Do It Right: Early Stage Funding for Your Business

Protect your brand, product or invention from the hazards of consumer product launching and.

Go from idea to product to big brand.

With guidance from retail product design and.

Development experts Tracy and Tom Hazzard. Get the insider secrets to put the right things in the right order with the right resources so you can out design, outsource and out profit your way to retail success.

Hey, everybody. Welcome. And today we're going to be talking about early stage funding of your invention. Thanks for joining us. Early stage funding for your invention. This is a really important topic, I think, for all inventors. And there are really several options that are open to you in early stage. But we also want to talk about this because a lot of the rules have changed. We first started our first business that we raised money for an invention back in 1997, I think was the first time we did that.

Oh my gosh, is it that long ago? It was, yeah, 1997.

And it was really angel investors that we got at the time. And it didn't matter how many of them we got investing in the company. I think we had a dozen or so. But even if that's a path you take, a dozen is too many.

We had a baker's dozen. You had 13.

Okay.

And so, you know, this is the thing. Tom and I are cautious about raising capital. We're cautious for a couple of reasons. One, that we experience the pressure of giving away even a small pieces of your company with those 13 investors. We really probably didn't even give away away a total of 20% of our company among those 13 investors. But it felt like pressure all the time to make decisions that were more short term and returning to those investors and not necessarily in the best long term interest of our business and for us personally. So we're really cautious about that. And in fact, this is one of the things where we're heavily considering and been working on trying to decide the best path for us to go into our 3D print venture. And so these are some of the things that we've been considering and that's why we have some detailed information. And we went and took a great course, or I did. I took a great course. Yeah, I took a great course a week and a half ago at CEO Space International, which Tom and I are on the faculty. But we have great benefits in that we can attend some of the classes when we're not teaching or mentoring. And one of the things that they have is a capital weekend that is just amazing. And it's free to members, so you don't have to pay if You're a member. And I don't think it's terribly expensive.

Maybe like just to attend the Capitol.

Just to attend the weekend.

Yeah, I think it's a fraction of.

The normal fraction of normal cost.

I don't know what it is. But anybody interested in that can message us on Facebook or if you have our email address, email us and we'll be happy to connect you with CEO space, if that's what you're interested in.

Yeah. Because there really isn't any place right now that is teaching how to raise capital with the new SEC regulations that just actually went into effect May 16th.

Yeah, in May. And so it may even like a week ago.

Right. Yeah. And three of the guys who were instrumental in forming it at the SEC and with the SEC and the regulations went into effect on the 16th, but they've been in play for over a year. But there really are very few people who have as much detailed knowledge of these regulations and how they've done and how they've gone about.

But because they've had a year from the time at which they form the regulations to the time at which they take effect, which was May 16, they have a lot to teach us. And so that's what I took. I took that class, plus I took a couple of deep dive classes with Marlon Paz, who is an incredible securities attorney in major firms on Wall Street. And it's just so critically important that we understand both the risks, the benefits, and really what these things can do to you.

But today, we should start today. I mean, I think we should talk. We'll have time to talk a little bit about that, but let's start with early. Really early.

Yeah.

And seed funding.

Today I want to take a. Yeah, I want to do like a primer on what your options are and what the things are out there. And so I want to be really careful here. And we make a definition distinction. So when we say crowdfunding, we're not talking Kickstarter. We'll say Kickstarter. Kickstarter is a gosh, it's a donation.

It's a donation platform. It is not in terms of the federal government and how they are have written the laws. Crowdfunding is a legitimate way to solicit people to invest in your company. That is entirely different from Kickstarter. Kickstarter people donate. And as receiving those donations, you have very little obligations to those people that are donating their funds to the. That. So if we're talking about Kickstarter or Indiegogo, that's what we're talking about at that time. But if we say crowdfunding, it's something entirely different. And we're going to define that here for you in this session today.

Right. I mean, crowdfunding is equity. Crowdfunding is what we're talking about, where you're going to give away a piece of your company in exchange for capital.

Right. So, but most people don't start that way when they have a new invention and they're trying to build make something out of it, whether they're going to eventually try to license it or they're going to build a company around it.

Yeah. And I want to really clearly distinguish this. So today, even on Kickstarter crowdfunding, Kickstarter funding model, you must spend money to make money.

Oh yeah.

So today you are not allowed to be on Kickstarter with a rendering. You must have a working model, you must have photographs of people using your product. So to think that you can just use these things to fund your idea is a mistake. And that's where we really want to start. You must find ways to take your idea to a certain level of proof of market traction. Possibly that might be the case. And maybe a Kickstarter is a way to achieve that proof. If your product is for women, I highly disagree with that method, but we can talk about that a whole nother subject. Yeah. But anyway, the point is, is that you have to be thinking of ways to spend as little money as possible, but to get your idea proven. And we've talked about that before, market proof, how critically important that is. I can't tell you how many lectures I give on that one. And I mean, that's probably my number one talk that I give across the nation. But it requires money. There's just no way to get that. So today the average Kickstarter spends about $15,000. Not on the product, not on the video, on marketing. So if you're not prepared to spend $15,000 marketing, then it's highly unlikely, unless you have a really a built in user base already and a really large email list, that you're going to be successful in Kickstarter.

Yeah. And we're talking about spending that money well before your campaign launches. This is about pre launch marketing because what we've learned over a long time now is that if you do not get at least a third of the backers and a third of the money you're seeking on Kickstarter within the first week, you are likely to not fund. And it's because of lack of exposure thinking you can put A product up on Kickstarter. And Kickstarter is going to organically bring enough backers to your project to make it successful. That is a serious misnomer. It is.

