Crowdfunding software for helping small businesses get funded.

Blogs&Updates
Joan Lavoie    Manchester, CT 06045

Yes Size Matters—Tips for Estimating the Size of Your Market
comments ( 0 ) | Aug 19, 2013 4:04 am

Entrepreneurs must have a firm grasp of the problem their product or service solves for their customers. This is a critical first step in evaluating the size of your market.

Estimating potential market size for a startup is a key factor in determining the eventual profitability of the business. Naturally, if you are seeking funding and preparing to engage venture capitalists, it is prudent to have some sense of your market size ready to offer, because that will be among the first questions asked.

It is helpful to understand the mindset, the paradigm through which venture capitalists view your enterprise. In most instances, venture capitalists do not receive a return on their investment until the company goes public, is sold or otherwise acquired. This is commonly referred to as “exit value” and market size is a significant force in determining the economic value of a company at exit. This assumes, of course, that the company remains in the same market and eventually rises in dominance of that market.

Knowing market size is important to the venture capitalist and now that you understand why, every entrepreneur should have a defensible estimate in mind.

That said, it isn’t terribly useful to employ a simple dollar value to represent your company’s market size. Such an approach fails to comprehend the intricacies of the business’ economic model and other market forces, which include customer demand and customer budgets. These too play a role in determining how much revenue the company can generate from its market.

In spite of these limitations, it remains important for the entrepreneur and the venture capitalist to at least approximate the potential market size. Having a handle on this can be a powerful way to speed up a venture capital firm’s investment decision process.

Absent substantial resources, here are 5 ways that you can estimate market size for your enterprise.

1.) Use Public Comparables—Identify a number of public companies operating your market or a closely related market. Using Yahoo Finance, Google Finance or a similar financial data source, and add up the annual revenues of the companies you have selected. This total will provide a very good estimate of the market size in dollars and cents. The more stable and mature these selected companies are, the more reliable the data.

2.) Mergers and Acquisitions—Major acquisitions are well publicized and most venture capitalists are familiar with recent transactions and especially if they happen in sectors in which they invest. The value of an acquired company or merged companies can be a significant indicator of market size. Why? Largely because they quantify the value the acquired company creates through its market size. If we accept that capital markets are efficient, then it is reasonable to assume that large transactional values in mergers and acquisitions are suggestive of equally large potential in that market.

3.) Bottom Up—Simply put, the bottom up approach is the number of potential customers multiplied by the average annual sales to each customer in dollars. In this scenario, the number of potential customers must be known which is not often easy, unless these customers fall into a well-defined category. I am in the invoice financing industry. My potential customer base would consist of small to medium size businesses, a finite group. Another example might be all high school seniors and yet another might be, all elementary school principals. You see the problem; unless your target market is in a well documented subset, they can’t be easily counted or even estimated. The bottom up method is valid in these circumstances which is the reason for its inclusion here.

4.) Extrapolation—When circumstances are such that potential customers can’t be easily counted, we can implement a variation of the bottom up method. This is accomplished by narrowing the focus to your own town, city or county. Because this setting is familiar, your local knowledge can be used to make a reasonable estimation of potential customers in your location. Since you know the total population in the local area, with some basic math, you can arrive at a percentage of the total population in your area that represents potential customers. Then it is possible to apply that percentage to similar locales nationwide and with a few tweaks for pesky variables (urban versus rural populations, for example) a national potential market size can be estimated.

5.) Interviews—Occasionally, the most practical way to determine a market size is by picking up the telephone. Reach out to people! You may know someone with expertise in one or more of the four previous methodologies we’ve discussed here. Get their help. Alternatively, consider an online survey to ascertain public opinion on market opportunity for your product or service. Other contacts may be able to assist you as well. Don’t be timid about utilizing your network.

It is important to note that even if you haven’t reached the point of seeking external funding, knowing your potential market can be valuable in product development, partnering, distribution, structuring your organization, determining hiring needs, and selecting the best banking institution. The list goes on, but I believe the point is clear. Market potential is important for a host of reasons, known and some unknown at this stage of your enterprises’ development.

