Zak Cassady-Dorion

Article / Updated 04-25-2017

One of the most valuable networking tools you can use is an infographic. Kelly Hoey of WIM says she wouldn’t have been so successful without diverse relationships. The figure shows her infographic indicating the relationship to organizations and people critical for the success of her organization. Credit: Women Innovate Mobile network map 2012 You can use Post-it notes on the wall, a mind-mapping program, or a free infographic program, but get it down. President Lyndon Johnson kept communication channels open with senators and representatives. He knew his success with Congress required good relationships and kept this as a priority. He kept big maps on his wall that had the following information: Where each bill was in committee What stage the bill was at What needed to happen for the bill to reach the next stage He called individual congressmen, who could be obstacles at any stage, helped them understand how important this was to him, and promised whatever needed to get it through. Keep in mind these words by Sir Arthur Conan Doyle: “Skill is fine, and genius is splendid, but the right contacts are more valuable than either.”

Article / Updated 04-25-2017

In your business plan and in your crowdfund investment campaign pitch, you told the crowd what you needed to do, when you needed to do it, and how you were going to do it. Those are your milestones. Summarize them into bullet points and put them on a piece of paper. In his book Mastering the Rockefeller Habits (Gazelles, Inc.) — which is a great read, by the way — entrepreneur guru Verne Harnish uses a very simple tool to help entrepreneurs hit their milestones. He tells them to take the list of milestones and break it into priorities. Figure out your Top 5 priorities, and then identify one priority that supersedes the others — the Top 1 of the Top 5. For example, if you’re starting an organic farm, some of your tasks include getting the seeds and animals, buying equipment, and signing the lease on the land. Your first priority should be signing the lease; it’s your Top 1. Within that priority you have various tasks: contacting the land owner, reading the documents, having them reviewed by attorneys, and so on. You need to spell out and prioritize each of these tasks (even the very mundane ones). Checking off these items (working on 1 percent at a time) will make you feel like you’re progressing. That’s what the Rockefeller Habits are all about. Work on that Top 1 until it’s done, and then move on to the second priority. Tell people about your Top 5. Make it a game. Share it with your crowd. They’ll appreciate the fact that you have a game plan in action. If you need help deciding what to do and when to do it, use the chart shown. It helps you prioritize your tasks based on their importance and urgency. On the vertical axis, you have Urgency. You assign each task a number from 1 (not very) to 10 (very) based on how urgent it is that you get this task done quickly. On the horizontal axis, you have Importance. For each task, you assign a number from 1 to 10 based on its relative importance to your overall vision. After you chart your tasks, the upper-right quadrant of the chart is where you find the most urgent and most important thing(s) you have to do; anything that falls in that quadrant is a Top 5. Moving left, you have urgent but not so important things to do. In the lower-right quadrant will be tasks that are important but not so urgent. And finally, the tasks that are not very important or very urgent will appear in the lower-left quadrant. Do this exercise now, and organize your tasks based on your results. This is now your game plan for where to focus your attention.

