Funding2 Garage Inventions

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This site is dedicated to the entrepreneur -- whether high school student or senior citizen -- who has a fledgling business in need of a boost; garage capital has made every effort to keep these pages current and correct, but cannot warranty them for correctness or suitability to the viewer's circumstances; securities lawyer comments welcome...Funding Garage Inventions

Highlights of this Section:

"Handshake Agreements," "Finder's Fees,""Free Money,""Loans and Credit Cards," "A Sales Example," "How to Comply with the Prohibition on Advertizing," "When Forms Are Required."

You know who you are. By stealth or bravado, sweat or slack, you have the germ of a really great business that you are trying to nurture on a shoestring budget. This section complements the Garage Shares section at Garage Shares . It is an article for the garage inventor or any garage businessperson who is looking for funding, but who may be a little apprehensive about the forms and regulations that appear to be attached to raising money, or perhaps who needs to hear it done a few times. Raising capital is a skill, like writing HTML for web sites, and is equally incidental to the business. But SOMEBODY needs to know HTML. Nobody should have to fret to ask a friend for money, even if they don't yet know the name of that friend -- that is my feeling on the matter. In this article, we go from basic to fairly advanced, both legally and spiritually.

In a nutshell, you may pitch to the poor if you guarantee their investment; and you may always pitch to the rich, or intermediaries who you may give a finder's fee, but the rich would rather you give them the same guarantee as the poor and a great big payout.

Your privilege is to channel the divine will to produce something that helps others be productive while helping themselves and others to gain free time and spiritual growth.

So, you start with an idea,...

1) THE IDEA

The more philanthropic the project idea, the better.

Philanthropic projects -- like this site or a new kind of desalination boiler -- can be funded in non-profit ways that pay handsomely and provide investors tax advantages. Philanthropic projects also involve less stress and greater productivity for the entrepreneur, as long as obstructions are lovingly managed. Ideas emerge more easily and one is less likely to lose stamina when working on loving activities.

In order to keep this section to a reasonable length, I've moved some information to another page. Some tips on building a prototype and working productively may be found here: The Invention Development Process . I also suggest the "Free Money" section bookmarked here which discusses how philanthropic ideas can be funded in extraordinary ways.

A prototype or sample is a great way to produce reliable sales projections. And there are also other ways of convincing investors that your projections for your product will bear fruit.

2) SUPPORTING PROJECTIONS

The best way to support a projection, whether for manufacturing cost or for marketability, is to make a few samples and try to sell them.

The sample suggests first that the Company will be able to do the business it is setting out to do, and second that there may be a market for its product. Investors apparently want to know that a businessperson not only has a grasp of their product, but a firm idea of their customer and their customer's needs.

Let us say that I have a particular project in mind that will require the use of a $50,000 video game software program, like Alias|Wavefront's "Maya". In order to prove that I can do what I am setting out to do, I could buy a $100 or $500 program capable of substantially less, and show a much cruder version of the idea. I know of one business promoter who would bring his VCR/television monitor from investor to investor to show them his latest project. With only a few minutes of tape and excellent sales skills, he wooed many investors.

If a person has never made a movie, it would behoove them either to interest someone who makes movies to join their team, or to make a short movie that suggests that they can make a longer movie. Sometimes fairly extraordinary means are required to prove a concept for a product inexpensively; I once drove to one of the tallest mountains around, because it seemed a less expensive vacuum for manufacturing.

Do you get nothing but rave reviews? Write them down and fasten your seatbelt.

As for Patents, the subject is beyond this site, but here are a few thoughts: Patents .

How about those projects which require a lot more money to prove marketability? A movie can have a trailer, a book can have a teaser or a script or just a poster, a product can have an advertisement or take the form of a limited-use sample, a new technology can have a "proof of concept." See how people react to the promise.

Sometimes, if one e-mails a possible subcontractor, the work will come into better focus, making a better proposal along the way. Subcontractor experts will be able to provide useful cost information in very little time, based on their experience. One may even gain important statistics such as sales volume to help one's proposal. In this way, I learned that a vacuum "glove box" was comparable to an astronaut's suit. (In context, this meant that if I wanted to use a glove box for manufacturing in high vacuum, I would need to lower the pressure of the room as well as the box and increase the oxygen content. Weird. My ears pop just writing about it.)

If the product is for businesses, consider asking for indication of interest memo's, if firm orders are not made. A group of "soft" orders can be presented to the investors when they review your project, along with hard orders. Metaphysically, I have one other thing to offer here: love your prospective customers, and they will love you.

The Three Page Business Plan

For years, investors have agreed to look over "executive summaries," rather than 20 page long business plans. Web sites like "garage.com" ( http://www.garage.com ) have made much of the idea that a summary should be no longer than three pages. Some sites suggest two. There are several examples of executive summaries peppered throughout this site.

A link to a three page example will soon be provided.

The next step for inventors and other business developers is to show their three page plan first to people who are friends and who they respect, and who can give one a fair evaluation. In the case of one project for an amusement ride, most of the feedback I received was along the lines of "better add high pressure hoses" (for the motion sickness victims). These people will frequently be qualified to assist one as investors -- or they would be less useful to give one a fair evaluation of its potential -- but let them know that all you are interested in is how the executive summary will look to an investment banker or venture capitalist. Is it a good-looking investment? This is also where one's samples can come in. A color brochure or actual product sample of some kind can make a very persuasive package.

Best of all -- it's fun to send people interesting e-mail! Suggestions will be provided, sometimes humorously. It's also a great way to network, asking friends to forward your kooky idea for a business to people they feel are in the know and who can comment on it. Needless to say, if your three page business proposal looks bankable, do not hesitate to knock on some doors and get it seen.

If the three page proposal is found lacking, this should be seen as a good thing. Improvement will follow.

The Webmaster of this site is available to read over three page business proposals; send to garagecapital@aol.com.

3) HOW TO LOOK AT RAISING MONEY

It is important to see one's project as an opportunity, to be convinced that it is a fountain of abundance and philanthropy. That its presence heals people. The only detours of your thought should be to remember "there is no spoon" (and no lack of support) and to help others actualize their projects, which is a glorious way to incorporate the Golden Rule in living practice. Your nurturing will come back to you in some way. This is the privilege that we have every day: to experiment radically with our lives to see that good can come of good.

Raising capital should be charity for the investor.

If my Mom's backyard were about 100 times larger, I would not hesitate to help her to mine it. In the area of the San Fernando Valley where she lives, mining was prohibited in favor of agriculture at the turn of the century, though gold was proven, and forgotten about during the post-war housing booms. The load of iron filing in a cubic foot is startling. And the yellow dust her retriever gathers in the hairs of its foot pads makes a fair argument. Would I lend her money to extract the gold? Of course, though I would confirm the work to be done and perform some more conventional tests first. The point of this story is to start with a role model deal if that helps you. If your role model is a restored car or an orchard, and a good frame of mind to sell it (projecting gratitude), use that.

This web site encourages people to frame the best possible deal for the investor, so that body language, word choice, dress and behavior all communicate one thing -- the great deal. This is also part of why philanthropic projects are recommended.

It is also important to show the investor how one will be investing one's own money and/or time in the project. If one has personal property, but no cash, get a firm offer on a crucial piece of equipment and make it part of one's investment in the project. If one will be working on the project, this means devoting a large part of one's "salary" to an investor's share. Using an example of the computer-animated "Invizo Kids Halloween Special": the animators take a pay cut, rather than give any appearance of "gouging," and then put most or all of their pay for the project (after FICA, State and social security deductions) into "shares" of it. What is the benefit of being actually invested in a project? For an intermediary like a stockbroker, it is probably necessary.

"Here is what I am investing in. You may want a piece of it. Let's have a look at it."

Investors in apartment complexes as well as oil wells know that unless the escrow amount is reached, the project is not going forward, so the investors and intermediaries all have an interest in having the project shares bought. To an unsophisticated investor, this detail might be lost; another reason why unsophisticated investors are avoided. Also, the escrow amount for some kinds of projects will be "Mini-max," with a minimum go-ahead price and a maximum figure where the returns are expected to diminish. From the perspective of the Golden Rule, the two animators have to be completely committed to finishing the project, or they will find only fickle investors.

4) "FREE" MONEY SOURCES

I can think of three unencumbered money sources.

If a project is just too difficult -- everyone knows that gravity moves at the speed of light, so where are the projects making use of this? How hard can it be to make a gravity windmill? Or a gravity helicopter? -- the easiest way to profit from it might be to do some basic research, and then submit the project to the Office of Technology Transfer (or O.T.T.) of one's favorite university or college. Revisiting an old technology like the high pressure laser with gravity experiments in mind,... The OTT phenomenon is an interesting way to put good energy out there, and have somebody else do the R & D and license the result to industry, and pass a royalty to the inventor when all is said and done. The royalty tends to be smallish but so is one's commitment if using an OTT. We're talking about projects that somebody should be committed to, and that deserve support.

The second source of "free money" is the charity or non-profit corporation or organization. If one is determined to create an anti-gravity device like some of the many creative people at the Anti-Gravity List -- http://www.viking-z.org/aanti.htm , it might be worth creating a non-profit corporation to foster the work. In California, the fee is about $30, plus obtaining a permit to solicit others for money, and the final letter on 501(c)3 status from the IRS. Publicize a contest and raise money for the contest, and try to win the contest. One has to create "arm's length" protections, but you might be surprised how many folks are willing to give to your tax-deductible charitable organization. You just have to be prepared to gratefully give your "prize" to someone else if they come to you with a better idea, and if you really want to help the cause, that should be enough. You may also learn there is already an award being offered for your favorite project.

Some of the advantages of non-profit incorporation are: reasonable salaries for founding members for spare-time employment, enjoyment of the work being done, retirement benefits in addition to the plan at one's steady work, witholding tax becoming one's salary, expensing of one's computer and home-office while sharing equipment and other resources as "perks," enhancing networking skills and connections, and building a stronger resume. There are a number of variations on this theme worth investigating, so I've made a short list at "Philanthropy and Funding High Risk R&D." It recaps the information here, and suggests ways to give, without giving up. This link is also listed on the Index page.