It does not happen yet, no matter how cool your video is. And that of course is an expense too. So you got to think about that.

Although I think a cool video helps. A cool video helps, but it's not near enough. You won't do it alone.

Right. And to think that that out there there are bloggers and PR people who will just promote in articles that can be written. It's not going to happen. In fact, at Inc. We don't write about Kickstarters unless they're already successful. So because we don't want to give an unreasonable boost to someone who may or may not now, I could write it before the Kickstarter. So that's where your soft launch, your marketing comes in. So these are things that you have to think about. And so it's going to cost you money. Now in the equity crowdfunding world, from what I understand is between the marketing that it's going to take, the time that it's going to take and the resources you need to build your strategy, your plan, your financials, the lawyer is doing all the filing documents and everything you need there, the average spend is going to be somewhere around $150,000. So 10x of that other of the Kickstarter amount. But if you go into the equity crowdfunding realm, you can raise up to $1 million in initial and then if you go to the full equity raise, you'll be in a. I guess I don't even know if there is a limit exactly.

What is the difference though, Tracy? About up to a million. Why is there a distinction there?

So equity crowdf is basically non qualified investors. So anyone can, and I think it varies, but it's based on a percentage of your income. But you don't have to go for full qualification and be a qualified investor. When you're getting an investor who's going to invest a significant amount of money in your business, they must qualify themselves, they must be approved. They must, it must not be more than 10% of their income or their other asset base essentially. And so their net worth would be the best way to describe that. So but in the equity crowdfunding, this new rule that just went into effect, you can basically raise from just about anyone in the public, but it's about $1,500. Is the average investment there?

Is there a limit to what that.

Average person can yes, there is a limit, and I don't remember the exact number. I'll have to kind of look through my notes here and see if it is. But there's a limit to the total number they can invest over the course of one year. So in one year they're allowed to do a certain dollar amount.

So is this really to. These rules are in place to protect the.

They're there to protect the investor, but they're also there to protect you as the crowdfunder, as the. As the company from taking investment from people who may then just turn around and sue you because they were like, oh, well, you took advantage of me and all of those things, which does.

Diving down the equity crowdfunding rabbit hole a little bit earlier than I thought we would.

It's $2,000 or 5% of net worth.

Two thousand or 5% of people can invest. So if your buddy from high school, that's.

If you have less than $100,000 in income. Okay, okay. Or it can be. If you have $100,000 and more, it can be up to 10% of your income.

Okay. So, so, but equity crowdfunding, I mean, this is a really what I've learned and I've learned a little bit about it. I mean, I've seen some of the presentations at CEO Space, not all of them like you have. But the great thing about it is there are systems in place and there are website platforms that you can work with to go through all the SEC paperwork, things that you need to do to be able to try to raise equity capital. Equity crowdfunding. But you also, these sites help protect you in terms of complying with all the laws. Right. All the regulations and things of documentation and things. Isn't that right?

Right, exactly. And we, we're going to call that compliance. Okay. You have to be in legal compliance with things. And that's why. Yeah. And that's why you need to lawyer involved. You need to have a team involved. That's why it costs money to do these filings, because you have to do them the right way. Now, some of the platforms out there, and the one we know best is called Sprout.

It's S P R O w t t t.com, website.com.

Yeah. And they've been running the regular crowd, the regular equity funding. But the crowdfunding, I'm not sure that they're actually live with the $1 million raises yet or there is any live projects yet at this stage, which is. It's only a week old.

Well, they Will be.

They will be. Yeah. I'm sure it'll be in. But anyway. But they were most familiar with that platform because I spent time checking it out and looking through that one. But the really the point of being in extreme legal compliance is really to make sure because these rules are so new and there's a gray area and so anywhere you can get into a situation where there might be risk with your investor base or with your. The idea that somebody could come back and take this capital that you've worked so hard to raise, that's kind of a scary prospect.

Yeah. I think that's really important for. And this is obviously, if you are an inventor that's really building a serious business from the get go out of it. We're going to talk about what happens if you're not. Because there's other ways to fund your invention if you're not. But we're already talking about. So let's go there with this for a minute. Is that I remember an example being told to me a very real example of something that actually happened and is one of the reasons that these equity crowdfunding laws and rules have been put in place is that it is possible for an investor after they've given you the money months, even years down the road, to say, hey, you deceived me. You didn't properly disclose everything about your plan and what you were doing. And I want my money back. And they can sue you for that money and actually get it back if you don't prove you properly disclosed everything.

Right. And I want to be really transparent about how that works. Like that is the case. And it is exactly why some of these SEC rules had to go into place. And part of it was too so that grandmothers and grandfathers didn't get into their entire retirement funds sucked up into someone's. They didn't go too deep in with someone and then lose their entire security in that. So that's part of it. But the other part of it is on the company side that companies were getting tanked by these lawsuits and things like that. So it's in both protections. But I do want to be cautious. Do not think that being on Kickstarter alleviates you from any kind of risk of lawsuits and other things. There's a big, I mean we've been talking about it that class action lawsuits are getting bigger and bigger on Kickstarter, more frequent and you have a performance obligation on Kickstarter whether you believe it or not. Just because everybody's late on their projects and just because Most people let that go doesn't mean that that relieves you of the liability of having to perform. So in both cases here, whatever you say you're going to do, you better do. You better deliver. You better have the right team in place. And that's why with the equity crowdfunding, we're saying to you $150,000, because that ensures that you're going to have the right team in place. You're going to have the right pieces of information. You're not going to step over your bounds and promise something that you cannot deliver, and you're not going to say something you're not supposed to, which is another reason why you go and you attend one of these classes and you really learn about what you can say and canc say, because there are restrictions just as much as what you publish and what you put in your slide deck and your pitch presentations to what you can and can't say to investors. So these are also really critical things.

