COMPANY FAQ

 

What is TycoonInvest?

TycoonInvest is an investment crowdfunding (also called equity crowdfunding, business crowdfunding, debt crowdfunding, and real estate crowdfunding) platform for startups and growth companies. Through TycoonoInvest Portal LLC, a registered funding portal with the U.S. Securities and Exchange Commission (SEC), and a member of the Financial Industry Regulatory Authority (FINRA), Issuers may list their investment crowdfunding campaigns and solicit investors.

Our objective is to help fund the dreams of people who shape the world.

What is business crowdfunding?

Business crowdfunding, also called equity crowdfunding, investment crowdfunding, or real estate crowdfunding, is where private companies sell securities in the form of equity in the company, debt, convertible notes, revenue share, or some type of interest in the company. Now, it is possible for anyone over the age of 18 (investment amount is limited by income and net worth – see SEC Investor Bulletin) to invest in startups and growing companies, regardless of status, connections, position, or wealth. This means that entrepreneurs and business owners no longer need to seek traditional sources of capital until they are ready to do so.

For instance, if you are a startup, you would find it difficult to get a bank loan without putting up collateral in an amount equal to the requested capital. Also, there are fewer venture capital or private equity companies than there are crowdfunding investors.

If you are a current business owner, and you need to grow your company quickly or you are looking for an acquisition, you would again need to put up collateral for a bank loan and/or use assets or receivables to get the funding you need.  However, this puts your company in debt and requires debt repayment in the form of installments.

What problems can be solved through business crowdfunding?

Business crowdfunding or equity crowdfunding may provide a solution for underserved startups and growing companies. Here are the potential solutions:

  1. Funding for startups with limited assets or collateral.
  2. Funding for pre-revenue startups.
  3. Funding for existing companies that want to grow quickly.
  4. Ability to use proceeds to acquire another business or company.
  5. Ability to use equity proceeds for marketing and operational costs.
  6. Ability to use equity crowdfunding for real estate projects.
  7. Can close the gap from proving your business concept to getting VC or private equity money or even seek an IPO.
  8. Funding for underserved markets, such as female or minority-owned businesses.
  9. Acquiring a community of investors who wish to see you succeed, as well as a new customer base.

How is regulation crowdfunding (Reg CF) different from regular crowdfunding?

Reg CF enables investors to own shares, or equity, in your company. These investors want to see your company succeed since they have invested in your future. They are in it for the long-term, and they can also be your best customers and advocates for your business.

General crowdfunding websites allow you to sell products on their website or receive small amounts of funding for people in need. But those customers are not vested in your future. And selling a product is not the same as selling equity in your company. Also, what if you don’t sell products? What if you sell services?

In addition, those crowdfunding websites are not registered with the SEC, and they are not a member of FINRA. They are not held accountable in the same way as Reg CF Funding Portals.

How much can I raise?

TycoonInvest offers one program under the JOBS Act: Regulation Crowdfunding (Reg CF). Under Reg CF, you can raise a maximum of $5.0M from both unaccredited and accredited investors each year, every year.

What’s the difference between unaccredited and accredited investors?

An unaccredited investor is any individual person who makes less than $200,000 annually (or less than $300,000 including a spouse), and also has a total net worth of less than $1 million (excluding the value of their primary residence).

An accredited investor is an individual person who has an annual income exceeding $200,000 (or $300,000 for joint income), for the last two years with the expectation of earning the same or higher income in the current year.

A person may also be considered an accredited investor if their net worth exceeds $1 million (excluding the value of their primary residence), either individually or jointly with their spouse.

An entity is an accredited investor if it is a private business development company or an organization (think banks, insurance companies, brokers, and trusts) with assets exceeding $5 million.

The good news is that with equity crowdfunding, both accredited and unaccredited investors can invest in your company, as long as they are at least 18 years of age.

How long does it take to launch my live offering?

The typical onboarding process is approximately 4-6 weeks to get your campaign launched, depending on how the documentation process goes, and how quickly you respond to communication requests.

What is “Testing the Waters”?

Companies have the ability to “Test the Waters” before they launch an official offering. This allows them to gauge interest from the investor community. Investors will be able to indicate interest in your offering, as well as how much they would like to invest before your company can actually accept their investment in an official offering. The investor is essentially reserving shares before the offering goes live.

With “Testing the Waters”, are the investors investing now? What information are they providing?

No. They are simply reserving shares for when the offering goes live. Once they click the “Reserve Now” button, they will provide their contact information, as well as indicate how much they want to invest. Before the offering goes live, they will need to reconfirm their investment and go through the transaction process to officially invest.

How long does it take to launch my “Testing the Waters” Offering?

We can launch your “Testing the Waters” Offering in approximately 3-5 business days, depending on how the documentation process goes, and how quickly you respond to communication requests.

How do I choose the terms of my Reg CF?

You need to decide what terms of investment you would like to offer to prospective investors. Below is the list of options you can choose from:

 

Common Voting Shares

This is the most common form of investment. Investors would own common shares in the company. A Corporation is composed of one or more classes of shares. The founders and employees of a company will typically own common voting shares. These shares have the right to vote during annual meetings or significant company events such as authorizing the sale of the company.

Investors value a company by taking the valuation and dividing it by the total number of outstanding shares that were issued to shareholders or employees. This will yield the price per share. When an investor purchases shares, they determine the total value of the company by multiplying the price per share by the total number of shares issued at the time of the investment.

The Subscription Agreement is electronically signed by both the company raising capital and the investors. This is sent once the company has made one or more disbursements.