A new kind of loan can be a powerful invention too.

In researching the use of tax-advantaging, I have encountered a wide mix of opinion, but as long as a non-profit corporation can grant a CPA a deduction for helping conform to the intricacies of IRS policy, it seems like a very strong idea. What I mourn is the insane up-front fees for registering non-profit corporations.

The third source of free money is the government. There appear to be several programs which offer odds as high as 1-in-10 for complete proposals, or ten times the average venture capital odds (according to one source). The Small Business Innovation and Research program or SBIR has much to recommend it. It offers money in small chunks of up to $75,000 for small companies with new ideas, and larger grants for follow-up commercialization, but it is administered separately by seven or more different agencies. There is a Department of the Navy SBIR and a Department of Energy SBIR, etc. The total budget is over 1 billion dollars. Please visit the Links section -- Links To Capital -- for both links to the participating agencies, and to an SBIR assistance organization that seeks to assist grant proposal preparers.

The Department of Commerce's National Institute of Standards and Technology (NIST) has another R&D program called the Advanced Technology Program, that seems to be a good way to get one's ideas confidentially reviewed by experts. One who has attracted ATP interest may have some credibility among investment bankers, venture capital companies, CPA's and others. The "Pre-proposal" program allows one to send an "executive summary"-style four page pre-proposal, and receive feedback with which to hone a full proposal. One might even show such a reply to investors.

The ATP Proposal Preparation Kit includes most of the info needed, including the two pages about ATP Pre-proposal. They strongly encourage researchers to prepare joint ventures with existing companies, even to the point of providing sample contracts, and the typical ATP proposal incorporates some sophisticated accounting. ATP describes itself as a grants program, but I encountered few grants other than $2,000,000 matching grants. The ATP mailing list is at 1-800-287-3863. The ATP website is http://www.atp.nist.gov . This doesn't cover other aspects of NIST funding though -- http://www.nist.gov . Metaphysically, the large grant poses only one problem: the perception that it does not fill a correct pattern of unfoldment. One solution is to leave this to God.

Metaphysically, one needs to feel confident one is doing the right thing, not chiseling one's fellow man. The OTT Program leaves approximately 10% of the royalty to the specific inventor, so there is very little chance of one being selfish in the OTT context. The non profit corporation grant is directed toward a specific philanthropic goal, and if one provides that goal, the open order is filled, so there is parity. SBIR-type programs create taxable income and boost public productivity, and evaluators are certain of this before approving any grant.

5) HOW TO LOOK AT DEBT

The kind of capital raising nearly all people are familiar with is the revolving credit of credit cards. One can get business credit cards fairly easily at this time. A good personal credit rating, obtained by applying for credit in college and consistently paying one's account in full, and a listing in the business phone directory can generate business credit card pre-approvals.

Until I am corrected, it is my belief that a person can operate a hobby, but list in the business phone pages and obtain business credit cards for that hobby, without filing special registration papers with state or local agencies, or taking on merchant banking expenses. (In Los Angeles, there is a "doing business as" filing when one uses a pseudonym instead of one's proper name for a business. In good faith, one should probably use one's name for one's hobby activities, or pay the modest filing fee of $10, and list a local newspaper ad.) The EPA's California site http://www.calgold.ca.gov has many links for responsible permitting, in case one is concerned about this. In Los Angeles, a $25 home business fee was instituted in 1997, but was repealed. Since then, a Los Angeles-specific business license franchise tax of $100 minimum has become required, but does not seem to be generally known.

Should a garage inventor use business credit cards?

Although my first instinct as a onetime bankrupt is repulsion at the thought of usurious credit rates and obligations that one might not be able to easily meet; I have to also express some gratitude at a country where one can do things like stake a claim or build a prototype, or -- more in conformance with business credit's design -- buy an inventory just before the holiday season on credit, return the unsold merchandise in January, pay off the card, and pocket the difference. 20% annually over four months is 5%, which is a pretty competitive rate, and the least of a retailer's worries.

There are many bank loan web sites at this time, competing for the attention of small businesses, even those owned by people with past credit problems, like: http://www.anyloan.com and http://www.loanwise.com . Both are essentially onine brokers for many lenders, who you may also try to contact directly, like American Express, Countrywide or Union Bank. The questions they typically ask: how many years have you been in business? How long have you been profitable? What type of business are you?

What sort of answer would a "yahoo" or an "iwon" be able to make? Don't let these kinds of questions throw you. If you have been thriving as a hobby, though, go ahead and share your revenue information with the lender. You may be able to obtain a lower rate for a revolving credit-similar arrangement.

In general, lending requires a good credit rating AND a good balance sheet. One's credit rating can be improved by hard work, time, or partnering with someone with a good credit rating, but not taking on more credit obligations than you feel you can pay off expediently. Since your credit "partner" will be looking at a fairly high interest rate attached to his name, it would behoove you to find someone else with deep pockets to borrow from, and offer them great terms. If you have good credit, but no balance sheet, neither "iwon" nor "yahoo" had them either, so don't feel too bad if a conventional loan is impossible for you at the "idea" stage; they probably couldn't get them either.

Approaching a lender requires a healthy mind-set. If you feel that a bank is a business with a large bureaucracy and rules and policies, then that feeling is going to be reflected in your voice-stress, attitude, body-language and clothes. Do not go there. Do not cast pearls before swine, lest they turn and rend you. In other words, do not broadcast that much negativity and not expect it to come back. So, how does one deal with lenders?

We may try to interest a lender in a fully collateralized win-win proposition loan (like the film project example below, but with collateral guarantees), except for one thing -- the payout to them is too small. If you can dig this essence, then the road will become lighter. It may limit the size of the deal at first, but the commitment to full collateral and a generous payout will be exuded as confidence and affection. Since most banks will not allow you to provide them gifts or a usurious interest rate or a profit participation plan, you are not allowed to really reward them the way you would like to.

Similarly, credit cards do not allow one to really reward them. And this may limit the harvest.

When one is convinced that one is bringing a lender the deal of all deals, one should expect this awareness to be returned. One really should make the payout for the bank or individual BIG, or move on to another investor who makes it possible to reward them. More about this in the "The Narrow Way" section below.

Years ago, a CPA told me his feelings about stock. "Why? Debt is so much cleaner and easier. There is practically no paperwork." I had to agree. My understanding of the state law on debt is that a solicitation for debt cannot be advertized, usury laws are stiff, and the debtor must reveal outstanding loans and creditworthiness when borrowing, which is pretty obvious; but it's EASY and fingerprinting is being done everywhere.

One can ask a private lender -- an individual -- to defer payment for a reasonable period, but ideally the lender will be one who would appreciate a $10,000 non-taxable gift when the business has hit its stride, and can adjust to very loose terms at first. The lender has the law 100% on their side and can file for a judgment in small claims court.

Since the subject of this section is debt, I should mention Small Business Administration loans. It took me some time to come to grips with my feelings about credit cards for business purposes; I may have a little way to go with SBA loans. SBA loans are supposed to be a last resort, but they may be mistakenly offered to start up's with collateral.

This is a kind of loan in which the desired money is collateralized and/or co-signed, and which cannot be released by bankruptcy. The bank's loan is guaranteed, by collateral and co-signature, PLUS in the event of default, the lending bank receives the guaranteed percentage of SBA guaranty AND the borrower's attached assets UNTIL THE LOAN IS REPAID. This promises the lender a usurious rate for a businessperson's failure, but not for their success. The Bible says that if one deliberately becomes bankrupt in order to be forgiven, one should be punished, but otherwise, bankruptcy is mercy, and at this time, it is difficult to advocate something which circumvents mercy and Scripture.

SBA loans require strong collateral, which is another reason NOT to apply for an SBA loan. If one is approaching a bank for a loan and is offered an SBA loan, this may be a red flag to you, the borrower. Either one has a terrible business plan that needs some market testing, or one has not really contacted enough lenders, or one has not contacted many who may be able to help. Again, if there is collateral, why would no one want to lend you money in a fair way?

I should also mention that the Small Business Administration website is an amazing resource, with business counseling assistance available online at: http://www.sba.gov . There are also many sites similar to this one, catering especially to business loans.

As a debtor with bad credit after a personal bankruptcy, I have seen some of the consequences of poor planning. And I have known good fortune. Due to keeping my business and personal credit accounts separate from one another, I was able to have a credit card survive my bankruptcy, which became a gold card after a few years. Although my personal credit was a shambles, I was true to the business account I had created.

Lastly, there are many kinds of relationships one can have with loan officers, bankers and bank financial services brokers. Did you know that a bank can arrange a profit-sharing loan, similar to a convertible bond? Some bankers know this, some do not. (A small bank that immediately re-sells its loans is less likely to make a complicated loan at a lower rate.) Bankers learn much from interacting with one another, networking. Some bankers feel very comfortable calling customers up and getting to know them socially; some (wrongly) suspect this is an abuse of power and insincere. When I worked at a bank, I had access to the names of dozens of individuals who invested in small businesses, but that didn't mean a thing to me. When I visited my mother's bank stockbroker to help her with an IRA rollover, I broke through the wall by giving her my name, address and phone number and one of my web site addresses and telling her I was now her personal friend. Since I am her friend, I hope she shares my phone number and activities with other brokers and clients who are her friends. Even bankers who are prohibited from "moonlighting" because they enjoy 130K salaries are allowed to have friends and to mix with them socially and share in their dreams. The work of the broker is to determine if the entrepreneur and investors he or she meets are mature enough to enter into business agreements which have some risk, which is the job of every broker already. Knowing a pool of 20 to 100 affluent investors and as many entrepreneurs who seem to have the "golden touch" would be a shame wasted on someone who couldn't appreciate the gift. Let the entrepreneurs wait a few decades, let the rest buy municipal bonds?