It's very important. So just a couple of practical examples that I know of that I think would be helpful for people to understand here is that. So in order to raise money from investors any more than five, is it, Tracy, Is it right? You can raise angel investment on the down low from up to five people?

I think it might be six, but.

So, you know, if you're getting angel investment from mom or dad or, you know, aunt or uncle or any friend or person, you know, if you keep the number of people you're raising money from or contributing for a piece of your company to under either five or six, and we'll have to confirm that you can just do that. But once you get over that amount of people, you have to comply with all the laws. And that means there are certain documents that you need to distribute to potential investors for them to review of your business plan and all sorts of other aspects, I'm not going to go into the details of they are, but there are rules of things you need to disclose to be in compliance with the law. And a website like Sprout helps you because not only does it qualify the investors, but it also is a tracking system. When you have an investor who's interested, wants to know about your plan, you distribute documents to them. When they go and request those documents, and they confirm through the website they've received them, you're in compliance with the law. So they can't say later on, oh, I didn't get the documents.

Well, and also I think from an inventor's perspective, it's a lot more secure for you too because you know, you put your pitch deck out there and you've got your IP revealed. I mean in some cases because you can't not reveal anything. So the process allows you through these platforms, really allows you to do non disclosures, really track and see who's downloading these things, who's really watching that, who's looking at that, how many times do they access it? Are they accessing it from multiple computers? You can see that in some of the sites and if that's the case, maybe they're sharing their link with people and sharing their username and password. But the best part is that you could shut them down too, so you're in control of that investor. On some of the sites you're not in control. And so there's actually a few risks to the sites that I found out that I really want to mention to everyone on these before we go on to talk about some of the other forms of funding. Broker check, they must have a broker license. All of these sites must have that compliance in place that they must be approved. And so you really should check that out. You really need to look into that. There are places and ways to check. At Finra F I N R a dot org you can do a broker check and a portal check. You might be able to. Just having a consideration is that you might be able to raise the money without dealing with it. As Tom mentioned, if you don't really need as much for starting capital and seed capital, and I keep this in mind because I just did an interview with a VC that seed capital has to go further now. Like it's really. You really don't get into Series A or what is really capital raising until you hit a scalable growth model. Like are you going to scale up? Are you going to really expand it? Have you already proven your market? Have you already proven your product? All of that proof phase happens in the seed capital and there are ways to do it through debt financing, through just loans, whatever you need to do, raising it from friends and family, those kinds of things. And is that a better model? Until you're really sure that you're ready to go forward and that you have something that's going to be scalable and something that's going to fund. So also some of these sites have what you call test the waters. So you can test the water so you can actually put your pitch deck out there and screen it through a few investors and refine your language. Maybe you're going to find out they have a ton of Questions and other things. So before you go into full filing of your documents, you're allowed to do this test the waters thing and there's a limited amount of information required. And you do have to spend a little bit of money to get your strategy in place and get that going. But before you finalize everything and then you go with the SEC filing, you can test the waters and check it out. That's also maybe a really great way for you to really say, am I really ready for this? Or. Or when the questions come back to me, am I really feeling like, wow, I have some more homework to do, it's not time yet. So I think that's really important. The other thing is that some of these portals are niche based, so really make sure they're in your niche. So some of them have, are in states only because there are different state rules and regulations that go out. So they all have to be registered and licensed within the different states. And so some of them have said, we're only doing California, which means not only do you have to be in California, but your investor needs to be in California and business also needs to be, you know, I'm not really sure about that, but I believe that it's both. Yes, but definitely your investors will only be from that state because they're only qualified to take investment from that state. But I think actually you're allowed to be in another state, your company, as long as you've registered your filing within the states. So that's another reason why the costs get up on the sec. Because you have to register in all the states that you want to raise money in.

Yeah, I mean, in reality, just so that inventors understand out there, in order to raise, in order to put together all the proper paperwork and documentations to actually even take angel investors, the cheapest way we know to do it costs you about $6,000 in that. Right. If you're gonna have others do it.

To help you with the document, I mean, I think probably 10 is more accurate.

But then if you're gonna go into equity crowdfunding and using a site like Sprouting and raising the bigger amount of money, first up to a million, and then potentially more than that, it's going to cost you what, about 15 to $20,000 to do all those documents, it.

Can be even less. Because some of these portals like Sprout have electronic filing with an attorney's review that you can do through there. So you don't have to have a separate attorney to do all of that. Because the reality is that there's so few attorneys who have started doing this yet. So you need one who has experience, having done it many, many times over. And it's kind of small potatoes for securities attorneys. They like to do big companies that are going for IPOs and other things. So the ones that are specializing in this have participated in with some of these platforms. And so there's an auto process where you file all of the documents within that, then the attorneys review format and make sure everything's ready and in order, and then get it filed with the appropriate government organization.

But if you've never done it before and you haven't gone to a class like they have at CEO space, you don't. You don't have any idea what documents you need. You're gonna need an attorney to do.

