Transparency. Our final core belief is “transparency builds trust”. Among private equity partners, this is often encapsulated in phrases like “no surprises” or “give me bad news fast”. In Reg CF, this is usually “what could go wrong with investment X or company Y?”.
For those interested in investing through Vicinity, it may be “where are the investment opportunities through Vicinity?”. I can’t blame you for asking. But really, can you rush greatness (i.e. the freedom to invest in businesses that form the backbone of our communities)? Ok, I’ll update you below.
At Vicinity, we want to provide investment opportunities with companies that you can see/feel/touch, actually located near you, providing goods and services and jobs near you, and “free from pretense or deceit” (one of my favorite definitions of “transparent”). Most of the time it is not difficult to understand how a business makes money, how they’ve performed in the past, what their future plans are, and what could go wrong. Though many have made a living off keeping this type of information as veiled as possible, the demand for candor is trending up and to the right.
If you are a business owner looking to raise money, this topic hits you square between the eyes. You’re the one having to lay down some cards and put your work on display. I can empathize, and I’ve been in your shoes. I want to talk with you directly (but we’ll let others read along…see, we’re being transparent already!).
As an issuer, you may be asking “Do I have to make my financials public for a Reg CF offering?”
Yes, and this is why it could be a good thing.
You are already committed to telling your story and raising community funding. Engaging your audience through financial transparency that supports your story is an extremely effective way to build trust, loyalty, and confidence in your community – whether it be investors, employees, customers, or whoever is listening.
Who’s actually reading it? Funny enough, many won’t. But that doesn’t matter. The fact that a company is willing to disclose financials as part of their story breeds overall confidence in a way where most may not even care to check! (Quick commercial for investors reading: you absolutely should review the financials. Don’t be lazy.)
“There’s a common misconception out there about transparency. Far too often, companies see it only as a tool to be used when owning up to a mistake or righting a wrong. This approach is shortsighted and isn’t an effective way to build trust. Customers will be far more forgiving of mistakes if a company has a history of being forthright with all interactions — not just the negative ones.” – Robert Craven, CEO of Findaway Adventures
Maybe you get why candor and telling your story are important to investors, employees, and even clients, but what about competitors seeing your financials?
In short, while this can be scary, SO many assumptions have to be made by your competitor to turn your financials into some advantage for them.
The longer answer is a semi-technical (not exhaustive) list of accounting limitations that defend the incomparability of your performance to another including (1) financial reports use of historical costs, therefore not providing current value of certain assets and liabilities; (2) there are no adjustments for inflation; (3) even with GAAP, unknown personal judgments are necessary; (4) the disclosures required likely do not give enough information to determine trends or timing impacts; (5) intangible assets are not recorded on the balance sheet; (6) non-financial issues are excluded; (7) no audit opinion is issued (since financials do not have to be audited for a first-time Reg CF raise); and (8) there is no ability to predict future performance.
It is important to note what has to be disclosed as well. There are many things that are unnecessary (or maybe even inappropriate) to display in full detail. For example, the salaries of you and your employees; specific amounts you spend with specific suppliers or service providers; what your profit per widget is – these and many more details are beyond the scope.
Still, your lawyer, CPA, or advisors may not like this. Take it with a grain of salt. This new form of capital has worked for thousands and is here to stay, but it’s not for everyone.
For our potential investors, if you’ve stayed with us this far, I owe you an answer to my self-imposed question – where are the investments? We are working hard (“you can sleep when you’re dead” hard) to prepare the first offerings to launch on our platform. While I legally cannot tell you anything about the actual companies at this stage, we expect to see several turn into investment opportunities for you. Spread the word!