What New Entrepreneurs Don't Know About Raising Capital (But Definitely Should)

Welcome to the Magneta Marketing Podcast. Today we have a very interesting topic, and it's a topic that a lot of people don't discuss. In our world, we talk a lot about bootstrapping. We talk a lot about how do you get seed money just by launching your product. However, there are ways of getting capital outside of that, and it's not things that we discuss traditionally. It is something that you should have a discussion about, and it's what we're talking about today. Our special guest is Larry Pino, and Larry has 35 years of experience as a practicing attorney, entrepreneur, and an expert in intellectual property and commercial law. There are so many different ins and outs that we're going to weave inside of this episode that are going to be very important, especially those entrepreneurs that would love to put their head in the sand on this topic. There are some amazing lessons that are available for you. This is one you don't want to miss, especially as you're looking at how to take your business to the next level. So let's jump in with Larry Pino and Dan Kennedy on what new entrepreneurs don't know about raising capital. But definitely should. I don't think there's anybody that has had a bigger impact in the field of direct response than Dan Kennedy.

The legend of Dan Kennedy should be ignored at your own peril.

They're not really lessons, they're kind of laws that you live by. Dan opened my eyes to what small business marketing looks like. Dan teaches strategic direct response that is timeless.

His ripple effect touches people who don't even know his name.

The world as we know it was changed because Dan Kennedy became obsessed with marketing.

Welcome to the Magnetic Marketing Podcast with your host, Dan Kennedy.

Good afternoon, everybody. Welcome to your monthly Diamond Call. As you presumably know, and he is here and we will get to him in just a few minutes, we have someone, a guest expert from my least favorite population on earth, attorneys. And Officially, Lawrence J. Pino. I know him as Larry, and Larry and I've known each other for many, many more years than either he or I would care to count. And so I give him an exemption, um, as I give Ben Glass and a few others, for my disapproval of the profession, uh, and, uh, and appreciate him taking time out. We're going to talk and I'll get back to her in just a second about money, about capital, about what business owners know and don't know and should know about raising it and organizing it and dealing with investors and lenders and crowdfunding and all of that about which Larry is an expert. And so we will welcome Larry. Larry is, as I said, a practicing attorney, which just like practicing doctors, they keep practicing until they get one right. Larry is a practicing attorney. He's an entrepreneur. He's been in our infomarketing world, which is where Larry and I first met. And although it's an aside for today's conversation, I'll get him to tell you about the size and scope of that operation. I am currently invested in one of his evolving businesses, and so we'll talk about that just a little bit. But above all of many things, he's an expert in intellectual property law, the kind of things that those of us who are in info marketing deal with, and broader in issues of capital. So Larry, I assume you're in or about Orlando, and welcome to the call.

Thank you very much, Dan.

I appreciate you being here. I've done a sloppy intro, so I'll let you now color in between the lines, if you will, and give folks the who you are, where you came from, not dating all the way back to mama's womb, and, you know, what your businesses look like now.

Well, that's sensational. And Dan, thank you very much. Hello, everybody. So my name is Larry Pino and you can certainly call me Larry. And as Dan mentioned, I've been a practicing attorney, still practicing for I think something like 35 years. I graduated from NYU Law School fresh out of Notre Dame a number of years ago and then moved down to Orlando, which is where my mom and dad had come when I was in college, and have been in business and law ever since that time doing different types of businesses and glad to give you some color on that in a second. And then also practicing in my areas of specialty which have always been, by the way, commercial law. So in the commercial law practice I've done pretty much throughout this entire time about 50% of my time is in litigation either representing plaintiffs or defendants in business-related matters and the other 50% doing transactional work. Transactional really kind of depends upon the economy, whether it's real estate transactions or business transactions. And it's always been endowed with some level of securities work because as you all know, for every business it always requires capital. And so that kind of leads you to the security side. So I've been involved at lots of different levels at raising money, sometimes formally, sometimes informally. Sometimes with instruments, sometimes with friends and family, for myself as well as for clients. So that's, that's just a real brief, brief background. And Dan, I just want you to know how much I really appreciate your invitation. As Dan mentioned to you, we've known each other for an awfully long time. As, as an attorney way back, I had gotten involved, and you may know the name or may not know the name at this point because time has changed, has gone by, but I I was actually representing a fellow named Charles J. Givens who harkened out of Orlando, and I was his attorney representing his seminar company. He had a program called "Money Strategies for the '80s," and that's what brought me into the seminar world is representing him. I had developed a program teaching people how to buy and sell what in those days were called discounted mortgages, which I reframed and recategorized as private privately held notes and created a program around it called the National Mortgage Investors Institute. And being a lawyer and not being a marketer, I was doing a terrible job at trying to figure out how to market that program until I got introduced to Dan. And Dan came in and developed— he kind of looked at what I was doing, laughed a little bit under his breath. And told me that my mentor must have loved me for all of this stuff that I was creating and then proceeded to write me a letter which just knocked everybody's socks off. And I got from going from getting 10 or 15 people to attend our introductory workshops to getting 100 to 150 people. Attending our introductory workshops. That is literally what launched me. And to this day, I have huge admiration for what Dan has done in his career for so many people. And of course, because of that, I am an avid devotee of Infusionsoft, which we use ourselves in a number of different business enterprises that I'm involved with at this point, just simply because of just the the brainchild of what Dan has done at every level, both on and offline. So in any event, with all that said, that's my background. And Dan, I know you're the driver here, so feel free to drive me any way you'd like in terms of anything that I've got some expertise in.