It is part of the "gratitude check" that we try to expand mercy, justice, compassion, harmony and growth for others. The metaphysical conundrum that true gratitude is apathy is addressed forcefully in Christian dogma, where physical and mental healing appear through growth in personal understanding of the sonship of God.

Investment Banks

And there are investment banks willing to look at any kind of executive summary -- hooray!

One needs to know that some investment banks are not geared to garage invention. An "investment bank" has historically been any entity willing to look at a large cash transaction involving a business: mergers and employee buyouts are some of the many kinds of circumstances in which anyone with deep pockets could profit. Such transactions are also typically heavily collateralized and provide large one-time fees to the lender. For that reason, your car finance company or mortgage bank or lawyer might also be an investment bank, if the payout is good enough. Generally they will be looking for "20 million plus" net worth companies. Such banks may be primarily intermediaries for other larger banks; this has become very common over the years. There are many many kinds of "investment bank."

The kinds of "investment banks" willing to look at a new product, service or prototype invention would more likely be venture capital companies, individuals or NASD Broker-dealers. This is good to know if one intends to approach investment banks, since virtually no innovation-oriented investment banks will talk in the cash-in-advance terms of mortgage lenders. There should not be any request for advance fees to examine a project.

In order to weed-out the other "investment banks" from computer searches, I have found it useful to add or start with terms like "start up," "venture capital," "innovation" and others, like "NASD." Coincidentally, since the prevailing thought seems to be that well-publicized companies may be sold for more money, and that the fun of investing in great companies is selling them at a profit and lending to more companies, many investment banks are either allied with NASD Broker-dealers, or are themselves NASD Broker-dealers. NASD stands for "National Association of Securities Dealers," essentially a cartel-like brotherhood of auction house owners, regulating over 500,000 stockbrokers, but open to anyone with the entry fees, bonds and personnel. Among these NASD-affiliated Investment Banks are some of the most enterprise-friendly investors around.

(NASD, NASDR, NASDAQ: sound confusing? In the Garage Shares section, issues like applying to the NASDAQ's non-NASDAQ OTCBB, and e-mailing self-clearing OTCBB DRIP's to purchase stock directly are given some attention. Fear not. In short, this web site does recommend the OTCBB for registering public stock.)

There are not only many venture capital companies, many which are merely small groups of investors, there are many invention promoters and others eager to provide middleman services. These investors and others recognize that in a world where as little as $100,000 can achieve startling results, resourcing the talent pool of over five billion beings on this planet, it is a privilege to get involved.

In general, sophisticated investors will not be interested in debt, unless some provision is made for profit-sharing. But they are very interested in what you have to offer, whether it is a new flat display television screen for the many 2D-to-3D conversion boxes soon to be marketed, or the invisible hover cam, or the latest insight in programming that watches your weight, finds you a date and helps you perfect your speaking skills.

Garage.com Securities is a broker-dealer subsidiary of garage.com at http://www.garage.com . Wit Capital is another famous broker-dealer on the web. These and other investment banks, and venture capital companies, are providing convenient access for good thoughts to meet good people. Garage.com makes a short list of investors public knowledge on its web site, and has streamlined the application process to a questionnaire and very short 100 word pitch of the business concept. Garage.com claims to prefer $2,000,000 businesses, but hopefully can handle earlier stages of development. I am unclear what its valuation policy is, since in its "Questions and Answers" "Forum" at its website, a CPA describes how that a two page executive summary for a multimillion dollar enterprise (read by one's friends first to pass muster) might be worth submitting to Garage.com.

The same CPA recommended Price Waterhouse as being able to assist great ideas. I could see how that a large accounting firm would be in an ideal position to recommend a joint venture partner, if not a well-suited investor.

Courage. Again and again, one finds that love is proven able to dissolve seeming obstructions to productivity. If your business has billion dollar philanthropic potential, go wherever you like. The way will open if it's God's will.

6) ALTERNATIVES TO PUBLIC STOCK: SALES CONTRACTS

[There are special rules that affect advertizing businesses seeking capital. In short, if a business is to be sold to more than one person, forcing people to become interdependent partners, or the business is seeking special time terms, as with seeking a loan, there is a prohibition on general advertizing at the state level. There are also many common sense exceptions. This is developed in greater detail in the section following this.]

Sometimes a product will lend itself to a large firm order. Sales contracts are the premier alternative to raising capital, to my way of thinking.

Sales contracts are best for small investments, under the legal maximum of $5,000 in California for Small Claims Court. Make it easy for your investor to get satisfaction, and they will be easy on you. Try to write detailed common language contracts that describe what is being promised, and whether or not the money is expected to be repaid.

As an example:

Suzy is paying Al $2,000 to produce a short video based on a script by Al, a copy of which is attached. Al will retain the right to sell or option the script again after photography is completed. Suzy will help cast the video with her friends, and Al will file the necessary Screen Actor's Guild "experimental film" contract to conform with Suzy's SAG obligations. These will include deferred salaries for the cast and crew. The shooting will last ten days -- Al will be cameraman, lighting man and set decorator. Suzy will receive a copy of the video rough footage, and Al will have complete control in negotiating to sell the video. Suzy will provide meals to the cast and crew. Al will retain 70% ownership of the video project, assuming it is completed. In negotiating for post production services, he may involve 80% of the project in negotiations. (That is to say, if a distributor wants to purchase 50%, they will purchase from the 80% available, with 43 3/4% coming from Al's share.) Al will make every reasonable effort to complete the project but cannot guarantee this, nor that its appearance will conform to industry standards. If it remains rough -- in a state that does not lead to a sale agreement for the video for $10,000 or more -- for over 1 year after the completion of the ten day shoot, Suzy has the right to edit and re-record the rough footage, at her own expense, and Al's ownership will drop to 35%.

On the Internet, if such a contract between a hobbyist filmmaker and an actress became a subject of discussion, in the sense of "How can I get a piece of this? Is it finished?" Etc., does this qualify as selling securities? What if the web site that exhibits this contract mentions they will be looking for "deals" on post production services?

Again, no securities. A bid is being requested for a contract. The problem that only occurs with neophytes to business is not knowing the basics of business law. What is meant by the basics of business law? The law that says not to shake hands on a deal and then change your mind, or give someone the impression you are making a firm offer when you are just seeing what sort of price you can attract. Bad habits. There are very readable books available at the library, and increasingly online, to help tyro entrepreneurs pick up this info. Here's an example: If I make an offer on a video, and then someone else turns around and offers me twice the money, do I take it, or first contact the first person and tell them that I am withdrawing my offer? Fortunately, in small claims court, the burden will be on the first person to show they were made a standing offer. Morally, I would want to be called back, especially since I might make my own counter-offer. A buyer who asks for a standing offer is not very considerate, but we demand standing offers every time we go to the grocery store with coupons.

An important thing to mention here is that permits may be required for these activities. A Seller's permit, for instance, is encouraged by the state for every individual who makes sales, beit for a hobby or in the course of providing a service, like fixing a fence. Fortunately, in some areas, there are "one-stop" permitting organizations like the EPA's California site http://www.calgold.ca.gov . A seller's permit in California is without a fee, though it requires the seller to keep records. In California, a $25 home business fee was instituted in 1997, but was repealed. In Los Angeles, a business licensing fee of $100 has been instituted.

Keeping good records and not avoiding permits is good business, and shows good faith to customers as well as investors and regulators.

The Sales Contract method has a wide field of applications. Consider this Ad for a vanity film production house:

"We can get you on television in a starring role this year. Interested? Call for Fame and Fortune Kit,... Garage Capital Pictures produces full length features for the direct-to-video market for our investors."

Also, many of the ads invite actors to be shot with digital video technology at competitive rates as low as $50/hour, the minimum for a five minute scene, sometimes one hour of professional video editing is included. The introduction made, the equipment owners could then approach the actor about producing their own video feature. It should be mentioned that the ad should not make any guarantees that cannot be kept. "On television" has a common usage meaning -- on broadcast television. A promoter who plays a client's tape on his VCR and says that they are "on television" would be guilty of fraud. Hold them, and yourselves, to the highest standard you can.

In short, use contracts, together with advertizing, to raise capital for your product or project. Variations along these lines are constantly appearing. One's web site especially can provide fertile ground for contacting others. One can also phrase these offers in non-financial terms, as is described below.

To reiterate the "hobbyist" exception mentioned in a number of places in this and the "Garage Shares" section, there is a difference between a hobbyist and a business. A hobbyist is deprived of business privileges like equipment depreciation or home-office deductions (to my knowledge), and in exchange has the comfort of knowing that modest licensing fees and regulations do not apply to the work he sells. The great majority of home businesses do not hesitate to pay these fees.

One of the kinds of regulations that do not apply to hobbyists is the prohibition on advertizing applied to some investments.

The Prohibition on Advertizing Securities

"Why are there ads for actors and camera people but there aren't any ads for filmmakers trying to raise money for their feature films in Backstage West?"

Three answers: there probably are ways other than this that are more effective for filmmakers raising capital, or some other factor that I am unaware of, or the newspaper may be under the impression it is against the law (unlikely).

Can I print a nice-sized ad offering twenty thousand shares of "The Dirt You Walk On," a romantic comedy digital video feature, for $5.00 each?

The short answer is "no, with a lot of exceptions." The screenwriter might be able to place an ad for producers to read his script, where the stock offering is a sort of sham. A producer might place such an ad for stockbrokers to read, especially if there were reasonable expectation that lawyers and stockbrokers browsed Backstage West, but it would probably have to bear numerous notices denying that it were actually a stock offering. (As a stockbroker, I did regularly browse newspapers for business opportunities, and a seasoned "finder" might do the same. If a regulator were to call and offer money to the filmmaker's producer directly in cognito, they would do best to refer the call to a lawyer who would act as intermediary, or conduct a query of the "investor" to prove that they were either financial experts or very rich.) Or, one could make sure that the advertizement conforms to the state requirements for 25102(n), and pay the state its $600 fee. (There are still other options though.)