Market size is an important piece of the overall puzzle and well worth resolving in the developmental stages of your business. You will find this market data to be extremely useful information that goes well beyond its obvious value in acquiring funding.


Ancient Capital Raising Idea: Selling!
comments ( 0 ) | Aug 09, 2013 4:46 pm

Selling our products and services is the only way to sustain and grow a business after any kind of investment is made.  We might as well start our right by immediately selling!

www.howtosellanything.info

Scott Purcell    Las Vegas, NV 89107

Title II is Approved...well, sort of
comments ( 0 ) | Jul 11, 2013 5:41 pm

Huge news yesterday was that the SEC, at long last, approved the removal of the prohibition on general solicitation in 506-D offerings, pursuant to Title II of the JOBS Act. Wow, that's a mouthful...but a TREMENDOUS step forward from the antiquated 80 year old securities laws that have been throttling small business finance.

Why do I say "sort of"? Well the rule now has to be published in the Federal Register. And then there is some internal political complexity with another agency as to whether this is "major" and subject to more review. And there are a number of proposed rules and changes regarding the Form-D, which are now out for comment. So all these things have to come together before what I call "crowdfunding for rich people" can take effect. 

When? My best guess is mid-September, but it could be a month or so later. In the meantime it's critical that people refrain from posting fundraisings or talking about their need for money AS IT IS NOT ALLOWED YET. 

I know what it means to be a business owner in need of funding. The words "wait" and "patience" are not something you want to hear. But neither is "you've been fined", so the regulatory/legal reality is that you still need to wait.

Our software is coming along, and there will be a lot of modifications needed to accommodate the various new rules. Once the rules are in effect brokers will be able to use our software to help businesses get the funding they so desperately need. 

This is incredibly exciting. I'm both amused and alarmed to see the media (and others) saying this is all about hedge funds. Or that it will open the door to fraud (fear mongers with their own agendas). So many people really don't yet see how this is going to change America and the boom in small business job growth that is about to happen. It's going to be fun, and something our kids will look back on as an incredible epoch in this country's history.

They will also scratch their heads and say "how the hell was anybody against this???" But people were against NASDAQ. And against the internet. And against the Statue of Liberty. And against building a US Capitol complex. And against going off the gold standard. And against the Laffer Curve. And against an infinite number of other things that proved to massively benefit the country. Title II and Crowdfunding will be one of the most extraordinary things yet, and spawn entire industries and job growth in similar proportion to what we've seen with the advent of the internet. Hang on, this is going to be extraordinary.

Scott Purcell    Las Vegas, NV 89107

Arctic Island Update
comments ( 0 ) | May 22, 2013 4:09 pm

Well it's been quite a month, and we have a lot to share! 

NEW LICENSES: A round of applause to Nicoleta and Jervis for their new licenses. Nicoleta passed the Financial and Operations Principal exam, and Jervis qualified as a Municipal Securities Principal. Nicoleta is now taking over the bookkeeping for the BD, and David is teaching her how to prepare the Net-Cap computations and Focus reports for his signature. 

Also, kudos to Jervis for getting on the Board of the Georgia Crowdfunding Assoc, which helps set the direction for the new GA crowdfunding program/securities exemption. We'll be attacking this if the SEC continues to delay rules. 

NEW OFFICE: We have new digs in San Francisco! It's a "co-working" space...which is kind of like an executive office suite except way hipper and more collaborative. It's filled with start-ups, some of them VERY high profile (e.g. fwd.us is in the office next to us, Imgur is 2 office down, Buzzfeed next to them, etc, etc). It's near Union Square, so very central. Given the impossibility of office space in San Francisco we got really lucky, as Greg found it while it was still under construction; it opened on May 1st and is now 100% full with a waiting list. You can see pics on Gregs blog - http://www.arcticisland.com/member/profile/view/id/5

PR FIRM: We've hired a firm to start building our PR strategy. This includes working on our Twitter and LinkedIn profiles/connections (which we have really let languish as we've focused on building the software). This is the next step in the positioning of the firm that I started last year. We will do more and more and more as we get launched (they can get speaking gigs at conferences, place success stories in our vertical niches, and a lot more). 

