Sign in to follow this  
bhigley

Seeking investors - and some proposal reviews

Recommended Posts

Hey GameDev community, My name is Brandon, and I'm the co-founder of a group called boredom's products. We've begun work on our first title, and while some members are happy working now and getting paid later (once we get funding), our choice of using AFM Games for our 3D art forces us to pay for labor upon delivery of assets. AFM's quality, and most importantly, speed, were major contributing factors in decided to outsource our 3D work. But, asking for money means that we as a team have to tuck in our shirts and put on ties. And, it means creating a business proposal. We've decided to offer investors shares of our revenue. Our game is cheap, and therefore low-risk, and after doing some research of our market we have determined that returning the investors' money will not be a difficult task. All of our research can be found here. I wanted to ask the community here to take a look at our portfolio (after signing an NDA it is possible to see an expanded version) for two reasons: if you or someone you know may be interested in investing, let us know! And, any feedback on this portfolio is helpful. So, happy reading GameDev! Brandon

Share this post


Link to post
Share on other sites
Brandon,

I advise you to have a meeting with an attorney that has some experience with private placement fundraising. There are very strict rules for how companies may raise funds and publicly requesting money is not legal (unless through an IPO).

I'm assuming you're in the US. If not, then disregard.

Share this post


Link to post
Share on other sites
Thank you for the input!

I must respectfully challenge your claim, however, that seeking funding publicly is illegal. While doing research for the project, I discovered a handful of websites (see below) which allow entrepreneurs to post investment requests and allow potential investors to review those requests. Are these websites all illegal?

I highly doubt that announcing that you're seeking investment would be a crime--perhaps there are some specifics regarding this supposed law about which you may be confused? Perhaps there is a difference between announcing that you're in need of investment and actually seeking investment?

If you'd like to cite a source that would be very helpful! I hope I don't come off as confrontational, as that is not my intention. And again, thanks for the input.

--Brandon

http://www.fundinguniverse.com/
http://www.gobignetwork.com/
http://www.gameinvestors.com/ (under construction)
http://www.thefunded.com/

Share this post


Link to post
Share on other sites
Quote:
Original post by bhigley
Are these websites all illegal?
I assume that those sites have either worked the details out with lawyers, or they are lawsuits waiting to happen.

Quote:
I highly doubt that announcing that you're seeking investment would be a crime--perhaps there are some specifics regarding this supposed law about which you may be confused? Perhaps there is a difference between announcing that you're in need of investment and actually seeking investment?
It is not a single law.

There are many different names for what you described, including shares, investments, corporate bonds, securities, pledges, stock, ownership, and business interests. All of them are strictly regulated.

Failure to follow the regulations is illegal and possibly fraudulent, and can land you in prison.


If you have not incorporated yet, then your statement is risky but fine. You would need to either accept them as gifts (and file federal tax forms, and report the donation to the California AG office and the California DCA) or you would need to accept it as a contract, which requires you to file forms for the other party, your own schedule SE and others, and to file forms with the state. The California Department of Consumer Affairs requires unincorporated groups to notify their office within 30 days of accepting any significant amount of money or goods.


If you have incorporated then you statement is very inappropriate. Just about every form of comment about commercial funding is federally regulated. There are many legal requirements when making the offer, and other requirements for when the offer is accepted. There are taxes which must be adderssed at the city, state, and federal level.

Share this post


Link to post
Share on other sites
Okay, cool, thanks for the help. What should I say, then, with regard to getting the word out about investment? Or can I say anything at all...?

And, is our page for investors any different than these pages:

http://www.square-enix.com/eng/ir/index.html
http://investor.activision.com/

It seems to me that our page simply offers information about investing in bp, rather than publicly asking for investment, as do the above pages. Obviously, my statement above can be interpreted as a public request for investment, but on the other hand, it can also be interpreted as simply announcing that we're seeking it. A fine line, I know, but I'm trying to gauge the limits of what is, allegedly, legal or illegal.

