INSTANT FUNDING WEEKLY EDITION #27
Karl Dakin
I help you overcome challenges to raising capital. Take advantage of my Motivated Money Method to identify those investor candidates that are most likely to invest. Top expert in fundraising.
QUICK CALENDAR
TUESDAY, NOVEMBER 19, Successful Funding show, 8 am Mountain Time / 10 am Eastern Time – Dr. Tom Frey – Future of Entrepreneur Funding
WEDNESDAY, NOVEMBER 20, Belize Real Estate and Life Styles show, 8 am Mountain Time / 10 Eastern Time
WEDNESDAY, NOVEMBER 20, Don Cohen show, 9 am Mountain Time / 10 Eastern Time
THURSDAY, NOVEMBER 21, Community Revitalization show, 8 am Mountain Time / 10 Eastern Time
ASK CAP
CAP, my artificial intelligence (AI) avatar, is available on my website 24/7/365 to answer your questions for free on matters related to funding.
I developed CAP with a license from Knowledge Avatars to answer frequent questions about funding and save myself time to answer the harder questions.
Every day, I ask CAP questions about funding.
Today, I asked CAP,
“What management actions should a small business implement to improve future access to the capital markets?”
CAP responded:
“To improve future access to capital markets, a small business should implement the following management actions:
1. Enhance Financial Transparency: Maintain detailed and accurate financial records.
Regular audits, clear financial reporting, and transparent accounting practices build trust with investors.
2. Strengthen Credit Profile: Ensure timely debt repayments to build and maintain a strong credit history.
This enhances credibility with potential lenders and investors.
3. Develop a Robust Business Plan: Prepare and regularly update a comprehensive business plan demonstrating clear growth strategies and projections.
Clearly articulate the business model, target market, and competitive advantages.
4. Focus on Cash Flow Management: Optimize cash flow by managing expenses and improving receivables.
Positive cash flow signals financial health to potential investors.
5. Build a Strong Management Team: Assemble a knowledgeable and experienced management team.
Highlighting the team's expertise can increase investor confidence.
6. Engage in Networking and Relationship Building: Develop relationships with potential investors, financial advisors, and venture capitalists.
Networking opens up channels for future funding opportunities.
7. Emphasize Risk Management: Implement risk management strategies to identify, assess, and mitigate financial and operational risks.
Demonstrating proactive risk management can make your business more attractive to investors. Taking these actions can enhance the attractiveness of your business to investors and increase your chances of accessing capital markets successfully in the future.”
CAP’s response demonstrates one of the weaknesses of artificial intelligence in that it represents an averaging of available information, which makes it provide responses based on yesterday and not on things that have not yet happened.
FUNDING HAPPENINGS
Robin Sosnow publishes a leading online newsletter now titled CrowdCypto News . Robin is ?a securities attorney in NYC/Miami and founder of Sosnow & Associates ,?a Board Member at the CfPA , and CEO of Bootstrap Legal .?Her focus is on equity crowdfunding, startups, legal innovation, and blockchain technology. The goal of her newsletter is to share valuable insights, incite conversation, and bring awareness to?the evolving regulatory landscape.
The California Housing & Community Development Conference will be held on December 3 & 4 in Los Angeles. The event will focus on ‘workforce housing’ and the ‘missing middle’ of the housing market. “As cities across California, from Los Angeles to smaller communities, face a pressing need for affordable, accessible homes, new financing structures are stepping in to make a difference. In this session, we’ll dive into how next-generation Public-Private Partnerships are filling the "missing middle"—housing options for residents who earn too much to qualify for traditional affordable housing but not enough for high-cost homes.” General audience fees are $1,395. Governments and non-profit fees are $595.
Brent Wistrom publishes a newsletter on funding called The National Beat as part of the Business Journals offerings. Although this publication is primarily focused on the very top of the capital market with billion-dollar investments, it often contains information useful to smaller opportunities. Referenced articles commonly point to a Business Journal for a local geographic area that wants you to pay a subscription fee to get the details, but this enables us to use other social media, press releases or websites to get the same information for free.
Gaping Void provided another great commentary on Trust .
