• Executive Summary:
  An outline of the complete business plan, usually only 4-8 pages long. It includes and describes principal markets, personnel, financial highlights, and the proposed deal structure. The Executive Summary is developed from the completed business plan, and summarizes the project. (Usually done last)
• Business Plan:
  The business plan contains the complete plan for your business, including extensive market and industry analysis, sales and marketing strategy, operational plans and timetables, management organization structure and key personnel, risk analysis (including competitors and comparable industry numbers), and complete historical and pro forma financial analysis (including income and expenses, cash flow, balance sheet and ratio analysis) for three to five years. The business plan financials should include low, medium and optimum projections for various market conditions.
• Business Valuation Study:
  A document that includes several business valuation studies showing business values before and after investment. Business valuations allow you to determine how much stock to sell for the money you are raising. This is extremely important when you are trying to raise money for a business that will be a candidate for a merger/acquisition, or an Initial Public Offering (IPO) at a later date. It is also required for funding by professional investors so that adequate returns on investment are shown.
• Investment Plan: (Private Placement Memorandum)
  Document outlining in further detail the timetable of required equity and debt financing, as well as the payback, or liquidation, of the investors' position under various scenarios. This is where the "Deal" is structured to make your business attractive to investors and lending institutions.
• Due Diligence and Supporting Documents:
  Include all additional information to support and supplement the business and investment plans.
Presentation Package:
Your marketing package is used to present your program to others. It may be Printed-paper documents or a Power Point presentation or a combination to be used when talking with investors or banks. Your marketing package is developed along with your business plan and can enhance chances of funding.

Your completed Business and Private Placement Memorandum is the blueprint for the success of your business. These should be living documents that are revised and updated periodically as conditions change, or when new markets and products are developed, additional funding is obtained, or economic conditions change.

How Investors Read a Business Plan and Private Placement Memorandum

Please realize that a potential investor will initially spend only
5 minutes with your plan.

The following areas will be evaluated, each area taking about 1 minute!

• The industry and this particular Private Offering.
  • What other similar companies are there?
  • Is there a larger company that is extremely successful?
  • Is the company in a "glamour" field? (movies, music , etc.)
    (important to ensure a good private offering)
• Determine the terms of the deal.
  • How much of the company is being sold for what price?
  • What is the form of debt or equity being requested?
  • How will the funds be used?
  • Retire old debt (not a good idea)?
  • Undertake new activities that will in turn increase profitability?
• Review the bottom line with special emphasis on years three through five.
• Earnings are reviewed to determine company's valuation.
• Determine the caliber of the people in the deal
  (The most single important aspect of the Plan)
  • What is the track record of the founders and managers?
  • How much balance and experience does the inner management team posses?
  • How long have the members worked together?
  • Who is the banker and accountant and what are their credentials?
• Questions Answered by the Business Plan and Private Placement Memorandum
  • How much can I make?
  • How much can I lose? (Including loan guarantees, opportunity cost, and non financial considerations)
  • What is unique, innovative or technologically different?
  • What is the perceived value of your product versus what your product actually does?
  • Why will everyone need your product or service?
  • What will happen to your customers if they don't buy your product or service?
  • Who says this is a good investment?
• Do's and Don'ts
  • DO keep the business plan as short as possible without compromising the description of your venture and its potential. Remember venture investors are not patient readers.
  • DON'T over-diversify your venture. Focus your attention on 1 or 2 key products or services.
  • DON'T have unnamed, mysterious people on your management team. A "Mr. G. who is CFO of XYZ, Corp." who will join your company later.
  • DON'T describe technical products or manufacturing processes with jargon that only an expert can understand.
  • DON'T estimate your sales on the basis of what you can or would like to produce.
  • DON'T make ambiguous, vague or unsubstantiated statements. Be precise about market size, rates, etc.
  • DO involve your management team in the preparation of the business plan and Private Placement Memorandum.
  • DO disclose ALL material facts. Bankruptcies, criminal background, previous ventures etc. (anything a person should be aware of before making an investment.)

Although the real spreadsheets are many megabytes long and quite detailed, this is the VC's calculation:

Be careful, use only a reputable Company with serious background and experience for your Ventures!!