I can talk a little bit about those things as we get towards the end. We'll talk a little bit about the things that you should be prepared to know and the things you should get in order besides getting your invention proof in order. Right. I think you guys spent too much time on that and not enough time on the business side of things. So we want to balance that out this week. So another. So beware of those niche, because if it's a real estate niche or estate niche and that doesn't fit where you're going, you got to be careful. You're not going to find any investors on these sites. So the other thing is that some of them are a mall situation. So think of it like, I mean, Kickstarter is really like a mall. Okay. Some people might search in there and say, oh, I want to find out about every time there's a 3D printing kickstarter up for grabs. I want to see it. So you can ask to be served certain categories of things. So the reality is, if you're working really hard to find your investors, do you really want to get them, drive them into a portal to review your documents. That's a mall. And then they see the next guy who might be in 3D printing. So let's say we're running our 3D print venture and they go, oh, this sounds really interesting. I'm going to go into the portal and I'm going to look. They go into the portal and they look at our proposal and then they see over on the side, oh, if you're interested in 3D printing, here's all these other 3D printing projects to invest in. And then all of a sudden your investor says, I don't want to spend here. I'm going to spend there, they get diverted. So that's where the investor essentially doesn't belong to you. There are other sites, and I know Sprout is one of them, where they drive them only into you. They only see you, they don't see the others. It's really for you. And that's if you're working at your butt off and you're spending $150,000 marketing and getting investors and getting yourself out there in front of them, you want to keep them to yourself. I think that that's really an important portal. Consideration, Consideration as you're raising capital. And the fifth one is that the reality is that these sites have compliance concerns and you want to make sure that they're over complying because we don't really know the nuances of the rules yet. There's going to be tests of those rules and you don't want things to go wrong. But if one of these brokers got decertified because they didn't follow and comply and do all the things in the rules, what happens to your investment now? All of a sudden it's debunked. It's completely closed down. You don't get your money, it's sitting there in escrow. It gets returned to the investors. You have to start all over again. So that's a real issue. You really want to make sure you're in a site that's doing over compliance so that you can make sure that there's not, you know, that you're as covered as you can be in case of a failure in this brand new system that's going on.

Yeah, I think one of the stories that we heard, that was a legitimate true story of an NBA basketball player who had made an investment in a company and then his wife and he got divorced. Right. And then the attorneys for the wife and the divorce proceeding managed to somehow say, well, there wasn't full disclosure for. For our client for the wife of this investment. And therefore the rules of the SEC weren't followed. This is even before the new rules were in place.

Yeah, this is for a much bigger investment.

Rules were not followed and therefore they were able to go back and unwind this investment. And it wasn't what the basketball player who made the investment wanted to do, nor obviously did the company want to have to deal with this because they ended up having coming back almost like in a bankruptcy sort of proceeding where they come and snatch back your money if it was done in a certain period of time or in the wrong way or any of that thing. So this is one of the reasons you may think, oh, I know this person, they're a very qualified investor. Well, you may know them, but you may not know their entire family dynamic and situation. And though that is why these laws have been put in place, yes, they protect the investor, but they also protect you as the person, as the company raising capital. And we'll make sure if you follow all the rules and stay in compliance that you won't have any surprises like that with somebody being able to come back and cost you a lot of dollars in legal fees and be able to come back and take investment that you took in in good faith back either.

Right. And so keep in mind there are risks, there are principal risks to the business, you know that core risks to the business. There's legal risks, there's also regulatory risks which are kind of the unknown untested right now. And then of course you still have product liability risks or performance risks of non delivery and things like that. So those are all things that you have to consider in that and some of those are on you, but some of them are going to be on your choice of portal or your choice of securities attorney. And this is where. This is why we're saying plan this budget. Right. Because you cannot skimp here. This is not a time to say, well I'm just going to save $5,000 and go in this portal or go with this attorney. And they've never done it before, but that's okay. What is it? Aaron Young calls them your uncle attorneys. Yeah. If they've done divorces, they have not.

Done security says it like this. Oh, do you how many of you have an attorney? You know.

Like. Yeah, well if your attorney is your uncle or your stepfather or something or your cousin's friend, you don't have an attorney.

You don't have an attorney.

Most people don't have an attorney like that on speed dial, so to speak. I mean it's an old term but you know, on the job.

Right. And not any attorney can do this. This is a securities law. You must be licensed to do securities law. So you cannot use just any old attorney. So those are things that you must consider. But let's talk a little bit about the things you need to prepare and have if you're especially. I mean this is. We talk about what is seed money. Seed money is like things that get you started that grow your business program that checks really from inception from the concept idea to product market fit to where you have proof that you have a likelihood that the market wants what you have to sell.

And seed money really is often an angel investment, is it not?

I mean, it's unregulated friends and family and. And some individuals, small individuals. Angel investment. Yeah. It's highly likely that that's where that seed money is going to come from. In very rare cases, seed money might come from a vc, might come from an investment group, might come from something bigger than that. And more of those are like what I would consider to be corporate VCs, so like in the 3D print world, if you got money from autodesks, what was their program called?

Spark.

Yeah, and that's maybe seed money in a way. And that'll give you, you know, you might get a hundred thousand, two, three, four hundred thousand dollars of seed money to get started on the idea because they think that it might have potential in a more global way to make a difference in that marketplace or they have a particular interest in that marketplace and in growing companies that are complementary to what they sell and what they do already. So there are actually a lot of these corporate VCs doing this or corporate funds doing this. It also has to be a perfect fit for them. So that's always a risk as well in terms of.

But I think that's fair. There are lots of ways to get seed money. But I think most inventors who want to maintain ownership of their product idea as long as possible use debt financing. Quite honestly, they're using their own 401k money or using their own other investments they've had that they've cashed in or just savings to fund proving the concept of their product, making a prototype and paying for their patent expenses and things like that. And I honestly think that's the most appropriate way for an inventor to do it, to maintain complete control over your product. I mean, a lot of inventors, we've had this happen to us quite recently where an inventor will come to us and say, hey, I've got this great. I have these great concepts. Okay? I have these great. I don't know if the term they use as ideas or I have these inventions and I know I could file a patent. Really what they have is an idea. It's probably written down on paper in some way sketched or sketched. Right. And they have, they can show that to somebody. And so I can say, I think that's a great idea. But that's all really, it is, is an idea. I've had people coming with that stage and say, this is a great idea. I mean, would you like to get involved? And you know Help me make this thing and help bring it to market. It's. Well, you just have an idea. The idea that someone is going to give you money to help you fully develop that idea and prove the market. It almost never happens unless it's from family.