Well, so let's start with the most basic kind of money-raising. Somebody is starting a business, or more likely people on on this call have an existing and successful business and are either needing to go to the well to grow it, expand it, acquire things to merge with it or starting a second business. So let's talk friends and family and private, less official sources. Less SEC-regulated money raising? Sure. And what are the, you know, 4 or 5 mistakes everybody makes? What's something smart that people ought to know that might not occur to them, you know, that you have seen over all this time?

You know, I think that— and it's a great question because it's where most people start at any level, right? I started the seminar business with— and I called it credit card financing. And aside from the credit card financing and plowing money from my law practice into it, you're doing it on a very informal basis and, you know, had a couple friends, my ex-roommates from college, for example, who each invested $25,000. So at that level, you know, you don't— you obviously don't need a whole lot on a formal basis.. And on an informal basis, recommendation to anybody who wants to raise a little money is obviously put it on paper. And I don't mean legal paper. I mean set it out. What is the business plan? Run the numbers so that anybody is going to be able— who's going to stroke a check is going to be able to see how the thing flows. How does it flow from a business and financial standpoint? What are you going to do to market it? What is your business model, what is the endgame, and of course what is— and this is not necessarily in order of sequence, but— and of course what is the unique differentiator. Some people call it a unique selling proposition. And I know that Dan, you've written extensively on all aspects of this. But what is the major differentiator that differentiates you not only in the minds of the public but also in the minds of the market but also in terms of the actual primary inherent quality of the product or service that you're offering. So, you know, all that— some people will call it a business plan. I don't like to call it a business plan because it's trapped with all the formalities of the business plans that you see out on the internet. But the bottom line is anywhere from 6 to 10 pages that clearly identifies what that information is so that somebody who's prepared to stroke a check is going to at least understand. And then in addition to that, obviously, you do have to have the offer. And the offers come in different ways. There are some offers that come in the form of just a straight rate of return. There are some— so it's just X amount of money on a periodic basis against the amount that that somebody's invested. As opposed to more of an aspirational investment approach, which is to say that you're not going to get any money back in terms of this rate of return. However, our game plan is the following, so your money is going to come in the following way. And so you put that in whatever that 6 to 10 pages looks like. If you're talking about— if you're talking to people who are relatively close to you, whether it's friends or family, whether it's neighbors of friends and family, but people that you have a high trust level with, that's more than sufficient. Now, that breaks down when you now start talking to people to raise money in excess of, I would say probably the maximum threshold for that approach would be maybe $100,000 to $250,000. I mean, if you're below that amount and you know the people who could get you to there, then $100,000 to $250,000 is a comfortable level that you would want to be at at that level.

But the minute we go to strangers and start talking to people we don't know, now now we need to do a bunch of other things, correct?