The purpose behind the various federal rules set up regarding selling debt or stock to "the public," is to protect "the public" from deliberate or accidental fraud. In order to protect the public, some of their freedom of speech-listening/assembly is denied them. This is a funny way to look at freedom of speech, because the argument made is that the best way to prevent someone from lying is to not let them talk. The states seem to have carried this much further in the spirit of tort law, and limited advertizing substantially beyond the scope of the SEC's (federal) requirements.

The best way to comply with the law is to identify with the intent of protecting the "public." One should know that there are very few restrictions on "private" or "business" transactions. The distinction is between one group of investors and another, aka the "public" and the "exempt."

Let us say you have only $500 to your name, but you claim to not want the SEC's protection, you want to hear about what the issuer is selling, and what's more, you want to buy $500's worth of Fleeber Noof's "The Dirt You Walk On" movie. Is this comparable to a minor saying they choose not to be a minor for the purposes of the law? Very much so, yes. And if a minor enters into a contract, that contract is void, and the adult party can be liable for all consequential damages. So, too, the issuer who completes a sale to an "investor" who is protected by the umbrella which the SEC has provided, may be liable for some pretty substantial damages. Yes, there is a difference between an adult who says they consulted with a CPA or seasoned investor about the Company before their purchase, and a child, and Internet entrepreneurs, among others, are making the most of that difference.

Some people are excluded from the SEC's blanket anti-fraud protection umbrella. They are on their own. You can guess who they would be: owners of successful businesses, friends of the "issuer," business experts in the area of business being marketed, investment advisors who should be able to recognize fraud like accountants, stockbrokers, lawyers, bank personnel, mutual fund experts; and people with very high incomes, who one conjectures know how to stay that way. Actually, if a person partners with an investment advisor of a kind, like a smart rich person or a stockbroker, that should fulfill the requirement for exemption. None of these people are "the public." Here is another list: Example Ads, Garage Capital .

Being on the correct side of the distinction between "public" and "exempt" can make a real difference in ease of investing. Not only does one get to view multi-million dollar private placement proposals, if one is going to invest $1,000 in a stock that has fallen from $5.00 to 10 cents, becoming a true "penny stock," an investor might possibly encounter some serious and loving objections unless they claim to be "exempt." OTCBB stocks, which are listed on nearly every Internet service, are also sometimes not registered to be sold in all states -- but this registration is not necessary for "exempt" investors. That is a key point for brokers, regulators and investors to understand -- an OTCBB (or OTC) stock may be sold to an "exempt" investor anywhere at any time. More about OTCBB stock sales in the Garage Shares pages.

The states are concerned about the protection and liquidity of the naive investors's investment. They would probably make no effort to protect the investors if issuers would simply collateralize their investment in some way, like posting a large bond. Since the majority of small issuers may not be up to this, advertizing is currently "prohibited." If one puts an ad in the newspaper to be read by stockbrokers only or by people who know rich folks and who can get a 15% finder's fee -- is that advertizing -- especially if the ad is to contact them but doesn't describe the investment? I have seen these ads in the past.

The spirit behind the prohibition on advertizing investments is very loving, and there are many ways to comply with both the spirit and the letter. Bear in mind, above all, that one is supposed to be offering wealth, not sharing poverty. Modernization and plain-speaking can simplify communication and make these laws unnecessary soon, let us hope.

Can I advertize a hobby activity like a barn-raising and invite others to bring supplies and ask them for assistance? Can I list what is being done on the internet? Can I put an invention or screenplay on a web page and advertize that web page? Yes. If using a newspaper or the web feels right, I suggest one do it and not fret over circumstances.

If your intention is very pure, then God willing, the money will appear without things like advertizing, before you get the chance to place an ad, while you are asking around, collecting details.

There are SO many exceptions to the "rule" intending to prevent fraud and suffering. If I place an ad in the paper for a movie hiring actors and crew people and add MOVIE FOR SALE, interested buyers, contact ... (using the business brokerage or product sale exemption) that should be okay. I strongly believe that if one bends over backwards to fully collateralize and value/polish a pious uplifting project for its investor, that the detail of finding that investor will become insignficant. I strongly believe that if one bends over backwards to fully collateralize and value/polish a pious uplifting project for its investor, that the detail of finding that investor will become insignficant.

If one attacks city hall, city hall tends to attack back. Spiritually, many believe this isn't city hall's fault, it is the reflection of anger and negativity. What goes around comes around. (Also, on the meta-mental plane, the idea of government is the idea of one's ability to think. One shouldn't criticize one's government carelessly, I have become fairly ill when I have.)

The government is trying to prevent lying by stock issuers or sellers. If the stock is nearly worthless, that should be its pitch. "Come lose money." One way to not lie is not to talk, that is the principle of prohibited advertizing. It is a convenient start, so why would someone like me oppose it? Because laws should not obstruct love. Love walks onto the scene, and fear and hate start looking like pretty stupid strategies. So, if your ad is about love, and is loving, that is all the "regulation" you should need. Another ad example: "We're looking for friends to help us with our project. Here is the script. www.garagecapital.com" or "I am working on an engine the runs on water, www.waterengine.com, looking for friends."

"Looking for friends?" YES! That is how one "complies" with the intent of the law, as well as the letter. Again, the invention has a pure philanthropic intention and the issuer is trying to collateralize the investment, and is going the extra mile for it, possibly putting some of the patentability of the project on the line in order to move things ahead.

Here is another list that may be useful, from Example ad's.

Reviewing some of the well-publicized exemptions: advertizing to CPA's and stockbrokers is allowed, as is publishing a national or interstate investment newsletter for or corresponding with anyone who describes themself as an investor, or buying space in an existing investment paper. Using sales contracts (discussed above) or premiums as an entre to discuss larger projects is not advertizing. If an ad sends a person to a web site, where the viewer is required to confirm they will share what they learn with a financial professional or expert before reading further, that should be enough, but some web sites extend this intention by adding a delay of a day or phone contact -- pretty respectful for an unconstitutional law. An advertisement I recently saw simply asked if the reader felt their friends were getting expert financial advice from them, to then visit a certain web site. I expected it to be for a forum of such experts, but it turned out to be a business seeking investors. Much face-to-face meeting is not advertizing, if one likes door-to-door work. One can offer to "sell" a movie that hasn't been made yet, or one can probably list partial sale of a larger project, such as " post-production budget partners, LLC." If a person is "qualified" as a friend (returns calls or mail at least), business expert (in the same field) or extremely rich person, feel free to e-mail them.

And since much more money theoretically can be amassed by using "finders" or "purchaser's representatives" than by doing without them, it behooves one to investigate this option. More about "finders" below.

The "Prohibition" on Finder's Fees

I recently spoke with a man, while working on this site, who volunteered that he had acted as a finder a number of times, and that he had sold shares in oil drilling operations at one time. He felt a little guilty that he had received a "hot tip" from a stockbroker that had made him 400% profit, but buying the stock from another broker. I admonished him to pay his stockbroker the 1.5% advisor fee that the broker deserved, but he had "saved his life" a number of times he said, so they were still far from even. For instance, he had helped the broker put together a group of investors for a rather sizeable investment, but had not received a finder's fee.

I asked him if he had asked for one, and he said that usually he didn't. He also seemed to be accustomed to the idea of receiving a finder's fee long after the event of an investment. He said on one occasion in the past ten years, he had received a check for $100,000 from one person who he'd put in touch with an opportunity some time before, and he sent the check back to him. When it was returned, he cashed it.

He also gave the impression that he was a big believer that friends of friends of friends was the way to raise money for great projects. (This is also a common theory in venture capital circles, though it doesn't cheer me to hear.)

So, some sort of "finder's fee" is expected.

Worth knowing.

It should be pointed out that the textbook "finder" is actually very different from my friend. He made introductions and perhaps some follow-up calls, and hoped to be remembered. This is different from calling up a lawyer and offering him a 15% commission on clients or fellow lawyers brought to a certain project. Could one offer a lawyer an investment, and let them know casual introductions would be remembered? I see no reason not. If one offers to make an introduction, as happens at Investor Conferences, etc., that is not "finding" technically. But the result is the same, or better. (One might want to keep good notes on who introduces who.) "Better" because if the investment goes sour, the finder has sent the business owner to the investor, but not actually made an introduction jeopardizing their relationship.

Whatever its reasons, California law seems to discourage "finder's fees" for people raising capital. In the ULOR/U-7 package, it is discouraged by a $10,000 surety bond unless a person is an NASD broker-dealer, and in the 35 investor short form 25102(h) it is prohibited. In my experience, a surety bond is pretty much the same as cash, and California allows one to use cash, but the department of Corporations keeps it for two years. I can identify with the spirit of keeping the cash for two years, because one should not try to collect a commission on a deal that loses money, whether a "finder" or a "stockbroker."

Many California investment regulations do not apply to "accredited" investors, but this is apparently one which does. The only possible exception(s) that come to mind would be Regulation A, which is mentioned elsewhere on this site. To my knowledge, federal and California tax laws allow expensing "finder's fees" associated with these issuer stocks, also known as "business opportunities." (And you know this site is not going to provide tax advice!)

So, one may not gather a commission without making it pretty obvious. May one ask for a loan from the investor -- not the issuer -- at the same time as selling the investment? If I understand the law correctly, that's fine. And if the loan were "bundled" with the investment? Still, probably fine as long as it's fine with the issuer, because the loan becomes due when the investment milestone is profitable and expensed by the company. If the investment falls through, the loan is still due, and can be awarded in small claims court. For that matter, if an investor chose to cross out the "purchaser representative commission" line in the disclosure document, so that no deferred commission were allowed, and at the same time make the finder an outright gift of 5 - 10%: this is all allowed. And why not?