Now, in our experience, ideas are not worth nothing, right? It's that ability to turn that idea to the action that you have to take and the experience that you need to have to turn it into something that is worth the money. So whoever puts in that effort is the one who deserves to make the money off of it. An idea is just an idea.

It's just an idea. And ideas are not protectable. So anybody you tell it to, you.

Know, you want to be a dime a dozen. Isn't that the way that the term goes? And ideas are a dime a dozen.

We have so many different product ideas. I mean, yeah, we have 37 patents, yes, we've developed 250 products in the last 10 years, but we've had five, six times that many ideas that are in the discard way. More than that, ideas are cheap or nothing. It's ideas that somebody will pay money for. Ultimately, consumers will part with their hard earned, earn dollars for it that are worth something. And it takes a long time to be able to prove that you or me even thinking that it's a good idea, that doesn't matter. It's what does the market think? And that came. We talked about proving it a while before. I mean, look, some ideas are better than others, no question, but. And in a lot of ideas, actually a huge number of ideas could be a product that sells that you can be. But that's just it, they could be. And people, inventors often come up to me and say, well, this would be great. You can make a lot of money. Okay, that's possible. But I'm not going to do that work for free.

Right.

And if you want someone else to pay you to do it, why are they going to do that? You got to think about this. I mean, why is someone going to pay money for them? They could be. It takes someone with passion who really has a fire in their belly for this idea to go and make something of it. Yes, a lot of things could be a company, but if you think you're going to be able to go and find. So I had somebody come up to me and say, oh, you know what I need? I need to hire a CEO. I need a CEO who could take. At first he told me, hire a CEO and I was like, okay, how much money do you intend to pay the CEO? Oh well, I don't have any money to pay him. I want them to do it for a piece of the company. Okay, so you're asking somebody to come and be your CEO to run your.

Company, which is a full time job.

Which is a full time effort, to then contribute their time for free. So whatever living expenses they have, or putting food on their table, you're expecting them to pull that out of their savings. So working for free but still having expenses until some point in time in the future, which is going to probably be a year or two until enough money is coming into this business or enough investment is there to justify a salary.

Right. And keep in mind, this is from idea. So when you're talking about idea, how long is that going to take before they're making money on it? If you spent the time and a small amount of money to get market proof and product market fit, now they can see the potential of it. It has potential. I have proof of traction. It's closer along. I am showing that I have skin in the game and I'm working towards it and I'm passionate about it. Maybe I don't have the skills to run the company and that's why I need a CEO. Now all of that makes sense. And now you might be able to get somebody on board.

Right? If you really don't have any intention to build a company from the ground up for around your invention, then no one else is going to have that passion either. The about the only other road you can go down at that point is to fully develop it. And I'm talking about spend smaller amounts of money but still going to be your own money or you know, money you borrow to go and fully develop a product, make a absolute working sample. I'm not saying you have to tool for it, I do not say tool for it, but actually no working samples. Okay, Very low cost, no tooling, but make working samples and maybe file a provisional patent maybe and do some market, do some market tests after you file that provisional patent. If you have, if it's patentable, most things I guess for people here would be, but then you've got to go and seek a license with someone, another company who's then going to do the rest of the work. But you're going to get a better license the further down the road you take it. If you try to take a company, an idea that you haven't filed a patent for yet, or a patent hasn't issued yet and you haven't even gone so far as making a prototype and proving it out, it's going to be very, very hard to get that license. It can happen. I've seen it happen in rare cases. But the deal you're going to get is a much lower percentage. The further you take it down the road, the higher percentage you're going to get.

And not just a higher percentage, but the less like the better terms you're going to get as well. So here's what Tom and I have experienced before and we have yet to see a successful license come from any one of those marketing firms. So any of those licensed brokers, presenters.

Help type of thing.

Exactly. We have yet to see one person succeed. That's not the testimonial on their website. We've yet to meet one. We've talked to many, many. And almost every single one of them was, I spent $25,000 and all I got was this binder or I got.

This bound book of this patent search and the next step, which is going to cost me x more money. Right.

Let me Google that for you and save you money. And so that's our big joke. There's that app. Let me Google this.

Let me Google that for you. Yes.

Anyway, that's what people should do, just go to Google Apps. You can do the search yourself and not spend $25,000. But its reality is that when you get a license agreement or when you're in process of a license agreement, there are so many things on a corporate level that go wrong. There's a not invented here syndrome that happens when you have corporate design and engineering. It can even happen at the manufacturing level that they're like, this is just too difficult. We don't want to figure it out. We're not going to take the time. And they stall. So what I have had happen to me is that some inventors will come to me and say, oh my gosh, they bought my patent and they were just sitting on it. They shelved it and they did this to me on purpose. The reality is, I guarantee you, they didn't do it to you on purpose. You were too small to succeed and they could care less about you unless you were really selling against them. But if you were just a small guy just starting out and you got a licensing deal with this company, I guarantee you it's the organization that killed it on it for you. And so now you have no wherewithal to get it back because you didn't plan your license. Right. That's another problem that happens. It's like a whole nother That's a.

Whole other subject about metrics and metrics and putting hooks into a license. So if they perform, you're not stuck for a long period of time.