Yeah, it's really two components to it, and that's exactly— that's one of them. So the first component is when you start now getting above that $250,000 range, then it would really be at that point, and, you know, is there anything in the— in any law that says that? No. But just from my very substantial experience in this field, when you now start talking about an aggregate amount in excess of $250,000, Regardless of who you're talking to, you probably at that point want to at least look at a couple different variations, and we'll talk about that in a second. In addition to that, going back to your point, Dan, when you're talking to people that you do not have a relationship with and you're talking to somebody that maybe there was an introduction, a warm introduction. But in fact maybe there wasn't. Then at that point even if it's not above $250,000 you probably need to be formalizing what this offer is going to look like because they're the ones that are going to give you the toughest time especially if things occur in the future.

So that's a full-blown document and either a securities filing or operating under some sort of exemption?

Yeah, so let's kind of take a look at it. So let's sort of approach it because the stranger versus no stranger is going to be sort of a fork in the road. So let's just talk in terms of $250,000 and above. That doesn't mean, by the way, that you necessarily need to really substantially formalize the process because Depending on who you're talking to, you literally could have a document which would allow you to have an exempt offering with as little as nothing other than a 20-page prospectus or what people call a PPM. This is called an accredited investor exemption, for example. So if you're talking to somebody who is accredited, and I'll define that in a second, and I'll also give you an example of what I'm talking about. And that's all you're going to be talking to is somebody who's accredited. Now you have to have a prior relationship with them, however. They can't be strangers. And you're looking to raise— let's say you now want to raise $500,000. So you're looking to accredited investors who will each put in $100,000 each or maybe 10 that will put in $50,000 each. You can create a PPM, which is called a— or a private Private Placement Memorandum, and it is exempt under the securities laws from any type of registration. You put it in their hands. It does not require financial statements. It doesn't require a great deal of hoopla, but it does require you to tell them what is— what's the deal, everything that I just described in that 10-page thing, for example, plus what the offering is going to be, and that would be sufficient for purposes so long as they are exempt, and by exempt I mean because they're accredited investors. The definition of an accredited investor is somebody who has either $1 million in net assets excluding their residence or have made $200,000 a year for the past 2 years and has a reasonable likelihood of or expectation of making that amount of money this year. If they fall into either one of those categories, then they would be deemed to be an accredited investor, and as an accredited investor, they would be exempt under Section 405 of the Securities Act. You can raise up to $5 million on just that level alone. Now, that said, remember what I just said. It has to be somebody that you do have a prior relationship with. Doesn't mean it has to be an intimate relationship or a business relationship. It just means you have to know them. They can't be somebody who's out there in the general public that you've solicited for the classified ad or some type of marketing piece or some type of direct mail piece. So that's sort of the— I would call that the next level up.

We both belong to the same— let's— we both belong to the same country club.

Yep.

Yep. But have never played golf together. But we're both members of the same club. We know each other by name and occasionally say hi to each other in the bar. And the guy's an accredited investor.

That's enough. That's exactly right. And that is, by the way, what in the PPM business, that is very, very close to what they actually describe. It's called the country club investor. So it is, yeah, you know, they're not friends and family., but they're part of my workout facility, my country club, my racquet club. I know them in that, you know, and even they sit on the board of an arts museum that we sit on together. General conversation comes up and the conversation is, hey Frank, you probably aren't aware of it, but I'm doing a new such-and-such, or I'm buying that facility down there, or I am investing in a historical building. Had no idea— don't know whether you're interested in it, but if you are, you know, it might be a worthwhile thing for us to talk about. That type of conversation is exactly what leads to this type of accredited investor exemption that I'm talking about.

So when you initially capitalized Tuscan Gardens, which I'll ask you to give a brief description of— Sure. Did you do it this way or did you— file as securities.

