Making the decision to raise outside capital for your business is both exciting and stressful. As a business owner you are excited about the prospect of getting your hands on some capital to scale your business. On the flip side, you must also now navigate the capital markets. Should you enlist the help of a broker or simply start dialing the number of every investor you can find online? Are you interested in debt, equity, or some mix of the two? These questions are important but, in this post, I would like to focus on a critical component of your capital raise documents: the blind teaser.
What is Blind Teaser?
As the name implies, this document is a teaser. It should be short, sweet, and provide just enough detail to get a potential investor interested. If you go over a page it’s time to step back, trim some fat and make sure only necessary information is included. Your sole objective with the teaser should be to get the investor to want to learn more about you, your business, and the opportunity.
Common sections included in a teaser are:
1) Company Description – A brief description of the company. Describe the business, the industry in which it operates, how revenues are generated, the general background of key management and some key facts (market share leader, IP, above average growth rates, etc.).
2) Transaction Goals – Do you want a hands-on partner or just someone to cut a check? Will the money be for growth, a recapitalization, a liquidity event, or some other use? Be upfront and concise with investors. Vague details will be a quick way to get your teaser tossed aside.
3) Historical & Proforma financials – Try to include 3-5 years of historical information and projections for the next year or two. Investors understand that projections are not written in stone, but still be reasonable. You don’t need to display your entire P&L. Revenue and EBITDA are good.
Now, to the “blind” part. When you are entering the market and looking for capital investors will review your teaser prior to executing an NDA. You do not want to provide any information that identifies your company in the teaser. A few reasons why keeping your identity concealed is important include:
1) Preventing competitors from learning of your actions and spreading rumors
2) Reducing employee, client, and supplier anxiety
3) Maintain confidentiality
How Do Blind Teasers Work in Crowdfunding?
Many of the online crowdfunding portals do not list blind profiles. Rather, the company’s name, management team bios, some financial data, and more is listed on their profile. Investors and competitors alike can browse the information. While this may allow investors the opportunity to quickly screen a large number of deals, it does nothing to help the company maintain confidentiality.
For companies that are conducting a campaign under certain exemptions, such as Regulation D 506(c), only accredited and institutional investors can participate. In this scenario, listing a blind teaser serves multiple purposes. First, the company’s confidentiality is maintained, and they only provide enough information to entice an investor. Second, to receive a more detailed document the investor will need to verify that they are accredited. This prevents the company from spending time with a prospect that will be unable to make an investment due to regulations.
Blind teasers are not currently a standard in the world of online crowdfunding. Along with other challenges presented with equity crowdfunding, the lack of confidentiality and inability to screen potential investors are two challenges that companies face. Fortunately, the blind teaser is one solution that solves two problems. I believe that this solution is especially fitting for companies that have been in business for a few years.
If you are interested in learning more about equity crowdfunding and how using a blind profile may be right for your business, get in touch with one of our licensed investment bankers.