However, I have taken your advice, and asked a lawyer about this situation. He specializes in business matters, and will therefore be more helpful than, no offense intended, anonymous Internet users. I will report what he says when he replies!

Share this post


Link to post
Share on other sites
Quote:
Original post by frob
There are many different names for what you described, including shares, investments, corporate bonds, securities, pledges, stock, ownership, and business interests. All of them are strictly regulated.

But the fact that these processes are regulated does not make it illegal to state in public that you are attempting to raise finance outside of these processes. These laws are in place in relation to publicly traded companies that are seeking additional funding or private companies that are announcing an intention to become publicly traded.

A private company, seeking investment from another private individual or company, and which intends to remain private is a completely different thing. I have never heard of any law that restricts such a company's ability to discuss such matters and there have been many news stories about private companies seeking investment or buyers over the years. Obviously I am ready to be corrected if someone can point to some specific legislation that covers this.

Share this post


Link to post
Share on other sites
You are smart to seek advice of an attorney regarding your proposed fundraising as you may need to compy with state securities laws in the jurisdiction where you are incorporated or qualify for an exception to those laws. I am not sure announcing that you are looking for investment rises to the level of "offering" securities for sale, however you need to be careful in the terms you use to describe any backend participation to potential investors. "Shares" connotes equity ownership in the company as opposed to a right to receive a piece of future revenue streams. Film studios often use the term "points" to describe compensation to producers/investors based on a percentage of the revenues derived from the movie, which is similar to the transaction you are proposing. If you are not giving ownership in the company, than I suggest using a different term in your pitch. Good luck!

Share this post


Link to post
Share on other sites
First of all, thanks to everyone who contributed to this thread. It's nice to know that strangers have my back!

Second, I've got the skinny on the situation. My lawyer (family friend) just got back to me, and we're not doing anything illegal by alerting the Universe that we're seeking funding. Because we are a sole proprietorship, and not an incorporated entity, the Securities Act (see, there is a specific law! :P ) does not apply to us. Like the moderator pointed out, if we were selling shares of the business, which we are not, then we would be under strict state regulation.

Because I am simply a small business owner selling revenue (I prefer to use percentage share rather than revenue points for multiple reasons, see portfolio), there's nothing to worry about. Thanks for the suggestion, though, kdog77.

Again, thanks all!

Share this post


Link to post
Share on other sites
Well I respectfully disagree with anyone (whether they be an attorney or not) that tells you because you are not a corporation then you are free to raise funds from the public for your company. That is simply a false statement. It is also a false statement that the laws regarding business financing only apply if you are selling shares in your business. Any debt that is offered by a company is also regulated by laws in the US.

You might be able to find a million websites with small companies violating the laws regarding raising public funds, but that does not protect you.

Investor sites where you are connecting with accredited investors is not public fundraising. The key point being that are sending information to accredited investors, not the public. When you take money from non-accredited investors you run many risks if you do not follow all the regulations to a tee.

If you are taking personal loans that are not guaranteed by the company, then you are probably fine (but you still should seek advice from an attorney).
The big risk for your small amount of investments is probably not the risk of criminal prosecution, but it's the risk of being personally on the hook for loss of investment into your business, or worse.

I'm not an attorney but I've raised money in a few different scenarios ... from accredited angels, from non-accredited friends and family, to a personal loan guarantees.

There are smany, many risks that your business would be taking on if your business takes money as investment or loan without having an attorney involved to make sure you do it a way that proects you and your business.

Just my $.02 ... good luck regardless of the route you take.

Share this post


Link to post
Share on other sites
Quote:
Original post by NateDog
Well I respectfully disagree with anyone (whether they be an attorney or not) that tells you because you are not a corporation then you are free to raise funds from the public for your company. That is simply a false statement.

...

Investor sites where you are connecting with accredited investors is not public fundraising. The key point being that are sending information to accredited investors, not the public.