Okay, so good. So, and let me just tell everybody, so Tuscan Gardens was something that I had been really kind of thinking through for two reasons. Number one, I had a mother who, and I had because mom just passed away last year, but was really very vital. She just Just about made 92, by the way. Very vital, but she went into the hospital and just, they literally thought, this would have been in the, oh, 2005 or so. And really just, it came to a time when they really thought she had a 5% chance of living. The bottom line is she did live, which was wonderful. And then they thought she was going to be in a wheelchair She ended up not being in a wheelchair. She ended up continuing to be vital, but she started to contract different diseases. That was pneumonia, so she was in and out of the hospital, in and out of the hospital. So there came a time in about 2006, 2007 that we brought in 24/7 care for her in her house, which was about 7 minutes away from where I live with my family. And my dad had already passed away, which is when we moved her close to us. So on a personal basis, I had experience with dealing with an aging mother, and I realized at that time it was going to be 24/7 care in the house. And whenever I would go out to the local facilities to sort of take a look at what they had to offer, because the one bad thing about 24/7 care is you don't get any social interaction. So with that, I would look to some of the local facilities, and I just wasn't willing to put my mother in those things. So about 2010, just because of everything that had happened, the economy was devastating to me and to the primary business that I was running. So I started to sort of conceive personally, you know, number one, what do I do with mom? But also number two, what is this situation? So I went back out to the market. I looked again at the communities. I just couldn't do it. I couldn't send mom in, and it was costing me literally about $80,000 a year for 24/7 care for mom in the house. But I just said, you know what, that's all I'm going to do. I'm not willing to do anything else. However, as my business hat, if this is the situation that I'm finding in these facilities, what would it have to look like for me to put my mother there? What would stop— what facility would be there that I would want to say, "Mom, this is the place that you're going to want to live for the rest of your life." So that began this process called Tuscan Gardens that ultimately ended up Tuscan Gardens, which was a— what turned out to be an assisted living, memory care, and supported independent living community. And that really began the process. So from 2010 to now, that has been becoming a primary business for me besides, of course, my law practice. As a matter of fact, I'll just simply mention to you all because of your relationship with Dan, Dan was my first investor. He was the first person to receive a PPM from me and to stroke a check which he sent me. And again, for which I'm incredibly grateful because in those days nothing was happening. I mean, nobody could invest anything at all and nobody could get any projects off the ground or anything else. So in any event, with that said, what Dan was responding to was a particular type of offering and it's a different offering. It's called a Rule 506(b) offering, 506(b), small letter b offering, and the reason that you would use that is because it provides a lot of advantages, and I'll describe those to you now. So the reason, by the way, that I was going for that amount is that I was going for more than $5 million. I wanted to raise enough money so that I could build Tuscan Gardens units, and I wanted to put together an offering that wasn't limited by just $5 million and that wasn't limited to only accredited investors. So I put together the 506 offering. That's what I sent out to Dan and to many other people. Now, what is a 506(b) offering? It allows you the opportunity— it's an exempt offering. It doesn't have to be filed with the SEC, but it allows you to go out and to raise money from as many accredited investors as you'd like. So there's no limit to the accredited investors, plus up to 35 non-accredited investors, people who don't have $1 million or don't have $200,000 a year for the— of income for the prior 2 years. So you can raise as much money as you'd like and you can do it based on as many accredited investors and up to 35 non-accredited investors. Now, what are the limitations? The limitations are 2. Number 1, you need to have a prior relationship with those people. And number 2, you cannot get to those people by general solicitation or advertising. So in Dan's case, I took that 506(b) offering and I sent it to Dan. I sent it to the community people that I know because I sit on the boards of the, you know, the Economic Development Commission and the Chamber. And other people. So I sent them— I didn't send them the offering, of course, because it's a legal document, but I sent them a letter that said, here's what I'm doing with Tuscan Gardens. If you're interested in participating with me, let me know and I'll send you legal documents, and I'll send you the documents. And some said yes, and some said good luck, I don't have any money to invest. But the bottom line is, that's the way you do it with a 506(b). So 506(b), you can raise as much money as you want. You don't have to file it with the SEC. It's just a set of legal documents that you put together, and it's giving you access to as many accredited investors as you have access to, up to 35 non-accredited investors that you have access to, so long as you have some prior relationship, the country club people, so to speak.

What are the limitations on a direct referral. So let's say I invested, which I did, and let's say now I am willing to refer you to somebody you have no relationship with but I do.

Okay, and when you talk about, um, when you talk about limitations, are you referring to Whether they would qualify or not? Are you referring to customers or what?

Yeah, I'm referring to, uh, to, uh, legal. So as you've described the offering, it's to accredit— you can go to as many accredited investors as you want with whom you have a relationship, plus 35 non-accredited relationships, right? Not accredited. So I qualify because you and I have a relationship. Now let's say my uncle might be willing to invest, but you have no relationship with my uncle. Can you put that offering in the hands of my uncle?