I prefer the casual "introduction" over commissioned salespeople anyway -- bringing the issuer to the investor over using a broker or other agent to pitch the investment -- to prevent the appearance of divided loyalties, yet stockbrokers manage to do this every day. If a banker or CPA or family member or co-worker or chauffeur or ex-fiancee knows that an investor would be interested in a certain profile of investment (such as win-win, doubly collateralized, with an over 300% potential upside), the referral should be credited to whomever brings the name to the attention of the Company. This has been going on for years, and one imagines, has reached a new degree of sophistication with e-commerce. This is in contrast to the "everybody's new friend." The purpose of a small stock offering should not be to launch an army of insincere salesmen motivated by $2,000 commissions at the public. That individual is after a commission the moment the check is cleared. The real-world "finder" has savings, another job, is on vacation or is semi-retired -- he or she can wait to see the fruit on the tree.

The intermediary I know also claims he was invested in every project he sold. This is very useful for spiritual reasons mentioned above in Section 3. The Intermediary, then, should not need a finder's fee since they will be profitting from the deal and the effort of fellow investors who want escrow reached as soon as possible. To the degree these investors are helping the intermediary, the intermediary may consider not taking a finder's fee, or taking it.

The only drawback to well-intentioned rules against things like "finder's fees" is the impression that the small businessperson might get that they are being "hemmed in" by the evil elite and you know who you are. One kind of commission is forbidden, while another kind of commission that is not described in any literature is "okay."

Consider, for instance, a business "opportunity" structured as a single product invoice, beit a house or movie or piece of equipment, with a single purchaser. This "referral" is not subject to the law. The person bringing the "investor" to the movie producer could receive a 15% sales fee for the movie product.

It is easy enough to identify with the overall language -- one wants for all of a company's capital to go to operations, instead of having as much as 15% lost to finder's fees. Elsewhere, it is suggested to try one's capital raising in three stages: first, without any intermediaries; second, with finders who get commissions on a tentative basis and are generally sold shares; and lastly with traditional broker-dealers who get their commissions up front. Delaying finder's fees until the investment has shown a profit makes the "finder" superior in some ways to the stockbroker. I believe that 15% is the maximum commission/finder's fee allowable, but it could be higher. 10% is the industry standard commission for IPO's, but other commissions (going to syndicators and managers, for instance) are typically figured into syndication expenses (usually 5%). Again, the only "finder" I have met in recent years does not ask for fees. I should mention that it might behoove the issuer to bring up the subject of finder's fees as often as possible with an eye to suggesting others do likewise and cultivating introductions. Finder's should be paid only after the investment becomes profitable or certain milestones are reached.

By the time a person is dropping hints about referalls/finder's fees, they have shown their project to a number of people with some business experience who they respect. The finder will be a "team player," who recognizes both that if one makes a friend a lot of money they will be much loved, and that if they cause a loss, they might be treated like a thief. Thank you very much, Mr. Entrepreneur. A finder has important friends, and does not want to get the reputation of being a false friend, even if there are 3,000,000 or so millionaires in the United States. Should the business owner try to go it alone first? Should the business owner have more than one finder? This question is the same question in some ways. If the business owner finds an investor who decides to take on the whole investment, the finder will be out of a job, but can notch his belt that the project was funded. It is the business owner's responsibility to continue looking even though there is a finder at work. This is why it is important to respect the finder and treat them well. The business owner should go it alone at first, probably, in order to locate finders as well as to hone the pitch. Also, the prospectus for a project without a finder is simple and optional; the prospectus expensing cost-of-money for finders at pre-determined business milestones will be more complicated and ethically, if not legally, mandatory.

Another "twist" on the above approach would be for a "finder" who was not an investor to agree to have the fee converted to stock at the milestones described, a big sacrifice for the Company, but not endangering any investors as long as milestones are attained. (Where this approach becomes a sham is stock "promotion" where investor cash buys real estate or other assets that do not reach competitive profitability and these assets are then liquidated into the hands of promoters paid in stock. The "milestones" arranged will need to make clear that dilution does not feed on investment profitability, for instance, by requiring investors be notified before a milestone is to be reached that will result in intermediaries being paid, and/or by paying those investors their profit first.)

The casual "purchaser's representative" can be likened to the casual investment advisor. On the far end of the scale, an individual can create a mutual fund, meeting capitalization requirements of the NASD and at the state and federal level and filing numerous forms; or the same individual can provide stock tips to his friend and ask no fee, but provide a running tally of the theoretical gains the friend could have made. It is common knowledge that those who provide this service routinely collect a 1.5% of assets invested fee. The individual who provides the advice trusts his friend to reward him as he sees fit. If I were an informed investor, and frequented one of the web sites providing highly respected returns, I would voluntarily send those charitable analysts a respectable fee if I profitted from their advice. (Even though some abuses can be imagined from the facilities of the web -- a "lemon drop kid" approach to returns culminating in an IPO fraud -- common sense dictates that they would be found out sooner than later.) A person who receives a finder's fee is a friend.

How does one drop a hint that could lead to funding or a finder? There are many books about being more open and forthright, especially about win-win well-prepared business projects. This is sharing good news, like "Hi, I'm Scott, my wife and I are expecting, and if you know anything about oil, I am planning to produce a line of biodegradable plastic products."

Informed investors are rewarded. They have superior service on higher-return investments.

One may also be answered in a more direct way: in the case of this site, while revising the "finder" section, I met a "finder." Thank you, God.

7) ALTERNATIVES TO PUBLIC STOCK: VISITING THE NORTH POLE

By the "North Pole," I mean visiting Santa, since state securities laws seem to discourage writing letters. (Hilarious, how do I come up with these?)

"Angels" sometimes appear at special "Investment Shows" or "Enterprise Seminars." Inventors and other entrepreneurs frequent these gatherings. Some are very affordable, such as the Business Forums hosted at some colleges or held in a local bank's "community room" (rooms provided for non-profit groups like the boy scouts, for tax deductions and as community involvement). One of my greatest capital-raising successes came by attending some of those meetings when I teamed up with a gifted inventor. Apply the Golden Rule, and help others raise capital if you can. If you feel you are competing with others, this experience is not going to be worthwhile. Remember body language? Go to give.

An excellent place to meet professionals in the same business one is trying to enter is at an industry trade show. There, many qualified investors can meet you. If you can afford to buy or share a booth, so much the better.

One person who knows many "angels" is your local commercial banker; if a customer is maintaining twenty different business accounts under one personal corporation, he very well might be an "angel." Can a commercial banker direct a "business opportunity" to one of his clients and lay claim to a 5 - 15% finder's fee? The commercial bankers I've met have been some of the sweetest most decent people around, I would hope their professional conduct would include having an open dialogue with customers about the kinds of investments they make and offering to steer things toward them when and if they came along. Two things might prevent this: one is that bankers can be overly discreet -- when I worked in a commercial bank, I had access to dozens of investors, but left them all alone; and second, even if it were legal and I am not positive that it is, the banker might not be comfortable with pointing opportunities toward depositors, especially if the bank offers securities, as most banks do at this time. (All the more reason to ask to be listed on the OTCBB, as described in the stock section of this site.) In this situation, as mentioned above, the bank customer has to go the extra mile and ask the bank officer to be their friend. Drop hints about either being interested in non-bank investments or having an investment project underway. (One may also contact retired bank officers, who maintain purely social ties with depositors.)

The next person who knows "angels" is your CPA. When I worked for commercial bankers, they covetted the clientele of CPA's and went out of their way to cultivate their business. CPA's who I have met at coffee clubs, etc., have revealed some impressive insights about investing. Sometimes CPA's find themselves used to "escrow" large amounts of money for projects, or as "trustees" of large estates, in addition to the investment duties that they can perform for clients according to the higher ethical standards of their profession. This doesn't put stockbrokers out of a job, many investors prefer the results they get with stockbrokers and have more than two that they do business with.

For this reason, a CPA may give you a few minutes of their time. Or ten seconds, if you are sending an e-mail. (If you don't think "screening calls" karma can catch up with you, you'll find out soon enough.) Be prepared and pleasant, and don't hesitate to leave "roadshow" sales materials with them. A CPA or stockbroker, lawyer or bank officer is like an investment banker in that regard. March through June can be hectic for CPA's, so be advised.

On a related note, I should share that a CPA with one of the "big eight" accounting firms, "Price Waterhouse," has suggested sending high quality two-page "executive summaries" to their firm, which has a venture capital arm called "Money Tree," as well as to Garage.com, a broker-dealer specializing in high yield startups. Garage.com is also mentioned in the links section, Links To Capital . Price Waterhouse's involvement in Garage.com seems to be a very positive commitment to helping viable startups. Perhaps a moonlighting CPA could help put together an ATP proposal?

Is a lawyer a financial expert capable of reviewing an investment for potential recommendation? The lawyer or CPA or financial expert should be allowed to receive a "commission" just as an NASD stockbroker does, as long as there is nothing duplicitous about their relationship with their client. Again, I have read in the California Code of Regulations how that a stockbroker can sell for an Issuer and receive as high as a 15% commission, but that if the Issuer wants to give a lawyer a sales commission, they must file a $10,000 surety bond with the State. Since lawyers represent a large intelligent professional base of the economy, listed like CPA's throughout the white pages, it seems reasonable to want to contact them, as well as CPA's.

One can still offer the lawyer a finder's fee when and if the business reaches a milestone or begins to turn a profit. This is more ethical than a commission and would be more reasonable timing, since it could be "expensed" by the Company. Technically, the California Department of Corporations prefers a wait of two years on "finder" commissions, but this doesn't apply to the casual finder's fee described. This "purchaser representative" should be included in a "disclosure document" in some form, even though all they may have done is suggest a name to an Issuer. In practice, one may have a box with a check in it denoting "finder's fee applies to this investment, and will be expensed when and if it proves profitable," in the disclosure document. One can split commissions between two finders, such as when one finder leads to another finder, but I believe that Issuers and their officers collecting or splitting these fees is highly discouraged, for obvious reasons (this is "resale," they own shares, collect a salary, etc...).

It is my understanding that if a finder like a lawyer were to include a loan for themselves in the same amount as a commission as part of the investment agreement, that that would probably be allowed. In the event the investment were not profitable, the loan would need to be repaid.