CURRENT: Greg is looking to hire a couple of very select engineers, Jervis & Nicoleta are working on customer service and backoffice processes for the BD, David & Nicoleta are getting the accounting systems perfected, Dave is working on marketing and other projects, and both Jervis and I are engaged in numerous biz dev discussions. 

REGULATORY UPDATE: When? We wish we knew. There is continuing political pressure on the SEC, and the new Chairwoman has said publicly over and over that the JOBS Act is her top priority. So it's not a question of if, but when. For 506(c)-D we are hoping late summer or early fall, fingers crossed. For crowdfunding it'll probably be sometime next year. Regardless, if they continue to delay then we'll simply help BD's launch with online 506-D offerings and, possibly, with crowdfunding in states where it's legal (GA, NC, KS & soon WA). 

That's the latest! Reach out to me anytime with questions, comments, thoughts, advice or anything else.

Cheers, 

Scott Purcell 
CEO 
Arctic Island 
Software for Funding American Businesses 



Scott Purcell    Las Vegas, NV 89107

SEC Congressional Hearings Show The Regulators Focus Needs to Better Align with Market Needs
comments ( 0 ) | May 14, 2013 1:28 pm

I get it, no matter what you want to do there will be people who oppose you. And sometimes the people who make the rules are aloof of, or don't care about, the effect those rules will have. 

The securities industry is all about capital formation and economic growth. Everything in the industry exists to serve that.

As such, our securities industry regulators should be focused on how to keep the capital engine functioning and growing. They should be the biggest cheerleaders for the firms engaged in the front lines of capital formation, and they should be on the leading edge of finding ways – both academic and practical – to make the business easier for those it serves.

Now certainly  there are hard working people at the SEC and FINRA who really get it. And who work hard to lobby for and craft rules and solutions that open capital formation. The folks who pulled together the proposed rules for Title II are certainly of that group. And the people who have held up those rules are anything but. Why do those people hate small businesses and small investors?

They say they are trying to “protect” investors. Yeah, right. That’s like the common argument people use anytime they are trying to do something restrictive and stupid, “think about the children.” When you pull that argument out of the pocket, all opposition and all movement for progress is often stopped dead in its tracks. So now that’s the line being used for the JOBS Act delays, "think about small investors".

“Protect Investors” – when ALL evidence points to the fact that there have been few, if any, problems with crowdfunding in this country (e.g. Kickstarter) or other countries where it’s already legal.
“Protect Investors” – when small investors already lose money on public entities (e.g. Enron, Global Crossing, JC Penny, Sears, et al). 
“Protect Investors” – when people have no limits on buying lottery tickets, gambling or shopping.
“Protect Investors”to sustain an anti-small business agenda.

Without a doubt, some people in power really do think there is a risk that’s problematic. They fear...well... {something}. So they turn an embrace into a strangle and choke the life out of that which is good for the masses out of fear of protecting a theoretical few.

A great example of this are the social policies in Europe. It seemed like a good idea to protect young people, and especially women, with various employment regulations. Regulators loved that; it was politically correct. But the impact has been 50% unemployment rate for young people in general, and an 80% unemployment rate for young women in particular. Regulations meant to “protect” actually served to “devastate”…and now there isn’t the political will to fix it.

Here, our Congress showed extraordinary political will to fix the antiquated, broken securities regulations. They passed the JOBS Act. It will serve the masses, enable capital formation, and bring about an economic boom the country has never seen. We now just need the gatekeepers to lead.


Scott Purcell    Las Vegas, NV 89107

Updating the B-Plan and Financials
comments ( 0 ) | May 14, 2013 11:05 am

The first business plan I wrote for Arctic Island was in December, 2011. Then, with the passage of the JOBS Act I updated it significantly in April, 2012. Now I’ve just done a huge rewrite of the plan, incorporating the latest about the product, our team and our strategy. A HUGE thanks to Jon, my Board member and Angel investor, for all his help with this. He spent so many hours editing, writing and bantering about concepts and ideas that the latest plan is truly a collaborative process between the two of us. Now THAT’s a great Board member!