I believe you may be confused, Nate. Perhaps we are discussing two unrelated matters; it seems to me that you consider the investor information page at boredomsproducts.com "public fund raising," implying a degree anonymity separating the investor from the developer. In fact, the situation is quite the opposite: we have simply set up a page where people interested in investing in our game studio may learn more about the company and our current project, and as you will see from the Web site, the potential investor is encouraged to contact me in order to receive more information and develop a relationship.

I encourage any sole-proprietor reading this thread to disregard frob and Nate's warnings if their situation is identical to mine, but I sincerely hope and doubt that anybody would take legal advice from untrained, uneducated strangers on the Internet (including myself), especially when legal aid is so readily available to new small business owners from lawyers, the Small Business Administration, and many other organizations. I also recommend that Nate and frob refrain from giving legal advice semi-anonymously in a public online forum.

Share this post


Link to post
Share on other sites
This is not to be cheeky, but if you are more than 1 person than you are not technically a sole proprietor, but rather a general partnership. Here is a link to the California Corporations code:http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&group=16001-17000&file=16201-16204

If (big IF) someone were to invest, they might deemed a partner rather than just a passive investorand subject to liability for the companies debts.

I don't want to chastise a young game developer for trying to get started in the industry on your own, but posting vague information about your company on a public forum and then rebuking posters who take your ambigous statements at face value when they make comments is not a good start, especially if you want free help from professionals that may have experience at starting their own development studios. It's far easier to learn what you don't know first and then ask questions.

Free advice is free advice. Take it or leave it, but don't flame posters for offering it. Good luck!

Share this post


Link to post
Share on other sites
I understand what you mean kdog, and I don't mean to offend. But, I never asked for legal advice :) My original post simply asked the world at large to spread the word that we're seeking investment.

And, bp isn't a partnership. It's a sole-proprietorship--I'm using an investment model found on Gamasutra.com that has been successful for some indie developers (see http://www.gamasutra.com/php-bin/news_index.php?story=24686) where you use a faux stock market model of selling residuals to your investors. Thanks anyway, everybody, but no more legal advice. I trust my lawyer more than the Internet!

Share this post


Link to post
Share on other sites
Last time I checked Gamasutra doesn't offer legal or investment advice. Gabe Newell is certainly interesting, but believe me Valve doesn't run on the "virtual shares" indie model that the article promotes.

I may have misread your company website, but if you are a "co-founder" that indicates there is more than one founder. Unless you have a written agreement stating you are not partners, than I am sorry to inform you that in California you are a partnership. Ask your attorney friend to confirm, I don't think I misread the statute.

I respect the fact you are not asking for legal advice here, nor would I expect you to rely on any advice provided on the internet. However the words you are choosing to describe your fund-raising activities can lead others to assume that you are using the legal definitions of those terms. Experienced investors will realize you don't understand those terms and shy away from investing in your company. The fact you are not incorporated would be a big enough red flag for me, but I digress, because the reality is no one except maybe friends and family will invest in your company until you show that you can get a title to market and turn a profit. That's as true for AAA developers as it is for start-ups so please don't think I am being harsh just to make a point. At best you will get the experience of starting a company and maybe learn a few more things along the way.

Share this post


Link to post
Share on other sites
Quote:
Original post by kdog77
I may have misread your company website, but if you are a "co-founder" that indicates there is more than one founder. Unless you have a written agreement stating you are not partners, than I am sorry to inform you that in California you are a partnership. Ask your attorney friend to confirm, I don't think I misread the statute.


I'm sorry if this sounds rude, but I'm growing weary of repeating myself:

BOREDOM'S PRODUCTS IS A SOLE-PROPRIETORSHIP.

It was filed with County Clerk Donna M. Johnston in Sutter County, CA, on Septemper 11th, 2009. Brandon Joseph Higley is the individual registrant.

For all legal purposes, Brandon Higley (me) is the sole owner of bp. My brother has an equal creative stake in all ventures bp undertakes, but in all legal matters, he is not a co-owner of the company.

He did go to the County Clerk with me, though. :P

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

Sign in to follow this