We are a small group of US software engineers who have what we think is a superb contribution to our industry. However, we absolutely need to hire programmers to create the functional specifications, the internal design, and the first prototype before we will be able to convince large investors to pony up the roughly $2M we need for full-fledged development of phase 1. Unfortunately, none of us has the money to be able to provide that funding and we need to keep working at our full-time jobs to keep our families and ourselves going. And the state of the economy is not exactly conducive to getting funding from large investors based on a wish and a prayer.
It's a real Catch-22: no money until we create a prototype and no prototype until we can find some money.
One of us has been working on this project for five years and has spent $100,000 of his own savings and earnings on it; he is now broke. The rest of us are contributing our time, ideas and enthusiasm to the degree that we can, but there is no way that part-time free labor is going to get us down to the nitty-gritty of writing working code.
We do have an idea, though. Would it be legal to reach out to our extensive network of professional contacts and ask for modest investments (we are thinking along the lines of $1,000) to be stockpiled into a bank account until we can hire the programmers? We would write contingent promissory notes indicating that we would repay 200% of each loan once the company reaches a defined state of revenue around three years down the road (we hope). The risk is that if our idea flops, there goes the investment. . . .
NPR had a story about a tiny restaurant in Morrisville, Vermont that raised money that way:
http://www.npr.org/templates/story/story.php?storyId=19357345
QUESTION: is such a proposal legal? We have been informed that it would be ILLEGAL to offer stock in return for small investments, but what about simply looking for brave souls willing to take a chance on us?
The rules of the SEC for selling STOCK for small companies are described in an overview at
http://www.sec.gov/divisions/corpfin/guidance/cfsmallcompanyregistration.htm
* * *
Thanks for any help you can offer. Pointers to specific laws or regulations would be especially valuable to us.
It's a real Catch-22: no money until we create a prototype and no prototype until we can find some money.
One of us has been working on this project for five years and has spent $100,000 of his own savings and earnings on it; he is now broke. The rest of us are contributing our time, ideas and enthusiasm to the degree that we can, but there is no way that part-time free labor is going to get us down to the nitty-gritty of writing working code.
We do have an idea, though. Would it be legal to reach out to our extensive network of professional contacts and ask for modest investments (we are thinking along the lines of $1,000) to be stockpiled into a bank account until we can hire the programmers? We would write contingent promissory notes indicating that we would repay 200% of each loan once the company reaches a defined state of revenue around three years down the road (we hope). The risk is that if our idea flops, there goes the investment. . . .
NPR had a story about a tiny restaurant in Morrisville, Vermont that raised money that way:
http://www.npr.org/templates/story/story.php?storyId=19357345
QUESTION: is such a proposal legal? We have been informed that it would be ILLEGAL to offer stock in return for small investments, but what about simply looking for brave souls willing to take a chance on us?
The rules of the SEC for selling STOCK for small companies are described in an overview at
http://www.sec.gov/divisions/corpfin/guidance/cfsmallcompanyregistration.htm
* * *
Thanks for any help you can offer. Pointers to specific laws or regulations would be especially valuable to us.
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