One somewhat noble gesture in my life has been to leave an NASD broker-dealer because I wanted to raise money for a small business-owner, because they declined to approve his company as an investment that I could sell. His Company had a dynamic patented product and was beyond reproach. (It is still carried in stores around the world.) As it is the case that commissions on private placements are essentially only allowed to NASD stockbrokers, and not other professions (at least in California), then technically -- for those advocating the OTCBB -- this is another reason to request that one's offering be accepted by a NASDAQ market maker for submitting to the OTCBB (more about this in the Garage Shares section), making the stock a public stock. This does not prevent the stock from receiving much the same scrutiny and restrictions as a private placement, but at least it will be available over 100,000,000 or so computers, and its progress trackable.

One begrudgingly approves of the idea of commissioned agents when an offering is undertaken. Ideally, if fees allow it, one should attempt an offering without commissions, and then a second offering with "finder's fees" and then a third offering with "commissions," as required. The investor is looking for growth, not the immediate erosion of their investment by legal, accounting, printing and commission expenses. Neither do they want the car to not have enough gas to reach its destination.

(I should mention again that California regulators treat Regulation A substantially differently from other filings -- there may be a body of cases supporting its unencumbered federal intent. Again, Regulation A also allows finder's fees.)

The stockbrokers who specialize in private placements are a wonderful group. I was never in their "in" group; I doubt I was "ready" for them -- gratitude is riches, complaint is poverty. They do exist, though, generally working for smaller broker-dealers where the intimacy and low overhead to discuss private placements is practical. It is worth making dozens of e-mails to find a handful authorized by their broker-dealer and willing to look at your investment. Don't worry about the competition, focus on your product, the degree of satisfaction it brings its investors, and its payout. Get cracking!

8) EVERYBODY ELSE

And what about the other 95% of investors with net worths of $1,000,000? Is your web site up? How To Make Professional-Looking Web Sites . Are you a presence on the Usenet newsgroups? Many investors are gradually coming around to using the web, and you may either have to reach them through their children, or some kind of event or snail-mail promotion. The rules on snail mail and e-mail direct contact with investors are currently being revised. The newspapers are full of events where these investors may be in attendance, though they do not always report events like Kiwanis, Toastmasters and union retiree get-togethers. Many of these groups have newsletters, too, which are willing to carry material like business cards and educational essays or speeches and other news items.

There is also an interesting phenomena in the use of "banner ads" on Internet Service Providers (ISP's) like "Netzero," which toe the line on advertizing investments. One ad essentially reads: "Do you give your friends $20,000 stock tips and not even get lunch from them? -- Click here now." We sometimes forget that "clicking" is essentially making a phone call. In the case of the example ad, it lead to the web site of an international holding company of some gold mining and technology stocks. The ad operated within the law in several redundant ways: the company was international, and "clicking" indicated that one was a financial expert among one's peers, which is a classic exemption from SEC rules. I should probably also mention that it is very likely that "clicking" created a record of the banner and my computer's connection to the company, establishing priority for a kind of Internet "finder's fee."

Another banner ad I recently saw, and clicked, brazenly asked me if I wanted to invest in some new stock, known as an initial public offering or "IPO." Here, something interesting happened, because it presented a screen asking me which state I resided in. I gave one of the states I understood to be very easy to register securities in, allowing one to e-mail or put in newspapers a "testing the waters" query. This lead to a screen apologizing that the issue was not registered in my state. This may have been a programming mistake. I used the "back" button and resubmitted the form with "California" and was brought to a screen asking me for pertinent information, which was part of a web page.

Two things probably make this possible: Internet banner ads provided by Internet Service Providers (ISP's) -- this one was from "Netzero" -- know the state and "interests" of the online user, because they are entered in order to open an account. California, especially, requires some honing of advertizingPlus, the issue was likely registered in California, and possibly had its ad campaign approved by state regulators. Although California is not a "testing the waters" state (prohibiting advertizing securities), there is a $600 format of advertizing exception, called the "Qualified Purchaser Limited Offering Exemption," Corporations Code Section 25102 (n), which I would not be surprised to learn was spearheaded by Silicon Valley. It is closely modelled after the "testing the waters" provision of Regulation A incorporation. That format requires some fairly extensive warnings and information about the offering process in the advertizing used in its blurb . I found that all of this language was included in the several screens following the banner ad, but before I reached the actual prospectus download page. Well done!

Since few states allow the "testing the waters" form of advertizing, I have not given it very much attention in this section nor in Garage Shares . I am very much impressed with the California Banner method of advertizing adapted to the California regulation 25102 (n).

One kind of news item worth writing might be about a government grants competition. If one wins a grant for a project, that has often been parlayed to an investment product, but even if one didn't win a grant, the article still could be informative and lead to productive relationships. Sincerity is essential. I haven't gone into great detail on the subject of research grants as they relate to inventors. At one time, I was amassing a list of all the awards and grants made available through public and private sources, from the "X-Prize" for rocket research to the "Turing Test" for a computer that can comprehend language.

Principle before personality. Express and reflect the infinite capacity of the divine, don't try to impress other personalities with your superiority.

A Private Placement Sales Example

[I am looking for some good examples of Private Placements to put here. Never mind the horror stories. They have their value, but usually the culprit is big as the nose on your face -- someone lying or chiseling. If you have some happy stories to relate, I would like to put a handful of examples here. The following example is a thirdhand composite to show sales technique.]

Let's take a few minutes to look at how investments are typically handled. The project is brought to a stage of completion that will make for a good investment. This could be a script, a group of prototypes, or sales of handmade samples. A team with experience producing animated films is already assembled to work on two animated features, and is about one year from completion, and looking for additional contracts. The goal is to raise the full amount of $1,000,000, for a number of common sense reasons. The salesman with integrity ordinarily buys at least a few shares of his own investment, and sells a few shares to close friends too. When he shows a prospectus for a project, let's use the animated cartoon adventure "The Invizo Kids versus Queen Prom" as an example, it already has some momentum. Everyone he has shown it to has bought a share. He knows the power of that statement, and he is very careful how he qualifies prospective buyers. Is this fraud? No, he points out to his investors that he is being careful who he shows it to. There are many things a salesperson can say in order to motivate an investor, but honesty is essential, which is why a salesperson should be an investor. And besides, if there is any doubt in his mind about the investment, it is sure to come to the surface as poor word choice, inflection, dress, body language, etc. Having integrity, he feels he has chosen a win-win project that has very little downside. The script has been prepared with celebrities in mind, talented artists and the cooperation of a non-profit corporation that is educating teens to be affectionate responsibly. If the project is not "picked up" by a major distributor, the non-profit will accept the film at its cost, providing tax deductions for investors. The downside for the salesman is that he is having to reduce his commission, rather than risk raising the eyebrows of the IRS, and he only gets a "bonus" if the film is sold at a profit. Having experience selling investments, he is careful not to "guarantee" tax deductions as a means of reducing risk. He also has another source of income, or is semi-retired, because although he can receive his commissions as he collects checks, any number of things could happen that might motivate him to return the investors' money. The prospectus for the Limited Liability Company has documents from the non profit corporation, the show "producer" who has worked with similar arrangements, its CPA, and the IRS (confirming the corporation's 501(3)C status). A "limited liability" company has some slightly greater appeal for investors, even in the field of cartoon animation. He makes the most of the profile of the investment, and extends his circle of contacts to as many friends of friends as he can -- the "six degrees of separation" concept that says that I know the President or anyone else by six friends of friends. As the weeks drag into months, he starts to lose a little of his enthusiasm, but then he encounters a windfall, someone who picks up half of the budget. The investor could be a client of the CPA, for instance. The CPA asks for a 5% finder's fee, and since this is allowed for in the prospectus, he will get it, though this involves the CPA having another CPA act as a third party to evaluate the deal, and assist with California securities law compliance, (which requires a $10,000 bond to be escrowed for two years or similar measures, as well as full disclosure to the investor, see here). Soon after, the salesman begins telling investors that the project is beginning to close, it has achieved its minimum budget. At this point, he revisits the richest of the original investors, to show them something else, a video story reel using celebrity voices. The video is not part of the sales package but can be shared with investors if they are financially qualified. These investors are accustomed to "roadshow"-type presentations. Usually, if a video is incorporated into a presentation, the presenter keeps the video, insuring it won't be broadcast. Three of the investors ask to increase their participation in the project. The target for the salesman is the maximum, which he must reach within six months to qualify for a bonus. He continues to contact investors and businesses, now sending promotional packages to a number of "long shots" -- cartoon "producers," micro cap mutual fund managers, other CPA's, board members in the Billion Dollar Directory, investors from Edgar 10Q disclosures, other "finder's" from U-7 documents, and even some independent stockbrokers. Fortunately, he already has many of these names onhand from other efforts. Out of hundreds, dozens return his calls and eventually, a few send checks in time to make the deadline. Some of these ask for commissions, effectively eliminating his compensation, but bringing him nearer his bonus. He goes once more to the well, contacting the largest investors with ten minutes of cartoon animation that the studio has agreed to produce and that he has edited together, and makes the maximum. His bonus in place (at the back end, when the film is sold), he announces the offering is closed.

It would be prudent to mention that probably the majority of "Regulation D" offerings are going to be for corporations, so the first step towards sales may actually be incorporation.

Negotiation

In all honesty, I do not know how to deal with counter-offers made when one presents an excellent deal to an investor. This can be very awkward. One has to listen carefully, and if there is a reason for the discrepancy, examine it. In one example, I discovered that while I had been careful to reduce the risk of a given project by fully collateralizing it, I had neglected to create measures that would transition the investor to exiting the project. The example was a "movie deal" in which the investor had "refusal rights" as well as collateral and a guaranteed rate of interest. But if they "took delivery," not only were they on their own, they had limited time-basis royalty rights.

It is very rewarding to test-screen a deal with someone qualified to invest, but who is not expected to invest. Sometimes, I have learned that the deal I felt was very strong had some blatant faults, and these could generally be easily and quickly corrected. Your "practice investors" can do you a very great service -- try to make sure to reward them with gifts and other tokens of gratitude as circumstances allow.