TradePub.com is offering a free copy of a new book titled Productivity Joy. Psychologist and leadership coach Simi Rayat shares her proven, science-backed 5Q formula — supported by practical solutions and real-world examples — to help you boost your productivity. The book offers how to assess your current emotions, set goals based on your values, and prioritize in a way that honors your time. It proposes that all it takes is just 5 minutes a day to create a joy-filled, productive life.
LinkedIn presents marketing master Gary Vaynerchuk, Chairman of VaynerX and CEO of VaynerMedia, who will present ‘Answering your personal branding questions where he will share practical strategies to build a brand that authentically sets you apart. Plus, he'll be taking your questions live. November 20th, 11 am Eastern Time.
The Council of Development Finance Agencies (CDFA) which is hosting its annual meeting in Baltimore later this week, has published a paper to the incoming Trump administration and the 119th Congress - Development Finance Solutions for Supporting President Trump and the 119th Congress.
FUNDING POINTS
FUTURE OF FUNDING #11 – TRENDS CONVERGENCE
Next Tuesday, at my Successful Funding show, I will have Dr. Tom Frey, who is a world-class futurist, as my guest. We will be talking about the future of funding. Tom has a rare ability to see today’s trends 10 to 25 years into the future and see where these trends converge and can have a major impact on individuals, businesses, and governments.
Within this article of the Instant Funding newsletter, I have applied what I learned from Tom and have attempted to forecast the future of the capital markets based upon all of the different factors I have identified in my prior ten posts within this Future of Funding series. My forecast will unlikely be of value for tomorrow’s Wall Street market but may prove valuable for any small business, community project, or other investment opportunity that is planning a capital campaign with an investor exit one year or more down the road.
In advising small businesses and community projects on fundraising, I implement my Motivated Money Method in the identification of investors that are most motivated to make an investment in a specific opportunity based upon the level of their self-interest in obtaining a rate of return plus other benefits from their investment. This is a market perspective that I consider primary to all investing.
There are forces within the capital markets that distort the market, causing investments that are not optimum and may lack rational logic. I offer cryptocurrency without asset backing, for example. This type of ‘investing’ represents pure greed – an interest in maximizing a return on investment without fair consideration for the fact that pricing is based upon speculation of higher prices without any underlying value. This is a segment of the capital market that is very real but dependent upon investor confidence, which is a highly variable factor. This factor is not limited to cryptocurrency without assets but is present to some degree in all investments that are based more upon desire than reality.
Other factors causing distortion in the market are government laws and regulations, past investments, culture and customs, and monopolies/oligopolies that interfere with a free market.
That being said, the investors of the future will be different as a consequence of changing markets, innovative technologies, and changes in the demographic of investors based on financial literacy, age, and inclusion of non-accredited investors.
I do not see a significant change in investment opportunities for the future. There will always be a potential reward that is matched with a level of risk. The future will always remain unknown and subject to uncertainty for all the factors described above.
I see the greatest changes within the infrastructure – fintech – of the capital industry.
I anticipate that small businesses and communities seeking funding will be better equipped to identify and pitch to those investor candidates who are most likely to invest. More and higher quality information will enable those seeking investments to identify investor candidates and build ‘crowds’ of these candidates in a more efficient fashion, which will serve to improve the likelihood of obtaining funding before exhausting available time and money in a capital campaign.
I anticipate that investor candidates will be better equipped to identify and invest in those investment opportunities in which they may obtain the greatest combination of benefits representing a return on investment and any number of other monetary or non-monetary benefits that may exceed the value of appreciation on the investment. This change may be largely the result of non-accredited investors investing in local businesses with a greater understanding of what makes a business successful.
I anticipate that artificial intelligence will diminish the roles of intermediaries, supplanting advice and assistance in making an investment. In a manner similar to WebMD enabling individuals to diagnose their own ailments and engage in healthier lifestyles, I expect the new average investor (not an angel) will become business smarter.
These changes will be slow. As illustrated by the passage of the JOBS Act, which displaced bad legislation from the 1930s, the great impact of every adult who can invest has not yet been felt eight years after the SEC issuance of governing regulations. I anticipate this will be the single largest cause of change within the capital markets, but it will take time for everyone to learn and trust in making their own investments without government-mandated programs and intermediaries.