Right. But the reality is, is that a company, if they're spending money. So we always talk about licensing as having three things in it. One, upfront money, which rarely if ever happens because most often you guys haven't done your work and gotten your product far enough along that it's ready to go. So that means they have to invest money to make money and so they're not going to give you money on top of that. So that happens in rare occasions. We've gotten upfront money before, but we take our products a whole lot farther and we have a whole lot more proof we know how to make that happen.

Yeah, we took it to the point of having a turnkey solution. All they had to do was pull the trigger.

Right. They just had to start paying for tooling. And even then we still got a small amount, but we got enough to be an advance in a sense. And then it's a high royalty percentage or a high license fee percentage. You won't get a high one. If you haven't taken your concept very far. It won't be. Someone told me that they do like 5 and 6%. But to be honest with you, for mass retail, I think you're lucky if you get two nowadays. So you know, just. That's a really big. I mean you have to have a proven patent to get more than two.

Or you need to have a big name like a Martha Stewart who is licensing their marketing name across a lot of product lines in order to get.

So you're getting patent power and market.

Power north of 5%. Right. You've got to have quite some equity in your brand. Yeah, if not your item.

Exactly. In your, in your brand. Your item. Both or both. And so that's it. And then the third thing is this, like we call it metrics or terms, basically saying minimum guarantees that you're going to perform or the company that bought your product is going to perform. And when they don't perform, they either have to pay out that minimum amount of money to make you whole or they lose their license rights. And so those three things, you won't get them if you just have an idea.

Right, I agree.

You just won't. And when a year later, you're still waiting for licensing money to come in.

This is why. So licensing is not the best idea for early stage concepts. So then that's what we want to Talk about early stage funding.

Right.

So early stage funding, gotta get some money.

What's the real early stage? So if I'm an inventor and I'm, I'm a working class guy, we meet a lot of these people.

Yep.

And we see them at the local inventors forums. I'm a working class guy and I come up with an invention. I have some intellectual capital, if not property yet. And, and I want to fully develop that and I don't have the money to do it because my day job, I need everything I make to pay my bills. How am I going to get some money to do that? Well, one of the ways you could consider is debt financing.

Right. Our Friends at All Green column, ABC financing. So A is asset based, B is bank and C is credit based. And so those are your different kinds of financing, debt financing, but there also are investments.

Let's make sure, let's be plain language, debt financing. We're talking about getting a loan.

Yes, getting a loan.

You yourself getting a loan in order to fund your early stage invention development. That is I think, the most common way it's done other than using up your own savings, cashing in your 401k whatever of something you've already saved. If you don't have money already saved, getting a loan of some kind. And there are lots of different loans, you don't have to have stellar credit.

Right.

There are different levels and there can be some high interest rates. But if you really think this is the thing, it's kind of true that the cliche no risk, no reward, I mean somebody has to take some risk in order to move an invention along. And that's true whether you're using your own money you have in savings or if you're getting a loan for it. It is a risk, no question. There's no risk free way to do it. But debt financing is very real and all Green, as Tracy mentioned, is a company here in Irvine, California that helps companies actually fund their businesses. Not just inventions. It's not specific to inventions, but anything they're trying to do in growing a business or a product, they help people do that. And they also have a lot of other services they provide around developing your product or your company if you need.

It more on the marketing side of things. But the reality is that you're going to need that. And so you have to get that money from somewhere now, friends and family, hey, you can stress that system if you want. It's, I can say, because we've done it before, that is the, probably the worst way to raise money ever. And it always hurts your relationship. No matter how good a product it is and no matter how good the return is, it's always slower than they expect. It's always in way more than they thought they would be in for and it's stressful in your relationship. So not my preferred way of doing it, but if you need to, you need to. Some of the people who tap their retirement funds, I've heard of a lot and been approached by quite a few companies that are talking and doing some of these unusual insurance policies against retirement funds and things like that. So there's some creative financing funding going on out there. I don't know a whole lot about them and I, you know, maybe hoping we can get Sarah on the show, do a talk for us on what that means and maybe some of these.

Options definitely need to have them on because we don't know off tuberc heads the details for what kind of credit you have. How much money can you raise?

Yeah, Is this realistic?

Is it realistic? So for now, our listeners are going to be kind of be on their own to try to figure that out and we'll address it in the future.

Brian Eaton is already a member of our members to Inventors, our mentors to Inventors Group. Brian Eaton's already in there and Sarah I invited as well. And so hopefully they'll join in and you can actually message them directly within the network. So if you have questions, you can ask it that way. So don't forget that your membership is here and you can see the other members in the membership area on the portal page and make sure you go there and use each other. I mean that's why everybody's in this group is so we can network together.

Yeah, absolutely.

So. Or just ping Tom and I and we'll connect you too, if you don't know who's who and within the network. So these are some things that you have to do in the early stages. But here's what I really want to leave you guys with, really in this last 15 minutes of it. If you have any questions, please just pipe up and type them in the comments field.

Or are we monitoring the right place here for where people would come?

I don't know where you're monitoring.

Oh, well, are you?

I'm monitoring on Facebook. You're supposed to be monitoring on Google Hangouts, so hopefully you are. Are you doing a terrible job of doing that?

Double check that.

Okay.

Oh, hey, hey, hey. All right, so we got somebody here. So this is from Batita Vital and this just came in a few minutes ago, so I'm not that late. Okay, says Tom and Tracy. Great work as always. If I have developed a product that is for different markets, the same object, but it's adapted for in one country, one for the EU and one for the US and one for the Brazilian public. I wonder if that has to do with different electricity things or maybe it's just language, I don't know. Should I patent it for all the markets start in only one country? I will use a service bureau for 3D printing this object. Thank you. Oh, it's Eduardo Martini. Eduardo, thank you for being live on this one. Boy, his Google name is different. Otherwise known as Eduardo. All right, good question, Eduardo.