In the case of the "movie deal," a counter-offer was made for a 50-50% ownership of the project by the investor, which would be acceptable, except that with rights of first refusal, a tiny "Blair Witch" budget, collateral and a few other terms -- 50-50% ownership was ludicrous. The "producer" had taken on all of the risk of the production, and insured the investor from "exposure" by using the sales contract method. For a larger budget and more exposure for the investor, it could be possible.

The drawback of fully collateralizing and/or tax-advantaging a project is also its advantage -- the investor is no longer providing "capital," they are providing short term "liquidity."

What could be done to make the deal more palatable? For one, a "selling window" could be created, similar to the arrangements made for retail stores that take on "consignment" items. Then, instead of the investor having to make up their mind whether or not to "refuse" the delivered product the day it is finished, they can bring it to film festivals and visit video distributors over the course of a few months. The seller can also bring the finished project to these venues to improve the investor's odds of "exit." This is "bending over backwards" for the investor, and should include a "finder's fee" for finding the best deal for the investor.

The Golden Rule instructs us to focus on the experience of our fellow man. Exit is part of that. I do not subscribe to or advocate any kind of secrecy or insincerity in communicating with potential clients or partners. The great communicators seem to be great listeners. If one is consistently grateful, saving rebuke for the moments it seems appropriate, "negotiation" should quickly transition to details like whether to give one's car's pink slip to a third party for safekeeping.

To recap: "preview" your deal with someone who is able to invest for their feedback. Make the pitch after you have made the deal collaterized, tax-advantaged, bullet-proof, with a strong upside potential. Use their feedback for finishing touches.

There is a minor legal issue of whether or not this could be construed as "pitching" if the investors are non-exempt strangers. Depending on the quality of one's deals and how one completes them, the "practice investors" may come to revere the entrepreneur and have checkbook in hand the third or fourth time around.

9) ALTERNATIVES TO PUBLIC STOCK: SHORT FORMS?

Let us say one has contacted a rich person with a honey of a deal. A $2,000 video that looks like it has $200,000 potential, once it is "cleaned up" for about $20,000. Nobody has made a firm offer for $200,000, but there are several expressions of interest from "distributors" who think they can get this figure for the owner, and two firm offers for $100,000. The video's "producer" is offering 30% of the total expected -- $60,000 -- for $20,000 cash now. The video is not free-and-clear, it has contractual time limits and Screen Actors Guild contracts, but 200% is a pretty decent profit, given that the video is basically complete. The rich person likes the deal and has invested in video's before, but is almost fully invested, so he calls a buddy of his to take on $15,000 while he takes on the other $5,000.

By law, no "special form" needs to be filed. In California, since 1999, the agreement is automatically a general partnership according to a Uniform model; unless the rich man's friend takes the rich person's $5,000 as a loan, and becomes the sole investor (making an informal or "unstructured" gentleman's agreement that the profits will be split), or they decide on being a corporation. A receipt will do. A copy of the Uniform Partnership Agreement of 1994 may be found at CALIFORNIA CORPORATIONS CODE . It is found in Sections 16100 to 16962 of the Code. This protects the investor in the case there is no record-keeping. However, since it is a "general" partnership agreement, it is unlikely that sophisticated investors would want to by default decide on that. General partnerships are supposed to be not desirable for investors.

(The variety of business structures and methods are discussed briefly at this link: Business Organization . They are briefly: sole proprietorship, general partnership, limited partnership, limited liability company, corporation and non-profit corporation. A general partnership is disagreeable because investors can be responsible for mistakes made by business operators.) A verbal agreement that the capital being raised is for a corporation, as well as for a specific business purpose, would probably be sufficient for state and federal purposes of post-effective incorporation. In any case, the moment money begins to be accepted, one should keep contributions logged in a standard ledger and maintained by a professional bookkeeper.

I have worked for what seemed to be a corporation which did not file incorporation papers, to my knowledge, though they raised money from a dozen people in their state. I suspect that this may have been a case of "post effective" intrastate filing or an informal approach. The individual raising the money was a lawyer, and his investors, to my knowledge, were all business or private associates. I have been told that the federal law is the governing law for securities, and that one seeks "exemptions" of one kind or another, which usually sound pretty much like personal freedoms. Thus, there are exemptions for talking to rich strangers, exemptions for talking to business associates, exemptions for talking to CPA's, and a host of other exemptions, like exemptions where one promises not to lie by printing what one is saying in a book that one gives the stranger one talks to, and exemptions if all the investors are in one state and state rules don't require special forms, and exemptions where the government allows one to issue stock under certain conditions.

To recap: it looks like one can raise a great deal of money using verbal agreements and checks, saving "registration" of one's project until it is completely capitalized, as long as one keeps to investors exempted by state laws, who are typically the same investors exempted from SEC rules. The SEC rules also say that a corporation must be incorporated in the state it takes the intrastate exemption in.

When one makes a presentation to an exempt (unprotected) person, one can make as flashy a presentation as one likes, and one should. Have a brochure for them with glossy color pictures, offer a video that explains how the project is being done, bring a sample. The philanthropic project should be nurtured and supported. To reiterate, the pitch is being made to exempt investors, people who know when claims are fraudulent and will call in regulators to set you right. This kind of presentation is known as a "roadshow." My understanding of the law is that one can mail an exempt investor like a stockbroker or Bill Gates a videotape describing the new time dilated gravity antenna in glowing terms with a wonderful soundtrack.

But which is the better use of time: putting together highly qualified investor promotional packages or finding a finder? If one's business will automatically lead to a number of promotional items being produced -- an e-business or entertainment project, for instance -- one might try a direct approach with investors. My own limited experience with both approaches suggests a finder should be easier.

But if one contacts a protected investor who one has found in an escrow document or from a mailing list company, the first document will have to be a tactful request to communicate with the person OR one will need to file the $600 25102 (n) document with the state and then only mail the person a short blurb , according to the state's requirements. The tactful letter or call seems a better approach.

The exception to this is those states where protected investors are not blocked from receiving or reading a blurb-style advertizement, ordinarily with some form of coupon, or in e-mail, with a link: Alaska, Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah and Washington. (Sorry, but that list is a very soft "maybe.") One may contact these investors by e-mail, for instance. My understanding is that one can do this for either "Regulation A" corporations or for private placements, but that the provision was intended for Regulation A, in case one wants to dot one's i's.

E-mail and banner ads can be very informative and affordable. If the goal is to bring an investor to one's web site where they can download a prospectus, one can work with web sites that have banner ads or conduct indirect outreach through free coupons, discounts, e-books, stock, or things like contests. A contest is a great way to resource talent and get e-mail addresses and mail addresses.

Handshakes

There are two things to bear in mind with "handshake" deals: the maturity of the people making the decision, and "the other shoe." There are formal legal requirements for oral agreements, and they probably vary from state to state. I heartily discourage people from making "handshake" agreements unless they are very mature. What is meant by "mature?" Could you put a clause in the sales contract of a business stating that if either party grew unhappy with the arrangement, that they could dissolve the arrangement and return things as they were? A good friend did precisely that, in a deal that was worth over $100,000. Such contracts become "non-binding," but they become very mature. Where both parties are going to be winners, why would a binding contract be necessary? Similarly, a "handshake" agreement should not need to conform to special standards any more than it should require having a witness present.

The other part of the "handshake" deal is waiting for the other shoe to drop. Not all of us carry our checkbook with us, so an agreement might be made until a check could be provided, or an investor may choose to sleep on the decision or immaturely say "yes" to end the conversation. In many states, there is a 24 hour complete refund policy in force, where any contract can be backed out of, but one should not be relying on these laws. If an investor does not provide a check, but "shook on the deal," do any of us really want to sue them for the money? If we ever want to raise money again, wouldn't we rather give them a chance to "make good," especially if the deal they backed out of became successful? On the subject of checks, two details are worth mentioning: using a company name, even though business checking accounts are sometimes expensive; and escrowing money, which is one interesting way to meet financial professionals.

Banks in California will also require a County form called a "doing business as" filing or fictitious name filing from businesses which do not include the name of the owner. The fee is $10 plus $2 per extra name at the same address applied for at the same time -- at this time, an inexpensive listing in a newspaper is also required and does not yet conform to Internet user-friendliness. The inconvenience is small and makes every business in Los Angeles trackable. A seller's permit is free in California; as is the IRS employer identification number. All three will probably be required by a Los Angeles bank opening a business checking account. I do not know whether the Los Angeles business license fee of over $100 will be requested; I personally cannot endorse any fee burden on a business that may not prove profitable.

Some banks will have accounts primarily for merchants who receive dozens of checks monthly, and will have large monthly fees; often, a business will deliberately bank with such an institution when it has a good reputation as a lender. With the proliferation of e-banks, it may be possible to obtain a checking account with a bank that allows the business lower monthly fees. In mid-2,000, Wells Fargo offered "doing business as" checking accounts for small businesses without monthly fees. I, for one, feel that fair banking practice should not require non profit organizations to pay fees for low volume accounts.

The three alternatives to approaching investors with a business bank account: personal check, cash or credit card, and escrow. I wouldn't hesitate to ask a friend to write a check to my name personally, but they might be pleased that I had gone to the trouble of keeping my business and personal accounts discreet. Cash or credit card only? I don't think so. (It is nice that credit card investments are already appearing online. http://buyit.beseen.com is one example of a credit card merchant service that only requires sellers to pay a per-purchase fee of a few dollars, which is a giant step forward from high monthly fees, so we may hope for similar evolution to occur among those credit card enablers who allow investments to be made by credit card. At this time, I have encountered only one card service which accepted investments, with a 30% premium over the typical monthly payment.)