You know, that's always a great question. That's where art and science come in. You know, so when you go to, you know, you go to these blue stocking law firms, and I dealt with one, you know, I was dealing with, and obviously— can't name names obviously, but I can assure you that you know the person that I'd be talking about. And got referred— the attorneys that were representing the people on the other side who were the actual investors had this blue-stocking national law firm with offices in Tampa. And I had to deal with their very, very tight attorney representing them in a securities firm there. His position on it is unless you have a personal relationship with that particular individual that exceeds 6 months in duration, then it would not qualify under 506(b). Now that's sort of— and his would be extremely conservative. You have others that say, you know, If you have a relationship that's a shorter period of time, but it's qualitative. So hey, you know, you've known him for 14, you've known him for 2 weeks or 3 weeks, but you've played tennis with him, you've gone out to dinner with him. So again, it's qualitative, but there's still a duration attached to it. You know, you have other people who just simply say, hey listen, As long as the introduction did not— was not an introduction that dealt specifically with this offering, but it was an introduction in a different category. Hey, Larry, I want you to meet my Uncle Buck. He's a great guy. Hey, Uncle Buck, how are you? Dan talks highly of you. But it had nothing to do with the introduction of that PPM, at least not in that conversation. You have those attorneys who say that at that point. And I guess what all of that depends upon is at the first level the risk tolerance of the principals of the offering, number one, the risk tolerance of the attorney who's handling the PPM, number two, and at the end of the day the risk profile of the investment. If we're talking about an investment in real estate, where you're going to buy, you know, an apartment building, that's sort of one risk. When you're talking about you're going to put together enough money to do a tech play that if you build this certain app you hope to sell it for, you know, $5 million, that's a different risk profile. So all of that really depends upon it. One way that I have sort of addressed that is by allowing a certain amount of neutrality with respect to the initial discussions. Hey, Buck, good to talk to you. Love to hear more about what you're up to and so forth. And be glad to have you hear more about what I'm up to. So you have that kind of neutrality. And in an abundance of caution, especially to the extent that the investment has been through somebody who has already had a prior relationship with me, you create it as a co-investment with that person and that represents a more sort of conservative fallback position.

Well, aren't you clever? That's why you make the big bucks. Okay, so I want to ask you about crowdfunding. I've watched this explosion of it. You and I have mutual friends and members, and I have clients who have used it. My initial thought about it all was that it was creating a whole new kind of unregulated wild, wild west that could not go unregulated very long. The Fed wound up creating some sort of exemption for some of it. So what can you tell me and everybody on the call about the organized online crowdfunding world?