Article / Updated 04-25-2017

If you haven’t been scared you away from crowdfund investing yet, that means you probably have some tolerance for financial risk. How much tolerance? That’s a question only you can answer (ideally with guidance from a financial advisor). Creating an investment portfolio that meets your needs demands first assessing your level of risk tolerance. If you have nerves of steel and can withstand rocky financial times without selling every investment at the worst possible moment (when its value has fallen to the floor), you’re pretty high on the risk tolerance scale. If you lie awake at night worrying that your stock index mutual fund ticked a quarter of a percent lower that day, you’re in an entirely different risk zone. Depending on how much risk you can stomach and what your long-term goals are, you should diversify your investments — spread them among various asset classes — accordingly. The term asset classes refers to groups of investments that share certain characteristics, including risk. Low-risk government bonds constitute one asset class, and high-risk junk bonds constitute a very different asset class. In between you have federal agency bonds, corporate bonds, international bonds, and more. Within the equity world, you have large-cap stocks, small-cap stocks, international stocks, value stocks, growth stocks, emerging market stocks, and more. (The word cap here refers to capitalization, which is an estimate of a company’s value arrived at by multiplying its total number of outstanding shares by the current price of a single share.) For every asset class, this truism holds: The lower the risk it represents, the lower the return (or potential return) it offers. Conversely, the higher the risk it represents, the higher the return (or potential return) it offers. That’s why people don’t get rich quick buying government bonds, and it’s why people who take chances on risky stock classes have a fairly good chance of ending up either richly rewarded or completely broke. Higher-risk asset classes also tend to be much more volatile than lower risk asset classes. If you buy a U.S. Treasury bond, you don’t expect a lot of volatility from that investment; you know how much return you’ll be getting. If you buy stocks in an emerging-market nation, on the other hand, you don’t have a clue what your return will be in any given year. You hope to jump on the roller coaster while the car is pointing uphill, but you never know when you’ll reach the crest and start rushing down the other side. Many financial advisors make their living helping people determine how to craft a portfolio that fits all their needs, including their risk tolerance and need for returns. Most people (though certainly not all) find that as they get closer to reaching their long-term goals, such as retirement, their risk tolerance decreases. Therefore, a portfolio cannot be a static thing; as your life circumstances change, you and your financial advisor must be prepared to adjust your investments accordingly. The beauty of diversifying your portfolio with a variety of asset classes is that you can still invest in some of the high-risk classes, including startups and small businesses, without risking your long-term goals. As long as you know that crowdfund investing is firmly planted on the high-risk end of the investment spectrum, and as long as you maintain strict control over your investment choices, you absolutely can fit it into your portfolio. Just don’t assume that all (or even any) of your crowdfund investments will turn into the next Google. Chances are very, very good that they won’t.

Cheat Sheet / Updated 03-27-2016

Crowdfund investing is a new funding opportunity for small businesses and startups that holds tremendous potential, but it's not a free-for-all. Entrepreneurs, business owners, and investors alike should know the legislative boundaries set by the JOBS Act (which opened the door to this funding resource in 2012), the risks involved in this type of funding, and the potential rewards it offers both to companies and their supporters.

Article / Updated 03-26-2016

If you’ve seen the movie The Social Network, you understand the need to protect your intellectual property. When using crowdfund investing strategies, you need to protect yourself and your business. You can do so in several ways: Don’t tell anyone about it. This strategy is foolproof, but it means that you can’t run a crowdfund investing campaign. People need to hear and see what you’re talking about, or they’ll never trust you enough to invest in you. Hire an intellectual property lawyer. You can — and may need to — go down the road of filing a patent and/or securing trademark and copyright protection for your ideas and materials. This route takes time and money, which may seem like a deterrent. After all, if your idea turns out to be a flop, that money was spent for no reason. However, failing to secure your intellectual property rights can lead to disaster, including a crowd revolt. At a minimum, you should consult an attorney if you have any inkling that you’ve created intellectual property that needs to be secured. Rely on your funding portal for help. In addition to taking the steps suggested in the previous bullet, look for a crowdfund investing platform that requires investors to sign nondisclosure agreements and has data rooms where you can upload private information (so it isn’t available to the general public). These data rooms should be password protected. Portals that have data rooms allow you to see who looked at your files and for how long. When many companies are in the process of selling or merging a business, this is how they manage their sensitive intellectual property and let prospective buyers view what they’ve got. If anyone walks off and duplicates it, with a data room and log you can hold people accountable. Nondisclosure agreements will not prevent signers from passing on information to their friends or associates. If you have a great idea, the best way to protect it is through patent, copyright, or trademark registration. Roll the dice. You can simply choose to put your intellectual property out in the open for everyone to see. Chances are, what you think is sensitive isn’t of interest to anyone else. But be prepared for the worst-case scenario so you aren’t devastated if a theft occurs.