Well, first I want to start with is that do not start patenting internationally, okay from the get go file within your country that you're making from and prove out that the product has traction and sales before you start broadly patenting around the world. Okay? So just start there. Because if the product doesn't have international patents are so expensive, expensive and the.

Rules are different in every country and.

Unless you're prepared to really enforce it, it really doesn't make a whole lot of sense to be doing it. And why would you spend all that money to let's say patent in Australia if no one in Australia is ever going to buy your product? Now, if you're really developing something different that's different in each country, you will have to file each one of them differently or have your claims written in such a way that it includes all of those different processes if you can, as added claims.

Actually I would say that if, I mean depending on what the product is and it's hard, I know it's hard to answer without knowing, but it was just like an electricity voltage difference or a language difference, the claims would you should be broad enough to that you wouldn't have to do that different in every country. However, I agree I wouldn't go spending a lot of money to patent things in other countries unless you really know there's going to be a market there. So what would you do? Most companies have some form of a provisional patent that you can file and I would recommend starting there because it's expensive and you can try to prove the market at least in somewhere and.

Usually gives you 18 months to two years. Sometimes you can have as long as that depending on filing dates. And then when you file your full patent and you have time to really prove the market before you'll end up having to file the international patents.

Well, international that's different. You're going to need to consult your patent attorney about when to file the international patents. But the provisional patent will give you one year of a priority date before you have to file a full patent in that first country you can file. There is a international treaty called the Patent Cooperation Treaty pct. You can file a PCT application to reserve the right to file international patents in other countries. And that gives you another year of time to do that, I believe. File your first full patent once you.

File the full patent. Not from provisional date.

Correct. So you can build yourself a couple of years. Let's say you have a provisional for a year and then toward the end of that you file the first. First real patent application in your country. Then you would want to file a PCT before the deadline, which I think is about the same. And that may give you another year before other countries.

Yeah, I think it's 21 or 24 months. 21 to 24 months if you did it from what you can get.

Yeah, yeah. So that's very important. I would be very careful because in the reality, I mean, having a patent, I do believe in it, we have 37 of them and that's. It's very useful.

But of that, we only have one.

Pct, though, one that we did internationally in all that time. And to a large extent, it's difficult unless you really have the money or know you will have the money if you're raising capital to be able to enforce that patent in another country, because that's a very expensive endeavor. I like copyright better. Eduardo says he's talking about a 3D printed product. I think that copyright is going to be a lot more helpful to you in terms of the, you know, the file that you'd be having printed on demand in different countries. I would pursue that route. We have another question from Diana D. It says, do you have a list of companies that help with funding mentorship, such as the one in Irvine, which you mentioned earlier? Do we have a list of those?

I don't know if we have a list of those. And, you know, that's something. Why don't you message us, Diana? Because, you know, if you're really looking for, if you're a specific kind of company that there's different funding options that might be great for you. So we don't have a list, but we do have a network of referrals. So there are some companies, though, that really do a great job of helping you figure out what your strategy and plan needs to be so that you can really Dial in and figure out how much funding you're going to need initially. So I'd say anywhere. If you are really looking and serious about building a business and serious about eventually going for equity crowdfunding or capital raising, the minimum I suggest you have is about $50,000 planned over the course of about six months time. That's the estimate that I've come to from a lot of research. And that means that you're going to.

Spend maybe what are you going to spend? That money?

Yeah, you're going to spend about. I'd say you're going to spend anywhere from 15 to $25,000 on consultants to help you formulate your plan, make sure your numbers are right, get your pitch right if you need that, various things like that, where it's really right. It's not anything in there about your product. Keep that in mind. This is about building a company and building a successful capital plan. And then I'd say you probably need another $25,000 for the legal fees, the regulations, just some amount of travel and time and initial jumpstart to figuring out what your marketing plan should be in terms of marketing to investors. So some of that might be spent on website revisions and things like that that you need a video or because you can put videos into your equity crowdfunding plans as well. So some of those things. So some marketing needs is in there as well. But that's where I'm estimating. In fact, that's exactly our budget for where we're going to go for six months will be a $50,000amount of money spent.

A big project, and this is our project is, I mean a big company.

That, yeah, it's $20 million a year.

In revenue within three years raising a significant amount of four or five million dollars worth of capital in order to really bring that venture forward, in order to be able to then have a company that has 20 million in sales and all that. So we're. That's a big time project.

Right. So you know, so just be thinking about that. I think that if you're really just dialing in and doing a sort of initial investigation, I'd say probably just need a budget of about 15,000 to get started and really do an investigation and get to the next step before you decide if you're going to go further or how you're going to go further. One of the other things in there for us is in that money. And that's why it's 25 for the legal and compliance documents. And all that is because also we're going to reform a new corporation, and some of you may need to do that. And that can be anywhere from three to $5,000 to reform a new corporation, which will be the new entity. And especially if you're going to go for an exit strategy of selling your company, you want to have it separated. We want to have it separated from our core business, for instance, because our core business is just us. And this would be a sellable entity. So that may be required for a lot of people. And see that the inventor part of my mind just went. And the designer part of my mind just went, oh my gosh, I'm overwhelmed. That's like a lot of information there. And that's why you need to spend money hiring good people, because it will only stall you. And that's really what we want to put into your mind here. The three things that I really want you to take away today is that these funding options are out there. There is money being spent. And if your idea is really good, and if your product is good and you're passionate and you're hardworking and you want to make this happen, there is a way to make it happen. So you shouldn't be discouraged in that. And there are new ways coming up all the time. I mean, I love the idea of only raising a million dollars and really taking a very small piece of your company and getting to the next stage. That would make you ready to do capital raising. Yeah. Larger amount, you know, get you there. So it's really. I love the idea of that and I'm really thrilled that this equity crowdfunding rules have gone into place and it's happening because I think it can make a lot of companies more viable and successful. So that's there. The second thing that I want is that make sure you really don't just spend all your money and all your time on your product, on your invention and on your idea. You must spend it on strategy, tactics, people.

