Investments · Fundraising

Raising Small Capital - What's Permissible Without Running Afoul of SEC Rules?

J Moore Publisher: EV World. Founder & Interim CEO of QUIKBYKE

July 27th, 2015

I want to raise $25K to begin work on our first Quikbyke Q•pod in five(5) $5K parcels from 'friends and family.'  What can I say via telephone and emails that won't put me in violation of SEC investor solicitations? Obviously given the size of the investment, we're no talking 'accredited' investors here.  

Zvi CFA Senior Quantitative Analyst | Data Scientist

July 27th, 2015

You can do whatever you want here. As long as you're only raising funds from 5 people, you can't really run afoul of the law. 

That said, anyone can sue you for any reason, even if you're on the right side of the law. You'll get into trouble if you upset your investors whether you're right or wrong here.

Zvi CFA Senior Quantitative Analyst | Data Scientist

July 27th, 2015

Recently the laws regarding advertising for hedge funds and the like have changed, so they are more lenient than in the past. You just want to make totally clear that these investments are equity, and with 95% probability become worthless. 

That said, have you tried Kickstarter or other non-profit based funding? Your project could probably get free money from some sucker organization like the NIH or some green-tech charity.

Neil Gordon Board Member, Corporate Finance Advisor and Strategy Consultant

July 28th, 2015

The SEC isn't your only concern. You need to understand the rights of your to be acquired minority shareholders, specific to your case, and also understand the impact this modest offering might have if you later pursue an institutional round.

J Moore Publisher: EV World. Founder & Interim CEO of QUIKBYKE

July 28th, 2015

Zvi...  yes, I am currently running a Kickstarter that has stalled at 2% of my original and admittedly "ambitious" goal, most of it intended to build our K15 e-bike. Here's the link:

https://www.kickstarter.com/projects/412869013/quikbyke-qpod-electric-bicycle-rental-system

Neil.. I am currently reading Mike Moyer's 'Slicing Pie - Fund Your Company Without Fund'.  He advocates assigning a 4X value to any cash contributions, while a 2X value to labor and contributions in kind. So, the 3-4 investors (I will be one of the five, of course) will have a value of $20K assigned to their investment when 'slicing the pie'.  Great book, btw.  Highly recommend it: most transparent and fair system I've yet seen.

Zvi CFA Senior Quantitative Analyst | Data Scientist

July 29th, 2015

So, here are some ideas:
1. Take a hint from the KickStarter campaign. If your campaign didn't succeed, it likely means that your company won't succeed either. If your idea just isn't getting people excited or you don't have the skill-set to communicate your value proposition in a compelling way, you might be better off leaving the project here.

There are plenty of bike-rental programs out there, but the best ones tend to have multiple rental-stations at fixed points around the city. That works best for bikers, but your solution isn't optimized for multiple stations. You might end up losing competition to another company that runs many fixed-point stations. Anyway, KickStarters may have balked because they don't see how your solution is fundamentally better than other solutions already out there.

I can see how your pod idea is great for people looking to rent bikes, but it's no value add for bikers. If you want to franchise the idea, you'll have to change your marketing to be more b2b, and KickStarter is not the way to raise capital.

2. $275K is a lot. Consider starting with some small model that could validate your idea. Perhaps, sign up deals with people looking to franchise from you or set up a bike-rental hub without the container. With real revenues coming in, you can raise more money easily.


J Moore Publisher: EV World. Founder & Interim CEO of QUIKBYKE

July 29th, 2015

Zvi... thanks for the feedback. Permit me to clarify a misconception that is entirely my fault with respect to the Kickstarter and the amount of money I am looking to raise. Some $180,000 of it is to be used to assembly the 150 K15 bamboo electric-assist bicycles. That is my cost for bike, motor, and labor. The remaining $95K is to engineer, fabricate, equip and deploy the first Quikbyke Qopod prototype. The idea, now obviously flawed, was to give backers a chance to own a limited edition K15, which everyone that sees and rides it loves, while also having enough capital left over to pursue the main objective, build a test unit, as you suggest. My target market is NOT cyclists. It's the other 95 % of us who don't regularly ride bikes, but might if given the opportunity to experience what an e-bike is like. Am I correct in assuming you have never ridden one either? Want to see how non-bike riders react when given that opportunity? Check out these three videos of people trying the A2B Ferber for the very first time: http://quikbyke.com/video/a2b_ferber.html. Just because an idea may fail on Kickstarter, due to my flawed strategy, does not mean this isn't a great idea because it solves a whole series of problems for everyone in the chain from e-bike makers to local bike rental shops to our customers. Maybe the only folks who don't win are taxi cab drivers, but Uber, Lyft and autonomous cars are doing to put them out of business eventually anyway.

J Moore Publisher: EV World. Founder & Interim CEO of QUIKBYKE

July 29th, 2015

So.. back to my original question:  what can I say and do with respect to raising capital and not get my toosh in trouble with regulators?