With change comes good news and bad news. Every innovation and every change has an upside and a downside. Those participants in the capital markets that embrace technology and avoid speculation stand to realize the greatest benefits. Those participants who have tied themselves to antiquated systems limited to publicly traded stocks, bonds, commodities, and currencies may find themselves in the same situations as bookstores, printed newspapers, and other standards, passing into obsolescence.
I see that change is absolutely necessary. The world market is larger, more complex, and more subject to volatility due to politics and power. Offering or investing in opportunities will need to do a better job in order to offset this chaos.
Small businesses and community projects seeking funding in the future (starting tomorrow) should:
·?????? Improve their understanding of the value represented by their products and services to their customers
·?????? Improve their understanding of the benefits generated by their success that reach beyond investors seeking a return on investment
·?????? Upgrade their operations to use available tools to obtain, analyze, and use information (this will be mostly, if not entirely, AI-supported)
·?????? Position themselves as members of one or more communities (geographic, problem-solving, and industry)
·?????? Initiate continuous activities to build a ‘crowd’ (fan base)
·?????? Monitor and assess all forms of capital from all sources that may be needed in the immediate or far future
·?????? Build a large team with an expanded definition – founders, directors, advisors, contractors, suppliers, customers, and community
I look forward to exploring these actions in future issues in this newsletter.
FUTURE OF FUNDING #10 – UNCERTAINTY
Next Tuesday, at my Successful Funding show, I will have Dr. Tom Frey, who is a world-class futurist, as my guest. We will be talking about the future of funding. Tom has a rare ability to see today’s trends 10 to 25 years into the future and see where these trends converge and can have a major impact on individuals, businesses, and governments.
The capital markets are currently uncertain – unable to predict the future with any confidence.
I anticipate that this level of uncertainty will rise and continue at a higher level for several years.
Everyone is familiar with a market correction where the excitement in the market drives prices beyond the underlying values of the businesses they represent. During a correction, prices fall toward a level of normalization with real values. Wall Street stocks are currently overpriced and a market correction will occur.
There are several other factors that will contribute to short-term uncertainty:
·?????? Business market segment corrections
·?????? Transfer of wealth from Boomers to younger generations
·?????? Major advances in technology shifting competitive advantages
·?????? Trump administration to improve government efficiency (DOGE)
·?????? Trump administration commits to export non-citizens
·?????? Stratification between the wealthy and the non-wealthy
·?????? Continuing culture adjustments caused by COVID
·?????? Growing emphasis on social impact over ROI as an investment motivator
·?????? Growing share of capital markets by non-wealthy individuals and businesses
·?????? Growing cannibalization of capital markets by cryptocurrencies unsupported by assets
The long, and probably still incomplete, list of market variables makes forecasting future investments highly speculative.
Over the past nine days, I have identified several possible changes to the capital industry. Some of these changes will improve the ability to forecast the outcomes of future investments, but some may contribute to more variability in the markets.
I anticipate that current government programs that incentivize investments in Wall Street stocks will require major changes like those that led to the JOBS Act of 2016. Instead of forcing investors to choose between a shrinking number of overpriced investment choices, the government programs will need to align with programs that better serve all citizens equitably. These changes will take time and will contribute to market volatility.
FUTURE OF FUNDING #9 – END OF CREDIT CARDS
Next Tuesday, at my Successful Funding show, I will have as my guest Dr. Tom Frey, who is a world-class futurist. We will be talking about the future of funding. Tom has a rare ability to see today’s trends 10 to 25 years into the future and see where these trends converge and can have a major impact on individuals, businesses, and governments.
I am hoping for the end of credit cards. This ubiquitous part of our everyday life represents a tax on every transaction paid with a credit card. I do not believe that credit card users – both customers and vendors – are getting fair value for the service offered.
A credit card transaction supposedly represents a temporary extension of credit from a third party. The third-party charges interest on this loan with rates up to 30% annually, making it one of the most expensive forms of funding available.
But wait! The third-party, commonly via a fourth party or credit card processing business, charges the merchant a processing fee of 3% to 5.5% of the dollar amount of the transaction for paying the vendor while waiting for funding from the third party. Think of it as a short-term loan on top of a longer-term loan bundled with an administrative fee.