Not only that, on personal development, making.

Sure you're ready for this.

I mean, it's your product, your invention, your baby. Yes. Okay. And the company wouldn't exist without you. But do you have all the skills to run a company and to even build a company and get it funded? I'm not saying you have to have all the skills from the get go, but you need to be willing to go and learn what you don't know. And there are organizations that can find a team or build a team that has the strengths where you are weak. Right. Recognizing that is so critical. I've met a lot of investors who if in the business plan, they don't see specifically what you're doing to personally develop yourself, to improve, to learn what.

You don't know or add people to your team. And the team part is actually extremely critical. And this is another way you need money to do that. Because if you don't have your team actually hired and on your staff consulting with you, they're not really a part of your team. This is a grand idea that that person will be available. You need to spend a little money getting them on your team. So that means you may have to contract with them, you may have to pay them a minimum amount of money. You have have to have an agreement in place with them. Those things all require documentation, really a plan getting going with them. So to think that that's going to happen and someone's going to come on board and be your free CEO because they like your idea, that's not the way to go there. You must spend a little money to get a good person whose resume you can use. You should not. I mean, sure, people ask us all the time, will you be on my team?

And I think we've had some people ask us, will you be on our board of their company they're forming. And some of them, if we believe in what they're doing and you know, after they raise their capital, get to a certain point, yeah, we'd be willing to be on their board and then they can sort of use our bio in their business plan. That helps give their plan credibility.

But we make it a policy that they have to contract with us at least some small amount ahead of time so that we can officially say we're they're our client, that they work with us, that they are partners with us us. Because otherwise it's, it's just borrowing our resume. And at the end of the day.

This isn't a sales pitch either. We're not trying to get.

No, I do not want to be.

On people's and try and get us on your board. I mean, that's a very, it's a very big thing to ask.

Yeah.

And we have enough to do. We have so many, you know, a lot of demands of our time.

I rarely if ever will agree to it anyway. It's just that kind of thing. But it, that's beside the point. So spend a little money. Make sure you're spending money on those things and not just on your idea and invention. No one cares about the what. They care about the how. And the third thing is that I really, really urge you to really spend the time and decide, should I do it? Should I make this happen? And that we're going to make our next topic.

Great. Well, we have one more question from Eduardo before we go. We got a couple minutes here. He says, and how should I approach the financial side? Use a PayPal account or some other global way of money handling.

If you're talking about raising capital, you must do it through escrow accounts and through proper channels. That's why you need to be in a portal. If you're talking about selling.

Yeah.

If you're talking about selling your product or just sales of those. PayPal is very international. We find no issues with it. You can do invoices and other things. We do it a lot. I mean, we pay people all over the world who work for us through PayPal. So that's a very successful way to do it in our country, here in the US Because I know, Eduardo, you're not in our country here in the US but in our country, we even have a tax exchange in which PayPal reports, so you don't have to, as the company spend time doing 1099s and doing all the reporting that's necessary. PayPal does it all for you. So, you know, they make it easy.

We're using PayPal a lot to pay even employees we have in other countries. And we do have employees in other countries. You did that?

I just said that.

All right. Sorry, I didn't know you said that.

But there's also Amazon Payments. Amazon Payments is another way to do that. It's not quite as, I think, as simple to use as PayPal is. PayPal seems much more straightforward. But if you're really selling product, Amazon Payments in a click button makes it really easy, too. So if it's product sales that you're talking about, I think that's an ideal way for you to do it, Eduardo.

And if that didn't answer your question, you can message us or email us as you do with certain other things and explain a little more detail, and we'll try to answer your question more specifically. But for others of you in the future who are watching this recorded, you weren't here live. You can see that. Hey, we got some questions. Live here on Google is where I saw them from a couple people watching this live. Be sure to join us on a future live hangout. And we always have those dates posted on our Manage to Inventors, Facebook and Google page. Be there live and you can ask some questions and get answered right away.

As well, or if you joined late to the broadcast, it will be on the Facebook page. And when you go into it, there's two things I just want to go quickly mentioned. One is when you're in the group and you're doing discussion in the Facebook group. You're in the group discussion. It's like the chat area. You must go to the Mentors to Inventors page. And when you hit that page, there's a tab at the top that says Join us Live. And when you click that Join us Live, that's where all the videos archives are. And when it's not live, right now, there's only one video, it's the live one. But when it's not live, the archive is up there and you. And you can watch all of the past episodes.

But if you're on Facebook, that's where you have to watch the live one.

You have to watch it from Facebook on Join Us Live.

You can comment below that.

You can comment below that. Yeah. During the broadcast only. Otherwise you end up in the group discussion and that's where you guys can network with each other. So anyway, thank you guys so much for joining us and glad we got our tech worked out this week.

It's getting better. It's not perfect, but we're get. We're working on it. Yeah.

So next discussion is in two weeks.

We'll be back on the.

On the Wednesdays. Yep, we'll be back on Wednesday in two weeks. And we will make it still 12 noon Pacific time. And the topic will be should I do it? Should I make it? Should I invent it? Should I, is our question.

Should I continue?

Should it go forward or should it end up on the discard pile?

Right. That's right.

All right, thanks, everybody.

Take care. Bye. Thank you for joining us on this.

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