Yeah, got it. So let me— I'm going to step back one step because it's important to— because most people are really confused about crowdfunding and they think it's something it really is not. So I'll clarify that in a second, but let me set the foundation first. When the JOBS Act was passed, it had— and by the way, I think the JOBS Act is outrageous. I mean, I think it was one of the best things that— and one of the people, by the way, I mean, you know, President Obama was a key— he was a, you know, a key promoter of the JOBS Act, which was really great. One of the things he got right. And when they passed it, they passed it in 2012, but it needed to have adoption of SEC rules. And those adoption of SEC rules came extremely late because the SEC really didn't know what to do with it. For example, the JOBS Act was passed in April of 2012, but the actual original rules with respect to what I'll talk about in a second didn't get passed until July 24th, of 2013, which didn't allow the rules to be effective until October 23rd. So you're literally talking about a year and a half after the JOBS Act was passed before anybody could even use it. So what it did do though, starting in October 23rd, 2013, is it allowed the opportunity to have a different type of exemption. I just talked about a 506(b) as in boy exemption. Everything that I just described is the same in a 506(c) with the following two distinctions. With a 506— well, I should say three. With a 506(c) exemption, same thing, it's a public offering— it's a private exempt offering, but with a 506(c), you are allowed to market it to the general public. So whereas a 506(b) requires that prior relationship that we talked about, whether it's friends, family, you know, country club, et cetera, a 506(c) allows you to go direct to the public. And you're allowed to market to the public to invest in your investment, your business, your entity, your product, whatever it is that you want them to invest in. So you can go direct to the public with general advertising, and I'm going to circle back to that in just a second. And number 2, you don't have to have a prior relationship with them at all. So you don't need to know them. It could be a total stranger coming up to meet you for the first time. The only limitation, however, is that you have to limit your activity to investors who are only accredited. Only accredited investors. In other words, there are no 35 non-accredited investors. It has to be totally accredited investors. And for you to be able to send a package to somebody, you have to have a reasonable likelihood or a reasonable view that they are accredited. What's a reasonable view? Well, they tell you they're accredited, for example. Now they're going to have to prove it ultimately by giving you some documentation. But the bottom line is as long as you have that reasonable understanding, then you can go ahead and you can send them a package. 506(c) really opened up the world to soliciting investment dollars. Why? Because now I'm not limited to the people that I know. Now I can go to people that I don't know and I can use general direct response marketing. I could use seminars. I can use webinars. I can use direct mail. I can use any number of different mechanisms to be able to drive people into hearing what my investment proposition is about. So the reason I want to mention that in 506(c) is because it was a tremendous tool. And by the way, Dan, to kind of make the point even firmer, you had invested in the original Tuscan Gardens Real Estate Fund. We now have Tuscan Gardens II, Roman numeral II, which is a 506(c). And the way that we are promoting that fund is through— guess what? Seminars. So we use an invitation only to accredited investors. How do we know they're accredited investors? Because they show up on accredited investor lists, which we rent.. And we send them an invitation that says, "Learn more about the booming senior housing industry." And we give them a bunch of facts and figures and all that in this invitation. And we invite them into a free seminar where they can learn more about how they can prosper by investing in senior housing. We then do a presentation. And we do that once a week. And that presentation is presented directly to them and we get indications of interest which then get followed up with the legal package. Now how do we know they're accredited? Well, in the first instance they show up on an accredited investor list. Secondly, we have on our PowerPoints that this is only for accredited investors. And third, we tell them very specifically you must be accredited in order to invest. So we're very comfortable that from a compliance standpoint We're doing the right thing. But here's the point. The point is now I'm not limited to the Dan Kennedys of the world that I know. I now have the opportunity to market in Sarasota, in Naples, in Jacksonville, Orlando, Tampa, Miami, Boca, and so forth and so on. So that's the value of 506(c). Now take this direct response mind that you have. Leveraged by the use of online media, and you can only imagine what you have an opportunity to be able to do with a 506(c). Now, that in terms of 506(c). Now, circling back to your question, when you talk about the plethora of crowdfunding sites out there, there are only at this point— there is only at this point one type of legitimate crowdfunding site, and that is a 506(c) site, which means that it's limited to accredited investors. And the reason for that then is that in order for them to be able to use the media, which is of course online media, to be able to promote investments in real estate in California and in different types of programs for investment dollars, and things of that nature is it's limited to the process of providing an investment platform for those promoters who want to promote their products, services, companies to accredited investors. And the only thing available in that— for that purpose to the people who are putting those crowdfunding sites up is strictly the compensation associated with the technology component. Not either the investment dollars or commissions on the investment dollars.

So, but the portal itself is screening so that only accredited investors are—

Correct. —are coming in. Correct. And they're screening it in a couple different perspectives. They're screening it first of all by letting everybody know. So what ends up happening is they put together the platform,. And it says, hey, if you have something to invest, send us your material. And there's a screening component attached to that so that they have some opportunity to be able to evaluate the investments that they're going to put up on the site. Number 2, they're saying to the prospective investor, investor, we want you to invest in these businesses or real estate investments or whatever they might be. Provided that you're an accredited investor. You don't need to show us documentation that you're accredited today. You need to tell us that you're accredited today. However, when it comes down to you investing, we are going to need that documentation that reflects that.

So— Is it fair to say that there are crowdfunding sites out there right now that are much looser than this that are running on—

and everyone using them are running on borrowed time. Absolutely, sure. So, and by the way, I'm going to give you one additional cog in this discussion, but yes, there are many crowdfunding sites out there right now that are not operating in this particular way. They're operating under another exemption that was passed by the JOBS Act, but by the way, which the SEC has not promulgated any rules on. So just like I indicated to you that JOBS Act passed in 2012, but nobody could use 506(c) until October 2013, it also passed a particular type of $1 million or below crowdfunding opportunity But there are no rules on that.