Article / Updated 03-26-2016

On average, 50 percent of investments in early-stage companies fail. So, the risks of crowdfund investment seem pretty clear: You can lose some or all of your money. Among the failures, 50 percent of early-stage companies run out of cash before they can succeed. The other 50 percent of failures suffer from poor management decisions, poor hiring decisions, poor use of funds, and so on. Therefore, as a potential crowdfund investor, you have to make the effort to figure out a couple key things about the business you’re considering: If its campaign is successful, will it have enough cash to meet its stated milestones? Have the owners and managers thought through crucial decisions such as who to hire and how to use the money being raised? Luckily, you don’t have to be a super sleuth to find answers. The business or entrepreneur seeking funds is required to provide a lot of information in its campaign pitch. Your job is to read (and watch and listen to) all that information and to participate in online crowd conversations when you find certain answers to be lacking. You can’t be a passive investor; you must commit to taking an active role in finding out as much information as possible. Becoming an active investor can be a reward unto itself; doing so offers you a sense of participation and control that more traditional investments can’t provide. It also teaches you how to be savvy in all your investment decisions. In addition, of course, you hope to make investment choices that may pan out in the long run with rewards you can’t get anywhere else. If you’re able to identify even one company whose idea is brilliant, whose business model is flawless, and whose management is rock solid, you just may find yourself in a position to reap serious financial benefits down the line.

Article / Updated 03-26-2016

Crowdfund investing doesn’t compete with or replace the need for professional private money. Crowdfund investment campaigns have funding caps that are significantly lower than most venture capital and private equity investments. Instead, crowdfund investing runs parallel to private money, funneling funds to types of businesses that previously didn’t stand a chance of receiving private support. What exactly is private money? It’s money that comes from companies or very wealthy individuals — people called accredited investors by the SEC — who, just like regular investors, want to maximize the returns of their investment portfolios. Credit: ©iStockphoto.com/Jacob Wackerhausen The concept of an accredited investor came into being with the creation of the SEC in the early 1930s. The idea was that, as the 1929 stock market crash illustrated, marketing stock investments to the public at large could be dangerous for the entire economy, and only certain investors should have the greatest freedoms to risk their money on certain types of investments. To be qualified as an accredited investor today, you must have a liquid net worth of at least $1 million (excluding the value of your home), or you must have earned more than $200,000 for each of the last two calendar years ($300,000 if you’re married). The SEC deems that investors with this much capital can fully and freely make investment decisions in both public and private companies. Private money organizations aggregate capital from a mix of accredited investors (including companies and financial institutions) for the purpose of making investments primarily in private companies or nonpublic offerings. The goal of these organizations is to pool large amounts of investment capital and employ investment experts who can find and invest in great deals that will deliver higher rates of return than more traditional investments in public companies. (Of course, these deals also carry a lot of risk.) There are three types of private money investors, which differ based on the size of the investment made and when during the company’s lifecycle the investment is made. At each stage, these private investment firms provide not only capital, but also advice, connections, merger/acquisition targets, and external accountability and expertise to help companies succeed. The goal of these private money organizations is to create an exit for themselves (as well as the entrepreneur) that will deliver at least a tenfold (or 10x) multiple on invested capital. Here’s a brief overview of the three types of private money entities: Angel investors: These people usually make bets on companies at their earliest stages (sometimes called seed-stage investments) and can play the role of a guardian angel. Angel investors usually form groups to allow them to jointly review investment opportunities, share information, and provide a potential pool of dollars that will attract good company founders who want both expertise and cash. Typically, these types of investors have some experience in entrepreneurial ventures and want the excitement of being part of something and helping it succeed. Individual angel investors typically make investments in the $25,000 to $100,000 range, which are small compared to later-stage investments. Venture capitalists: These investors (which are usually firms, not individuals) often invest between $1 million and $10 million in companies that have begun to grow out of the seed stage and are showing traction and results in their market space. The companies may or may not have revenue but likely are not profitable because they’re spending all they make, in addition to the money that’s invested in them, in order to grow as quickly and effectively as possible. Venture capitalists invest in companies that are believed to have very high growth potential and need capital to be able to scale quickly to take advantage of the market. Private equity investors: These firms tend to invest even larger amounts than the venture capitalists and look for more established companies with profits and successes that are looking for growth-stage capital. Today, the lines between venture capital and private equity are fairly blurry. Many times, the way the firm wants to position itself from a marketing and strategy perspective makes the distinction (as opposed to what the firm invests in). Obviously, getting your hands on private investor money could be a life changer when you’re starting or growing your business. But the vast majority of businesses never touch the money supplied by accredited investors. And prior to the JOBS Act, unaccredited investors (people whose liquid net worth or annual income doesn’t meet the accredited investor thresholds) were severely restricted from directly investing in many private businesses. The JOBS Act opened up private company investment, in limited and regulated ways, to everyone. This significant regulatory change occurred in part because lots of people today (as opposed to in the 1930s, when so many of our financial regulations were crafted) have some level of investment savvy thanks to their retirement plans, which are invested in stocks, bonds, and mutual funds. In addition, the Internet and social networks have democratized access to information in real time that was unimaginable even a decade ago. Everyone with an Internet connection (more than 80 percent of the U.S. population) has access to information directly, as well as via their social networks, that can be used to make investment decisions.