Escrow is typically provided by a law office or CPA. Some CPA's unintentionally become the trustees of large estates, and find themselves investing for their clients out of necessity; some are familar and comfortable with small business investments. This service can also be provided by a stockbrokerage or bank, if they are willing. The aim of escrow is to prevent the money from being disbursed until a set amount is reached. All four entities specialize in handling money efficiently and reputably. Some investors may prefer writing their check to a CPA, with the memo " Invizo Investment escrow agent." For one or two tenths of one percent of $1,000,000, it is probably a bargain.

A "handshake" deal is also another way of describing giving a friend a check for a business in which there is not any interest payment. The loan will be repaid when it is practical. These handshake agreements are usually between close friends and can often be repaid by being "worked off," or in the case of a great business success, the lender may receive either a share of the business, or other expressions of gratitude. One may give a person $10,000 annually untaxed, though I have heard of very large gifts where the recipient then scrambled to manage the extra tax bracket.

A "handshake" could also refer to the way a casual "finder's fee" relationship is begun, since any paperwork is going to reflect a highly tentative process. Remember that such an arrangement needs to be fully disclosed to investors. For inventors just beginning, it may be worthwhile to try raising money for others by volunteering to be a "finder" for their inventions. Inventors can be found at http://www.uspto.gov in the Patent Gazette area, or try one of the mirror sites of the Gazette listed by search engines. One can also find them by browsing, and using the search engines.

The Narrow Way

If you're taking the metaphysically pure road, and if what goes around comes around, you should be making the sweetest deal possible for your investors. For every $100, you should have $200 dollars worth of collateral available to them, on top of giving them the right to take over your project if you falter, and intending all along to compensate them far beyond what is necessary or common.

If I am to provide a deal to someone, let it involve no loss whatsoever for them. The total for the deal will be collateralized by one month's labor and all my personal assets -- whatever that amounts to, cut in half. If the total is $1,000 or less, so be it. It is part of the radical experiment.

Who does one offer this to?

Someone for whom the $1,000 represents no risk at all, of course. Offer Bill Gates the $1,000 win-win doubly collateralized deal, with an unlimited 65% ownership. Other terms? You sign over all of your assets and one month's labor over to him at the beginning of the deal. And provide him an easy exit strategy.

What is the advantage of the narrow way? For one thing, you are beyond reproach. But more significantly, you are metaphysically on the right track. And let's say that your deal is picked up by Bill Gates -- would it hurt your resume?

This kind of effort is a metaphysical experiment, just like stopping lying or stopping wearing flattering clothes, or doing charity before a job bid or trying to read minds in order to heal. To some degree, where I refer to "body language" instead of the power of good intention on this web page, that is a lie; I personally feel body language is insignificant beside the power of The Force. ; )

When Forms Are Required

I have not figured a definitive answer on when one "must" use any kind of form. If I receive a check from a gentleman for my business, and I tell him it will be entered in the books of the corporation, and later figured against the outcome, my understanding is that a form isn't required; the loving thing to do to keep costs down would be to call the investment a debt, and in good faith convert the debt to "shares" down-the-line when-and-if the business thrives. The federal "Form D" is used for seeking exemption from a longer stock registration filing. There are many other exemptions other than Regulation D, but if one looks on the Form D as similar to a CUSIP identification number, so that any queries made to the SEC can be promptly answered, then it behooves one to file the Form D, which is similar to a receipt and does not require a fee.

The investors don't necessarily have to be given disclosure document "prospectuses" like with full-on stock offerings, though this is being encouraged. One way of encouraging the use of prospectuses is to require some form of "restriction" on the ability to sell the securities, unless a disclosure document is given. The state version seems to not require either prospectuses or the use of "restricted" security status (in other words, buyers are discouraged from selling their shares right after buying them, but no time limits are required). Prospectuses put one's claims into writing, making fraud easier to spot. And to the benefit of issuers, although unsolicited advertizing is prohibited in many circumstances as we've already covered, the prospectus provides something that can be mailed in answer to queries. These queries can come from word-of-mouth or phone conversations. Again, a reminder: major investors and other "experts" may receive promotional materials of any kind, as long as they are brutally honest.

Form D is essentially a receipt. It says that the issuer is starting to accept money and expects to be exempted from the special stock rules that require a prospectus and special advertizing behavior -- does anybody else note something ironic about that?

The state form that parallels Regulations A and D (to be filed with them at the state level), 25102(f), has wording that requires that a person who the Commissioner requests to file the required form, file the required form within 15 days, and pay the fee that would have been required. The penalty for not initially filing is no penalty. This allows one to see what sort of response one is getting, which is nice, before paying a modest fee ($25 for up to $25,000 is a pretty good deal for garage inventors) except that the fee is currently waived.

I have not read similar wording in Regulation D for federal form D filing later than within the 15 days after the first sale. There is a brief note to the effect that not filing will not lead to the loss of federal exemption, but it is dangled with some participles and looks like a typo. For convenience, here is a copy of Form D . Again, prospectuses are required for protected investors, and apparently equal treatment is strongly encouraged for unprotected investors according to Regulation D so that protected and exempt both receive them. (Ordinarily, protected investors do not participate in 504D or Reg A offerings except where work is being provided in exchange for stock, etc., because the state exemption gets messy after the first 35 investors -- the price jumps from nothing to 1/5 of 1% plus $200, which isn't that big a deal, unless one is giving away stock...) And that's all there is to the law, as far as receiving money is concerned; as for control person, tender offers and exit strategies -- that would be a different web site.

When I refer to Regulation D, I am typically thinking of the $1,000,000 Rule 504 exemption used with a prospectus/form like Regulation A or some other short sweet agreement; there are other exemptions known as 505 and 506 with higher amounts.The information document for Regulation D includes a FAQ type document that goes into some of the many intricacies of the various exemptions from registration. In Regulation D, commissions are referred to as compensation to "purchaser's representatives."

Prospectuses

So, it is not uncommon to raise money without forms. It's worth adding that one can always return the money if the capitalization is not proceeeding well enough, though one should be aware that interest may be expected.

But forms of one kind or another often are used, if for no other reason, to recap the material presented in the "roadshow," along with the sales commission structure, financing details, and disclaimers. One might use a Small Business Administration business plan form, which is fairly detailed but doesn't enter into the details of partnership very much. The forms that are used more commonly, and which are very familiar to state regulators who must examine them, and so prefer them, are: Regulation A, Regulation S-B and ULOR/U-7/SCOR (a form that goes by three names; in the first two names, "U" refers to "Uniform," which is a term roughly indicating that the majority of U.S. states accept the form for some purpose, as with the Uniform Partnership Agreement). These three forms are all questionnaires which go into the capitalization details and operation of the Company, resulting in a prospectus-type document. Regulation A invites issuers to use Regulation S-B questions, but not use the financial section, which is supposed to be audited.

Other forms, like Regulation D "Form D" or State form "25102(f)" are basically "receipts" which ask for very basic address information and signature. "Form D" is required when filing "U-7."

The advantage of using one of the three questionnaire formats is that a sophisticated investor will recognize it and know how to peruse it for their favorite information. Here they are: Regulation A / Form 1-A , Regulation S-B , and ULOR/SCOR Form U-7 . The issuer who prepares extensive Forms like the ULOR does this in the spirit of love, to give the fullest description of the enterprise planned, to prevent any kind of misunderstanding.

The other purpose for using the forms is in the event an unsophisticated "protected" investor hears about the investment from one of its investors and wants to buy some shares. In the spirit of charity, one should allow these investors to participate. By law, they must be given disclosure documents, and the above formats all qualify. Issuers may also incur filing fees and regulatory attention by allowing protected investors to buy shares. If I use the ULOR to sell $1,000,000 of stock to less than 35 protected people, there is no filing fee, due to a temporary suspension of the filing fee in California until June 30, 2000. Thereafter, the less-than-35 filing fee is $150. It can be submitted whenever the filing is requested by the Commissioner; consistent with "post-effective" capitalization. If I use the ULOR and sell to more than 35 people, such as strangers who hear about it from investors, then the fee jumps to $2,200 for the same $1,000,000 maximum. (Again, I do not believe it is mandatory to file this in advance.)

I have also heard that in some states a minimum, which is set at 10% of the maximum capital being sought, must be reached for funds to be "released" for the ULOR. (I have not encountered this in California law, but the "mini-max" is a common format of offering.) Another thing I have heard about the ULOR, is that it requires "auditing." Regulation A does not require auditing. Additionally, the California version of ULOR includes other restrictions and requires surety bonds for non-NASD commissioned/finder's fee "agents," where there is not a California version of Regulation A.

The disclosure requirements of ULOR/SCOR and Regulation A, parallel the same disclosure documents used for large scale public offerings of stock, called initial public offerings or "IPO's". The Regulation A stock exemption is for all intensive purposes a prospectus for a public offering of stock. It has a much longer history than ULOR and a cap of $5,000,000 instead of $1,000,000 with very little attorney or accounting requirements. This may also simplify the registration of the stock on the NASDAQ OTCBB, as is described in the Garage Shares pages.

When (if) one goes to the trouble of developing a Regulation A document and preparing all of the related filings, one may also consider obtaining a "uniform" ID number, called a CUSIP number. At this time, CUSIP numbers are being supplied by Standard and Poor's, a McGraw-Hill company. They can be reached at http://www.cusip.com . You should also have obtained an IRS Employer ID number before this. Neither are necessary until money begins being spent on salary for a business, rather than expenses for a hobby.

(For more about this kind of info, obtain the pamphlet at the page Small Business and the SEC . The only shortcoming in regard to this form is that state laws may contradict it, depending on the state. Here's hoping either 50 versions of the pamphlet are made up, or state versions providing comments on it are created.)

Knowing that forms are not required, and to some degree are discouraged shifts the attention pretty strongly to selling technique, where it probably belongs.

Conclusion

Again, you are doing this to help people. You have invented a way of preserving food for decades, ending world hunger as we know it. Your new vacuum-based micro launch vehicle achieves orbit for tiny three ounce satellites for less than $800. Your carbon-magnesium-hydride car battery sells for pennies. So, get going!

The next section discusses stock, a form of investment accessible through over 100,000,000 computers in a generic format.

81999, 2000 garage capital