And at this point—

So folks have jumped ahead of the rules. That's right. And the danger about that is they don't have any rules to follow. For example, it wasn't until the rules got passed and ultimately made effective on October 23rd that anybody who was putting together a 506(c) understood what to do. Prior to that time, they didn't know how to go about doing it, who was going to be exempt, who was not going to be exempt. What the rules of the game were. So same thing with these crowdfunding sites. Now let me— I'm going to introduce another concept though. There are crowdfunding sites being done by broker-dealers. So if you are a licensed broker-dealer, you do have the opportunity to put these 506(c)s on your sites, and you are allowed to actually get commissions on them. So if Dan Kennedy says, Hey, what a great opportunity. I want to start a technology platform to put investors and opportunities together. Great, you can do that, Dan. And I'm going to— my business model is I'm going to take a fee for every listing. Okay, you could do that. And on top of that, I'm going to take a membership fee that for them to access my site, they're going to pay me $25 a month. Yep, absolutely, you can do that too. You could do all that without being licensed at all. The only thing you have to do is you have to do some policing to make sure that it's, you know, that you're putting— you're not putting garbage up on the one side and you're not allowing accredited investors or non-accredited investors to be investing. So there's a compliance component, and easiest way to handle that is you just give a third-party person to do that for you. So you could do that yourself without being licensed. Now, what you really say is, "But you know what I'd like to be able to do? I want to get 10% of all of the money that people invest. So somebody invests $100,000, I want to get a commission of $10,000." Okay, in order for you to do that, you have to be a licensed broker-dealer. So a broker-dealer would be a Schwab, Merrill Lynch, and, you know, E-Trade, Ameritrade, and all of the other BDs that are— there are thousands in this country that are licensed and have you know, limited drug or dealer licenses. You could do that and get commissions too. So the relevance of that to your question is you have the crowdfunding sites that are being done by technology-related people, service providers who get technology fees, platform fees, but don't take commissions. And only they're restricted to 506(c)s. You got that? Number 2, you have these crowdfunding sites that are being driven by broker-dealers that are still limited to 506(c)s, but they take a commission, and the quality, by the way, tends to be higher on those sites. And then you have crowdfunding sites that are just out there because they've just jumped the gun, and they're not actually operating under any set of rules right now.

And there will be a day coming where some of that mess will sort itself out. It does. It always does. Yes, I suspected. Um, okay, last question, and then we'll let any callers who would like in and would like a shot at Larry to have it. Um, uh, so the last question loops all the way back around to banks. Um, so one of my clients this morning— today's my phone day, by the way. I'm on the phone all day. Um, secured 2 different SBA loans last year for expanding his business and opening additional outlets, and congratulations to him. So what can you tell people, again, about clients you represented and deals you've put together about dealing with our friendly neighborhood banker?

Yeah, there were two, you know, there are two components to it. And banks, we have a lot of experience in banks at any number of levels and through time. And it runs the gamut. I mean, there was a time in which when I was doing, you know, historic properties in downtown Orlando and particularly during the S&L days when they were just cutting checks against MAI appraisals. And you'd get everything you needed to buy the thing, to renovate it. And you had no money into the deal. All the way through that to, you know, the pendulum swings on both sides of the equation through the recession to where we are right now. So where we are right now is that banks continue to be primarily warehouses of money. They do not tend to be lenders of money to any large extent, and they are truly substantially, you know, require substantial collateral and sometimes silly collateral. You know, 100% guarantees, unlimited personal guarantees plus whatever the underlying assets are. And it's a rare instance in which you're going to get, you know, for any amount above chump change that you're going to get any real decent line of credit. If you have a very thriving company and you have a good relationship with your banker that you do operations with, you'll certainly get some type of line of credit. But it's going to be a relatively small line of credit, generally speaking, against the total amount of the volume of the business that you're actually doing. So that's kind of on an ongoing basis. One of the holdouts of that certainly is in the SBA space. You know, your SBA loans continue to be extremely viable. And the issue there, these are recourse loans and they certainly have their preferences. The biggest preferences are clearly owner-operator type of environments where you're buying a piece of real estate or you're buying infrastructure or equipment or those types of things which support a business or an investment that you are a personal beneficiary of. And the SBA truly does operate as effectively today as it did, you know, the first business I ever did with my dad was a sporting goods business. And we got into the sporting goods business through an SBA loan. And they— and that was way too many years ago, right? But that was, you know, 40 years ago SBA was alive and active. And they are still very much alive and active today. So certainly SBA loans are an exemption, certainly an exception to my comments about bankers in general. But bankers in general today say they want to do loans, but because of the fact that most underwriting decisions are not made at the local level by most major banks, you end up with the fact that the decisions are made by underwriters that are behind the curtains in, you know, in Charlotte or in Ohio or in San Francisco. And they're not made by the local community banker. Local community banker, on the other hand, is the type of person who can give those lines of credit and can do that on a relatively comfortable basis. However, the lending authority is usually substantially more limited than the major national banks. So you have that limitation that you have to consider.

