What To Include In A Proposed Company Offering

Create a proposed company offering document to indicate the amount of capital being sought, the reason it is needed, a brief description of how it will be used, what securities you offer an investor, and a summary of how the investor can expect to achieve the targeted rate of return.

This document is only the first part of the negotiation process with those interested in investing. At any point, terms may be renegotiated, but it is important to have a general document to define your financing terms.

Company Overview

• Briefly outline the purpose of the company, in terms of problem being addressed, product being offered and target market potential.

Desired Financing

• Review your monthly real-time cash flow projections and estimate how much money is needed over the next three years to carry the development and/or growth of your business to escape velocity (the point at which you will need no further capital infusions to continue operating).

• Add a cash safety cushion of ~25% for cash needs to protect against unexpected expenses or delayed income.

  • Define the type of funding that will suit your business: debt/equity, or non-traditional financing. Clearly state how the capital will be obtained; from whom, how much, and terms.

Offering (Deal Structure — Pitch for Money)

• If you are seeking equity capital, then you should describe the type of security being offered (i.e. common stock, debts plus stocks, debts and warrants), the unit price, and the total amount of securities to be sold in this offering. If you are offering more than just common stock, you will need to indicate by type, interest, maturity, and conversion conditions.

• Define the percentage of the company that the investor will receive for his investment.

• If you are seeking a loan, you will indicate to the potential lender how the loan will be repaid and what the interest rate is. What is the collateral for the loan?

Capitalization

• Present in tabular form the current and proposed (post-offering) number of outstanding shares of common stock. Indicate any shares offered by key management people and show the number of shares that they will hold after the completion of the proposed financing.

• Indicate how many shares of your company’s common stock will remain authorized but unissued after the offering and how many of these will be reserved for stock options for future key employees.

• Identify any other terms that you are willing to negotiate as part of the deal. (i.e. right of first refusal, seat on board, voting rights, and other rights and preferences).

For Initial Coin Offerings (ICOs), indicate allocations and discounts by investor primacy (earlier investors usually receive better discounts).

Use of Funds

• Investors like to know how their money is going to be spent.

• Provide a brief description of how the capital raised will be used.

• Summarize as specifically as possible what amount will be used for such things as product design and development, capital equipment, marketing, and general working capital needs.

Investors’ Return (Exit Strategy)

• What is the value of your company? How did you calculate this value?

• Indicate how your valuation and proposed ownership shares will result in the desired rate of return for the investors you have targets.

• What will be the likely harvest or exit mechanism (IPO, outright sale, merger, MBO, operate and grow, etc.)?

• What is the exit strategy for the investors and founders?

For ICOs, demonstrate how token values are expected to mature, and show investors how their secured holdings will be translated into return on investment through liquidity or utility or both.

The Team

• Briefly bio the individual(s) in key team roles, the CEO most especially.

And of course — don’t forget to provide current contact information, the company’s web address and so forth!

For additional information on building your company’s proposed offering, visit Chompff Consulting’s Entrepreneur Resources blog.