From a theoretical perspective, it makes sense for a business to facilitate a purchase where the purchaser is using the credit of a third party. The time value of money must be taken into consideration. There is also the expense of setting up a system where convenience is offered to a vendor and to a customer to facilitate the transaction with the establishment of relationships, communication channels, equipment, and operations. There is also the risk that the credit extended by the third party is insufficient; the customer has an issue with the transaction and seeks a refund and other related costs associated with the transaction.
From a practical perspective, the pricing of credit card processing comes apart from closer examination.
Credit cards compete with debt cards and ACH bank transfers to bank transfers where there is no risk and the associated fee of transactions paid in this manner is substantially lower. Depending upon the company processing these types of payments, one might see a fee of $.25 per transaction; otherwise, it might result in processing fees in dollars, tens of dollars, or even hundreds of dollars. These fees are paid by the vendor, and therefore, the customer is blind to this added cost, which has been added to the price of their purchase. Every merchant accepting credit card payments automatically adjusts their pricing to reflect this increase in operating expense. You have seen this where merchants offer a ‘cash discount’ when selling their products or services. It is not actually a discount but a ‘true price’ that gains the merchant their desired profit margin without having to bump the price to cover the cost of the credit card processing fees.
At first blush, all of the difference in cost is attributed to the existence of credit. However, this should be covered by the interest charged by the third party, not by the fee charged by the fourth party (payment processing company).
The charging of higher than appropriate processing fees is a fiction that is demonstrated by every credit card company offering ‘cash back’ to their customers. They would not be able to return this money if they had true costs associated with processing the transaction. This becomes a game where the credit card company and the associated payment processing company take out fees today, use your money without paying you for the use of your money, thereby making more money, and then return you a portion of your money like they were doing you a favor.
If these credit card companies simply charged the vendor a lower fee, then this could be reflected in lower prices for their customers.
So, stop! What is the cost of money when a credit card is used? The customer who has the credit card and who has a loan from a third party is not only paying a high price of money for the use of that credit card, but they are also paying higher prices for the products or services in the markups by the vendors.
Now consider how much money that might be. A vendor accepts a credit card payment electronically. This results in a payment into the vendor's bank account after a period of time that may be days, but it could possibly be achieved in hours and no longer than overnight. If virtually the entirety of a credit card processing fee is whatever category of expense we want to label it, then the aggregate cost of money over a year is absurd. A 3% processing fee that is covered by the third-party credit card company within one day translates into 360% interest per year.
It becomes easy to see how a credit card company can give cash back when they are using the vendor’s money, which is now embedded into the product/service price.
When this entire system was developed, it represented a major improvement in the management of sales transactions. Despite the costs of setting up accounts, purchasing credit card point-of-sale equipment, and other expenses, it achieved convenience whose benefit justified the cost.
Times have changed and will continue to change. Today, all I need to do for a credit card purchase is to touch a smart card to a pad, and the transaction is completed. This reflects a long history of innovations that suggest the entire concept of a credit card and associated processing fees should be outdated. Fintech can complete processing in a heartbeat with no true risk associated with the transaction. There still remains a risk that the card holder may not pay the card, but this is covered by the interest rates on the card. There is no longer any justification for anything other than an exceedingly small admin charge.
Going further, the opportunity exists within fintech to blend the finances of an individual or business so that credit card transactions are not treated as a singular or siloed type of financial activity. Any person or business that has assets and uses credit of any form should have the potential to ‘bundle’ their credit card transactions with other credit relationships.
I expect that in the near future, credit cards will be bundled with home mortgages, car loans, insurance policies, and other credit relationships where a ‘savings’ will occur. Anyone who has seen a State Farm or Progressive insurance advertising has seen the 15% reduction in cost from bundling home insurance with car insurance. The same can happen with credit cards through the use of fintech, which may or may not make use of digital currency.
The only question will be who will make the first move on this occasion.
This change within the capital industry is of importance to me in my support of small businesses and communities because large businesses are already bundling in some manner, giving them a competitive advantage. In addition, vendor payment of processing fees serves to extract capital from a community where the money never returns to reduce the wealth of that community.