The financials were a lot of fun (sarcasm). Actually, it’s a fantastic exercise that forces me to think through all the revenue components and expense variables. I created the first model in January, 2012 which was a validation test for me as to whether or not I should invest the time and money into this business (net result = DEFINITELY). Now I've spent time thinking through the operations to layer in the expense-side of the financials, as well as add more detail to the revenue components and take the forecast out 3 years from launch.

So why do this? Well, all entrepreneurs should. The b-plan and financials are the best way to communicate your vision and the plan to the rest of the team. It helps everyone understand exactly what we’re doing, why we’re doing it, and where we’re going. It helps new hires get on board with the fundamentals…and, by the style of writing, it even helps the team assimilate the culture.

Scott Purcell    Las Vegas, NV 89107

How to Pitch Investors?
comments ( 0 ) | May 13, 2013 5:44 pm

An entrepreneur took me to lunch yesterday and asked my advice on how to pitch his company to investors. Seeing as I’ve raised over $100 million in venture capital, millions in Angel funding, and invested my own money in various ventures, I guess I’m a pretty good guy to ask. Here’s the gist of what I said…

The first thing is to take a step back from the infinite amount of stuff you’re doing, and take time to acutely understand why you are doing the business. The best businesses, and the ones most likely to get funded, are things for which the financial rewards are secondary. “The Alchemist” is one of the most translated and widely read books in history, and the main principles ring true here. At it’s core is an observation of a chocolatier; he was incredibly happy and fulfilled, as making chocolate was, for him, the most important thing in life. He was happy, irregardless of the financial rewards. Today we see the same thing with teachers, charity workers, performers, and many others. They do what they do because it fulfills them, they are passionate, and they couldn’t imagine doing anything else.

So why are you creating this business? If it’s only “to make ends meet” or “to get rich”, you stand a pretty good chance of failing. And you stand a lousy chance of attracting investors. So I’ll ask again, why are you doing this? If it was just for money you could get a job, or you could partner up with someone else who’s started a company and already got some financing (since you don’t care about the company).

Oh, wait, you DO care? I thought so. Now…why? What drives you? What motivates you to start or run this business? Why does it matter to you, and why should it matter to anyone else? Think about this for a few minutes, or hours, as it might not be something you ever really considered. But it’s there, that thing which drives you to do this, the thing that keeps you up at night dreaming about what the company will ultimately look like and what it’ll take to get there from here.

It’s called “passion” – you need to articulate it. From that, which is your purpose for existing, flows your company’s mission statement. And once you are consciously aware of your reason for creating this business, you will then be able to articulate it to others, and THAT is infectious. People want to associate themselves with believers, with people who have a mission, and with people they think will be successful in achieving it.

So before you pitch your first investor, first understand why you are doing what you’re doing. Embrace it, own it, and let others see it. Be that guy or girl who people want to help for reasons other than financial. That’s the success of Kickstarter…people get drawn in to stories and ideas so powerfully that they don’t even care that they will never get their money back.

Got it? Great, now you’re ready to start working on your pitch to investors. Which is, simply stated, the following;

1. The Story – why you are doing what you’re doing, and why you’re the person to do it; and,
2. Financial Perspective – if the investor buys into your vision, then you get to proceed to this 2nd step. If they don’t, which is often the case (maybe they just don’t like chocolate), then you’ll likely be wasting your time in pursuing them further. This step is where you lay out the size of the market, the sales/expenses/profit projections of the business, and why it makes sense for them to trust you with their money.

There are always exceptions to these two rules. Sometimes someone totally buys into your vision but doesn’t believe your financial model and so doesn’t invest, but does become a customer and/or a brand evangelist. Other times they don’t really care about your vision, but greedly love your financial model and so invest anyway (typically these investors are the biggest pain in the ass, as they constantly push you to grow faster, to sell the company quickly, to go in unfocused directions,  and do other things you really won’t like). But the vast majority of the time, these two steps are the truth about finding investors, the ones who will be your partners and evangelists, who will stick with you and defend you during tough times and who will celebrate with you when good things happen. So stick to it, follow your dreams, and push forward to success however you definite it.