So those are my comments on banking. Hence the reason why knowing all of the other direct and private alternatives is so important.

It is. And by the way, just on that count before we turn it over to the phones, let me just mention two other quick things. For example, just this morning's meeting with a client. Here was a scenario. He is putting together an electronic platform, a mortgage platform, which is designed to compete against a Quicken Loans type of thing. He comes from the mortgage space. He comes from the technology space. Knows it extremely well. Part of the business model attached to that is that you need a certain amount of net capital that you use for purposes of flipping these notes to the public marketplace, right, to the Ginnie Maes and the Freddie Macs and all of that. And the leverage is substantial. So when you have $1 million worth of capital, you can flip like $15 million worth of mortgages. So— and it's a flipping. It's not at risk. It's not operationally going to pay the light bill or employees. This is strictly— it is the net capital that supports these mortgage flips. So he wanted to raise $3 to $5 million, and we were talking about a structure to do that. So we talked about one which pays investors a percent a month and an 8% cap on top of that. So on any given month, on any given year, they would be getting on a preferential basis, let's say, $100,000.. They would get 1% a month, which would be a total of $10,000— I'm sorry, yeah, 1%, it's 12% in the course of the year. And on top of that, at the end of the year, they get a premium of 8%. So they're making 20% on their money on an annual basis. So we talked about that structure, and I said, you know, the money is not even at risk. It is only deployed to the extent that a mortgage is bought. And it's only— and it's only actually out there for the 7 to 10 days it takes to flip the mortgage to the public marketplace or even less than that, 3 days, 4 days. So we could probably do a simple joint venture. We just do a simple agreement. We put together that 10, 12, 15-page accredited investor exemption document that I talked about before and provide that to what I would consider to be the type of joint venture accredited partner who can stroke a check for $100,000 to $250,000 to $500,000 and who isn't looking to make, you know, the 2-for-1 in 1 year that you look for in technology but is looking for a 20% return on their investment on an annual basis. So the reason I wanted to insert that is there are a lot of different types of investors out there. To a retired investor who is looking for income and can't get 20% anywhere else, that's a great way to do it and that's a great vehicle to be able to do that. Second final comment that I wanted to make is the second part of the JOBS Act which became very relevant just went— the rules became effective on June 19th of this year.— and that's Reg A+. So in the Reg A+, you can now raise up to $50 million. You can do public solicitation just like the 506(c), and you're not limited to accredited investors. Now it doesn't matter if they're accredited or they're non-accredited. So the same type of seminar program that I just discussed with you just now with the group, Dan, you can now use that type of vehicle, a Reg A vehicle, to be able to market your investment to the general public entirely. And you don't have to worry about whether they're accredited investors or not. The only difference is, unlike the 506(c), which is something that you don't have to file with the SEC, the Reg A you do have to file with the SEC.

So it's a little bit more complicated, but not substantially. Thank you for listening to the Magnetic Marketing Podcast with Dan Kennedy. If you love hearing in on these lost Dan Kennedy talks and speeches and calls, then please let someone else know about this podcast. That's how you can help it to grow. And the more it grows, the more free Dan Kennedy we can bring to you. Also, Dan would love to give you the most incredible free gift ever designed to help you make maximum money in minimum time. And this free gift comes with almost $20,000 in pure money-making information for free just for saying maybe. You can get this gift for from Dan right now at NoBSLetter.com. Not only do you get the $20,000 gift, you also get a subscription to 2 marketing newsletters that will be hand-delivered by the mailman to your mailbox each and every month, one from Dan Kennedy and one from me, Russell Brunson.

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