Article / Updated 03-26-2016

Crowdfund investing is possible because of the passage of the JOBS Act. So, what exactly did the JOBS Act legislation change in the U.S. financial regulatory system? And how do these changes stand to benefit business owners and investors? Promoting emerging growth companies The JOBS Act created a new category of companies called emerging growth companies (EGCs) and gives small, growing companies a five-year window in which to become fully compliant with accounting regulations. To qualify as an EGC, the company must Have less than $1 billion in annual revenue Not have gone public more than five years ago Have issued no more than $1 billion in debt securities Have floated less than $700 million in stock securities You may find it downright funny to see such high revenue, debt, and stock numbers used in combination with the words small and emerging. Nonetheless, this provision is important because it allows growing companies to have access to the public markets and not be crushed by the regulatory burdens. Redefining who can invest in small ventures Prior to the passage of the JOBS Act, accredited investors often were the only people who could invest in private debt or equity transactions. One of the biggest changes the JOBS Act created was lifting the restriction on soliciting unaccredited investors to purchase stock. This means that companies that use crowdfund investing to raise capital are legally able to solicit people of all net worths and income levels to purchase their shares. You can’t solicit anyone and everyone, though. You have to follow SEC regulations that require you to directly solicit only people who are members of your online social networks. Setting up the structure for online investment Title III of the JOBS Act spells out, among other things: The maximum dollars a business or entrepreneur can seek via crowdfund investing, which is $1 million per year. The maximum amount an individual can invest via crowdfunded ventures in a year, which may be a flat $2,000, 5 percent of the individual’s annual income or net worth, or 10 percent of the individual’s annual income or net worth. The limit depends on the person’s specific finances. The means by which a company may seek investments and an individual may make them, which is via SEC-registered online funding portals. The legislation also specifies other parameters that seek to promote the business sector while preventing fraud and protecting the investor.

Article / Updated 03-26-2016

A company wants to grow, so it runs a campaign to raise the necessary capital via crowdfund investing. What exactly will it do with the money being raised? The question is obvious, but you have to make sure you get a concrete answer. Look at the campaign proposal and how much the company wants to raise. Carefully review its plans for using the funding. Ask yourself these questions: Do you think the amount of money being raised is enough to enact the company’s plans? Do you think the company is asking for too much? For example, say the business plan is to start a cable television channel and the company is attempting to raise $200,000. If the plan states that the company can be operational with that money alone, that’s a red flag. The legal bill alone for working with cable companies and the Federal Communications Commission (FCC) would likely cost more than $200,000. On the flip side, if a business plan suggests that it will cost $200,000 to start a small landscaping business, you should find out a great deal more information before deciding to invest because that number seems high. (Perhaps it’s not, but you need to study the plan to find out.) Do the company’s assumptions and timelines feel credible? Does the plan suggest that the company can open a restaurant in three weeks? On the other hand, does it suggest that three years of research are required before the company can decide on a restaurant location? Both timelines seem unreasonable and should raise red flags. Working quickly is very important, but opening a restaurant in three weeks would require cutting so many corners that it would likely result in problems downstream. Conversely, three years of location research sounds like analysis paralysis. Has this company used investor money wisely in the past? If this isn’t the first time this company has raised money from debt or equity, ask questions about its financial history. If the business has used debt in the past, did it repay the debt on time? If the company offered equity in the past, does it still have good relationships with those earlier investors, and did the company use the money to grow? If you can’t glean these answers from the information the company itself has provided, use the online crowdfund investing forums to ask very specific questions. If you don’t get satisfactory answers from the company in a timely manner, don’t invest.