 

Common Non-Voting Shares

This is similar to common voting shares with the one difference that these shares do not have the right to vote during significant company events. Companies that propose to sell non-voting shares are concerned with keeping more control of the company with the insiders, which represent the investors and employees who own the common voting shares. Typically, experts consider common non-voting shares to be less valuable than common voting shares. It is not clear as to what type of price discount a company would be willing to offer to investors for lesser valued shares. Investors will consider the loss of voting rights when they decide whether they would like to invest in the company.

The Subscription Agreement is electronically signed by both the company raising capital and the investors. This is sent once the company has made one or more disbursements.

 

Preferred Shares

Unlike common voting shares, preferred shares are special shares that convert into common only when a set of conditions forces the owner of the preferred shares to receive common shares. They are a special class of shares with their own investor rights described in the agreement signed with the company. A company issues preferred shares to investors who want protection over the common shares. If a company is sold, the preferred shares receive their capital first before the common shareholders. This is a protection in case the sale is below the amount of money invested into the company, thus giving these shareholders a preference over the other shareholders. There can be multiple levels of preferred from Series A to F, for example. Each level can have its own rights and its own preferences over the other classes. For example, a startup can raise a $1.07M offering of preferred shares that convert into common shares if the company is sold or goes public. They would offer the largest investor a board seat and allow the preferred shareholders to vote on the sale of the company without allowing the common shareholders to weigh in.

The Subscription Agreement is electronically signed by both the company raising capital and the investors. This is sent once the company has made one or more disbursements.

 

Convertible Note

This form of investment is popular with technology startups because it allows investors to initially lend money to the company and later receive shares if new professional investors decide to invest. Some argue that owning a convertible note can be safer than owning common shares because if the company fails to raise additional capital from an investor then the investor can ask for the loan to be repaid with interest. However, in some cases, startups are not able to repay in cash and they will negotiate a fair exchange from the loan to either preferred or common shares.

A convertible note has four special features:

  • A conversion cap
  • Interest on the loan
  • A conversion deadline
  • Conversion trigger terms

 

Revenue Share or Royalties

You can offer a set percentage of the sales or a well-defined net revenue from your business and pay it to the investors every year. For example, you can offer 20% of the revenue net of costs of goods sold not to exceed 40% every year for a $1M investment. This annuity will continue for the life of the business. You can also structure a clause that would allow your company to buy out the investors at any time with a set payment amount. For example, at any time the company can pay investors a $3M cash payment as a buyout and cease any further revenue share.

The benefits for investors are to bet on the growth and success of the company while getting a defined payment even if the company does not make a profit.

 

Debt

You can ask investors to loan money to your company for a fixed interest payment per year for a defined number of years. The end date when the loan repayment is due is called the maturity date. For example, you can ask for a $1M loan with a 7% interest payment every year. Typically, loans come with penalties in case the company does not pay the interest or repay the loan at the maturity date. For example, a 1% penalty for a late payment. You can also offer the right to purchase a number of shares at the then share price. This is an added incentive for people who prefer to loan money instead of investing in shares.

What is the process for raising capital?

You can find the complete launch process here.

How long is a typical campaign?

The campaign length can vary depending on the industry you are in and the amount of capital you are looking to raise. A higher capital raise may warrant a longer campaign term. A campaign typically runs between 90-180 days. If your campaign is less than 90 days, it may not be enough time to maximize a widespread awareness of your campaign.

How much will it cost to launch my campaign?

The total cost of launching a Regulation Crowdfunding campaign will vary depending on what needs to be done from a regulatory standpoint. If you initially set your capital raise limit to $107,000, then as an owner or officer of the company, you may self-certify the company’s financials. This can save you from incurring the cost of a financial review or audit from an independent CPA firm.

However, if you meet your minimum target raise, you may potentially begin withdrawing funds to cover the cost of a financial review or audit, allowing you to amend your documents and increase your maximum raise limit up to a total of $5.0 million. The cost of a financial review can be a few thousand dollars, while the cost of a financial audit can be double that of a review. We also have CPA vendors who may help you with this, if you need a financial review or audit done.

You will most likely incur legal fees for preparing and filing your documents by an attorney. Depending on whether you use your own attorney to file your legal documents or if you use one of our Attorney vendors, your costs will vary.

TycoonInvest only makes money when you raise capital. We charge 5% of the total capital raised for Regulation Crowdfunding offerings.

What if my campaign expires and I raise less than my maximum funding goal?

To the benefit of the companies raising capital with us, TycoonInvest requires you to set a minimum target raise of $10,000 for your campaign. If you raise less than your desired funding goal, you can still collect the capital you raised as long as the total raise is at least $12,000. See the next paragraph on disbursing funds.

When can I start disbursing funds to my company?

Once you have raised 120% of the $10,000 minimum target raise (at least $12,000) and the SEC-mandated listing period of at least 21 days has expired, you can start disbursing funds, even as you continue to accept new investments.

What makes you better than your competitors?

Take a look at what makes us better. Go here to find out.

What do I do now?

Do you meet the following requirements?

  1. You must be a U.S. based operating company. If you have a company presence in the U.S., but you are based abroad, you may still be eligible for Regulation Crowdfunding if you file and register a U.S. corporation. You should seek legal counsel on such an approach.
  1. The founder and/or authorized signatory for the company must be at least 18 years old.
  1. Must not be on our list of prohibited businesses. If you feel that you may potentially be on a prohibited list of businesses, please let us know.