FUTURE OF FUNDING #8 – SOCIAL IMPACT
Next Tuesday, on my Successful Funding show, I will have Dr. Tom Frey, who is a world-class futurist, as my guest. We will be talking about the future of funding. Tom has a rare ability to see today’s trends 10 to 25 years into the future and see where these trends converge, which can have a major impact on individuals, businesses, and governments.
One of the major changes that is occurring is businesses being evaluated on ESG stands for Environmental, Social, and Governance.
In the future, what this means will become clarified. Measurements will move from the subjective to the objective.
Currently, a small business forecasting the future is solely focused on cash flow projections, out of which the profits will possibly be shared with investors.
In the future, businesses will be expected to provide ESG forecasts. They will need to do more than simply state they are ‘doing good’ or ‘performing above average in protecting the environment’ or adding individuals to their managing boards that come from different sexes, people of color, or minority interests.
Addressing this issue is part of the work I am involved with as a co-founder of RCI Community Funds Benefit LLC. As we are designing community investment funds, we seek to support underserved, economically distressed, and disinvested communities in building community capital. As we are diving deep into this challenge, we have initially broken this out into:
·?????? Community wealth
·?????? Community skills
·?????? Community social unity
Community wealth represents the collective wealth of all of the individuals, businesses and organizations that are headquartered within the community. Wealth is measured in assets: cash, real estate, personal property, and intellectual property.
Community skills represent the collective skills of every resident of the community. Skills represent the market value of an individual based upon their talent, knowledge, and training, which contributes to their ability to earn a wage or to operate their own business.
The community social unit represents the action of individuals, businesses, and organizations to act collectively. This evolving metric measures how everyone in the community is engaged and works to a common benefit. In the establishment and operation of a community investment fund, we will measure every resident’s awareness of, support of, investment in, and benefit from the fund. We are describing this as moving ‘stakeholders to stockholders’ where residents are directly and indirectly participating in and benefiting from the benefits of the community.
Using these metrics, investments made by a community investment fund in real estate and local businesses may be viewed as successful if:
·?????? Individuals, businesses, and organizations realize an increase in net worth
·?????? Individuals are able to command better-paying jobs
·?????? Individuals, businesses, and organizations have increased participation and benefit from community activities
As previously discussed in this Instant Funding newsletter, every small business is achieving some or all of these metrics. However, they are not tracking and reporting this information.
FUTURE OF FUNDING #7 – TOKENIZATION OF SMALL BUSINESS OWNERSHIP
I anticipate that there will be an increasing tokenization of investments in small businesses.
A token may represent an ownership position, a right to make payments on a loan, or a contractual right to participate in revenues.
I want to make a major distinction between a token representing an asset of value and tokens that are not based upon any asset if there is an underlying asset, whether it be an ownership position, a contractual right, or a physical property such as land, commodities or other items having value separate from any speculative value.
For those investments in business, there remains challenges in the resale of those investments. By placing ownership in the form of a token, it appears that it may be easier to transfer the ownership.
Transferability, in and of itself, does not guarantee the ability of an investor to resell their investment. There still needs to be a buyer (new investor), an awareness of the existence of the opportunity to purchase the interest, and a marketplace through which a transfer may be completed.
Historically, publicly traded stocks are published and then sold through licensed exchanges. This capability is very limited. The cryptocurrency exchanges and other exchanges now show a means to improving transferability, which I expect to expand to the point where it will be possible for an individual investor to ‘list’ their investment for sale in a manner that may be no different from posting an object for sale on DealDash or E-Bay.
The seller of the investment will still need to promote the offer to sell their investment. The offer may sit in the corner like a child at a middle-school dance with no one paying any attention or purchasing the investment. Nonetheless, it is a major step forward toward a true secondary market for private business investments.
FUTURE OF FUNDING #6 – FUNDING COMMUNITIES
All too often, a small business starts a funding campaign with a blank slate. They have no idea who may be an investor candidate. The launch of the campaign is largely like a murder mystery where the small business talks to everyone, looking for clues about who might invest.
I anticipate that in the future a small business will have two advantages over today:
1.???? Individuals, businesses, and charities will self-identify based upon their investing preferences
2.???? It will become possible to more quickly and efficiently identify and qualify investor candidates
In the same manner that a vendor collects all of your personal information to prompt you on your next purchasing decision, there will be more and more data to guide investors in selecting their next investments.