Article / Updated 03-26-2016

If you’re an unaccredited investor, you can’t invest every dime you’ve got in crowdfund investment campaigns. (An unaccredited investor has a net worth less than $1 million excluding primary residence, and hasn’t earned more than $200,000 for each of the past two years.) Doing so would be a nightmare for your portfolio (you’d be doing the opposite of diversifying), and it also wouldn’t be legal. That’s because, per the JOBS Act, the SEC sets specific limits on how much any individual can invest. The limits are based on how much you make (your annual income) or have in your savings (your net worth). If you can’t quote your annual income off the top of your head, look at your tax return from last year. The adjusted gross income (AGI) in the last cell (number 37) on the bottom of the first page is what you’re looking for. If you don’t have your tax forms handy, just grab one of your paychecks and look for the gross income amount. That amount is what you make before taxes. Multiply the number by how many pay periods you have in a year. (If you’re paid every two weeks, multiply by 26. If you’re paid monthly, multiply by 12. If you’re paid twice a month, multiply by 24.) Net worth is the value of all your stocks, bonds, and savings outside the equity that you have in your house. This figure includes what you have in your retirement account. To calculate your net worth, log on to your online investment account, dig up your investment statements, determine how much you have in the bank, and start adding. The following table offers the breakdown of how much the SEC allows you to risk on crowdfund investments based on your annual income or net worth. Note that the SEC allows you to use the greater of these two figures when calculating your limit. SEC Investment Limits Based on Annual Income or Net Worth If Your Annual Income or Net Worth Is You Can Invest Up To Which Caps Out At Less than $40,000 $2,000 $2,000 Greater than $40,000 but less than $100,000 5% of your annual income or net worth $5,000 Greater than $100,000 10% of your annual income or net worth up to $100,000 $100,000 To clarify what these limits look like, consider these examples: If you make $28,000 per year and your net worth is lower than that amount, you can invest up to $2,000 per year. If you have $45,000 in net worth and earn less than that amount in annual income, you can invest up to $2,250 per year (which is 5 percent of your net worth). If you make $99,999 per year, and your net worth is lower than that amount, you can invest up to $4,999.95 (which is 5 percent of your annual income). If you have $325,000 in net worth and earn less than that amount each year, you can invest up to $32,500 (which is 10 percent of your net worth) Keep in mind that each example reflects an aggregate amount (the total amount that this individual can put into all her crowdfund investments each year). For example, if you earn $28,000 per year and your net worth is less than that amount, your cap is $2,000 for all your crowdfund investments for the entire year. You should diversify in crowdfund investing (because the failure rate for these types of ventures is so high). Therefore, if your annual cap is $2,000, you shouldn’t invest most of that amount in a single campaign. Doing so impedes your ability to invest in other crowdfund investment projects for the rest of the calendar year. It also breaks the rules that venture capitalists use for their investments, which is to make small investments in several companies to diversify your risk. What are the rules for accredited investors? The SEC has determined that accredited investors are individuals with income above $200,000 per year if single ($300,000 per year if married) or with a net worth over $1 million (excluding the value of your home). If your income/net worth qualifies you as an accredited investor, with the proper legal disclosures the SEC allows you to make investments of any amount you choose in any private company. Although having this flexibility to make investments at any level may sound like a great thing, it also means there are no guardrails to help limit potential losses from investments in companies that fail. If you are an accredited investor, use caution when investing in private companies. Use the same principles of portfolio investing that an unaccredited investor uses. High-risk investments (including crowdfund investments) should not comprise more than 10 percent of your investment portfolio. No matter how much of a sure thing the investment may seem to you, do not put all your eggs in one high-risk basket. Venture capitalists make ten investments in startups to try to get one large winner. Following their example, aim to make a larger number of small-dollar investments in crowdfund investing, and remember that no investment comes with a guarantee. There is no substitute for doing your homework on the companies you are considering and then using your own best judgment to make prudent investment decisions.