Our New Office in San Francisco
comments ( 1 ) | May 01, 2013 1:47 pm

On an unseasonably hot May 1st in San Francisco, we moved into our new office in the historic Golden Gate Theatre:

This building is not only the destination to some of the amazing culture that The City has to offer, but is now home to many new startups and small businesses trying to change the way we live our lives.

Amazing common area for collaborating and meeting other entrepreneurs

Small touches to inspire creativity 

Scott Purcell    Las Vegas, NV 89107

Starting a New Business – Many Moving Parts
comments ( 0 ) | May 01, 2013 10:33 am

There are an incredible number of moving parts in bringing a high-tech, financial services business to life…well, that’s true of any start-up. From the vision in my head, to articulating that on paper so others can understand it, to building a team, to creating operational processes, to understanding the regulatory, legal, and competitive landscapes, and to getting funding. It’s an unreal amount of work, but a complete adrenalin rush for the entire founding team when it starts to come together.

Our mission is simple – help small businesses get funded and create American jobs.

Building a financial services company to get that done is not so simple.

We’ve come a long way since Nov, 2011 when I started writing the business plan. V1.0 of the platform is articulated and designed. Coding of the designed elements is happening daily (by our own engineers, 0% outsourced overseas unlike some of our competitors). The broker-dealer is ready to rock and completing registrations with all 50 states. Jervis (President of the BD) relocated his family to Atlanta and is busy creating operating proceedures and building strategic partnerships. David (our FinOp and operations guru) opened the new office and is putting in place the control and compliance systems.

If rules for 506(c)-D were issued today would we be ready to launch? Nope. There’s still a LOT of work to do. So the delay, although bad for the economy, has been good for us from a competitive standpoint. The guys (and gals) are working their asses off doing their jobs which collectively will bring this business to life. The software will soon be ready, and the BD will soon have approved rules to operate under. 

5 years from now, this will (I believe) be a billion dollar company and have helped create over 1 million US jobs by assisting thousands of businesses in getting the funding they need. It will have executives, systems and operations which to new employees will seem like they must have been around forever. Google, Amazon, Dell, HP, Apple, Intel, E-Bay, Etrade, et al were just a couple of guys with an idea not so long ago. I’m proud of what we’re building.


Nicoleta Purcell    Las Vegas, NV 89107

Taking the Series 27 FINOP exam
comments ( 0 ) | Apr 30, 2013 4:54 pm

Scott has been bugging me now for about 8 months - I could hear him every day: "You got to take that test! You can't do anything with Arctic Island Financial (the broker dealer) if you do not take the FINOP exam." He was right - I could not even get a signature card for our account.

But finding the time to lock myself in a room for a few weeks was nearly impossible. So many commitments, so little time! It's been 10 years since I had to take a test, I seemed to have forgotten how to study and memorize data since graduating from business school. The first week was brutal - I could not sit on a chair for more than couple of hours at a time. The terminology was almost foreign language - and that was tough to digest at first considering I have a BS and an MBA in Finance. I thought it would be a piece of cake, how hard could it be to learn a few rules?! Well, the rules were not that hard, but the exceptions to the rules were. It seems that there are exceptions to the exceptions to the exceptions. And the interpretations can be quite confusing.

The Securities Training Corporation manual was very well organized in 10 chapters – finally, after weeks of heads down endless studying I thought I had a grip on all the concepts and was ready to sit for the examination – 150 questions in 3.5 hrs. I then realized how much more I needed to practice – the next few weeks I did nothing other than taking tests and re-reading the manual – everything was making more sense with each new read. In the last week I ordered another barrage of online tests to make sure that I have all the concepts very clear. I was ready!

Scheduled the exam and the big day arrived! It’s amazing the feeling you have when you push the final button and wait to see the result! For a split second you are breathless and then all that time you put in, all the long nights spent in a quiet room have paid off! Passed! Got home to a nice congratulations cake and flowers and balloons! That was the sweet taste of success! 

Thank you to my wonderful husband for taking care of me and the household while I was studying! He’s been cooking and running errands just so I could spend all that time with my books!
Now time to get back to work and apply all the great stuff I just learned!