Similarly, this same data will enable small businesses to identify those investors whose track record of investing matches the profile of the small business so that targeted offers and capital campaigns can focus on a more manageable size of investor candidates.
This future forecast will benefit from my two prior forecasts concerning the ever-increasing number of investors in investment crowdfunding and the growing application of artificial intelligence to sort through massive amounts of information to find patterns of conduct.
FUTURE OF FUNDING #5 – INVESTMENT SCORING SYSTEMS
There are many different scoring systems for making investments, and nearly every investment bank has its own proprietary system. These systems are largely, or solely, based upon the projected upside of a business that will impact the return on investment.
There are fewer scoring systems for the vast majority of businesses that will never see Wall Street or any major stock exchange where the returns on investment will rarely meet private equity fund or angel investor criteria.
There are even few scoring systems for measuring social impact for difficulty in measuring social outcomes and disagreements or differing preferences over which social outcomes are most important.
All scoring systems include one or more factors that require forecasting the future, which opens the door to accuracy as a result of bias, experience, training/education, as well as shifting business and capital markets.
This level of complexity may be addressed by artificial intelligence. If a sufficiently substantial number of investment offerings and the resulting success of failure of small businesses were entered into a large language model (LLM), then a more sophisticated and accurate score may be assigned that would allow the average citizen to make better investment decisions.
Artificial intelligence can improve scoring systems by using machine learning algorithms to analyze large datasets, identify patterns, and predict outcomes with greater accuracy.
AI can enhance credit scoring by incorporating non-traditional data sources, such as transaction history and social media activity, to provide a more comprehensive evaluation of an individual’s creditworthiness.
Finally, artificial intelligence can be tuned to fit the individual’s preferences and personal capital strategy.
There are many AI-supported financial planning and analysis (FP&A) now entering the market. It will be interesting to see their development as more and better information is used in these systems. As described earlier, it will take time for these systems to migrate from unicorn wannabes to common businesses.
BELIZE REAL ESTATE & LIFESTYLES SHOW
NEXT WEDNESDAY, NOVEMBER 20, Boris Mannsfeld and I will host the inaugural Belize Real Estate & Life Styles show at 8 am Mountain Time / 10 am Eastern Time (this show is rescheduled from a few weeks ago). The program will provide insight into doing business and living in Belize.
You may view the show live or watch it later as a recording at:
SUCCESSFUL FUNDING SHOW
NEXT TUESDAY, Thomas Frey CSP will be my guest on the Successful Funding show at 8 am Mountain Time / 10 am Eastern Time. Dr. Tom Frey is a world-class futurist. We will be talking about the future of funding.
You may watch the show live or watch the recording at a later time at:
LAST TUESDAY, Andrew Sherbo with the University of Denver, Daniels School of Business, was the guest on my Successful Funding show. We discussed entrepreneur education. The conversation renewed the concerns from last week’s show with Eric Hanson on the need for greater financial literacy – personal, business, and community. Basic concepts such as return on investment (ROI) based upon the time value of money and the need for planning pointed to challenges remaining for educators.
You may see a video recording of the show at:
DON COHEN SHOW
NEXT WEDNESDAY, November 20, I will be a guest again on the Donald Cohen show. 9 am Mountain Time / 11 am Eastern Time. Don and I will discuss the challenge of monetizing appearances on live-streamed shows and podcasts.
You may be in the audience or watch the show later on a recording at:
LAST WEDNESDAY, I was the guest on the Donald Cohen show. We talked about strategy. The act of forming a strategy serves to guide an organization in future planning and operations – to point the organization in a specific direction. Strategy development is improved by having more people participate to create multiple perspectives based on a broader range of experiences.
If you would like to a recording, go to:
You may subscribe to this Weekly edition of my Instant Funding Newsletter, or you may subscribe to my Daily edition.
Karl Dakin, the Capital Coach
Dakin Capital LLC
I help you overcome challenges to raising capital. Take advantage of my Motivated Money Method to identify those investor candidates that are most likely to invest. Top expert in fundraising.
1 周Will changes in the capital markets impact your ability to raise funding?