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Jillian Sidoti: Raising Money, Running A Record Label & Dr. Phil

My guest is Jillian Sidoti. She is one of the country's leading experts on all things money. When I say money, I mean crowdfunding, private money, syndication, private placements and all of the things money. She is an attorney and she is the author of the highly rated book, The Crowdfunding Myth. You are in for a treat.

Normally when you talk to attorneys and maybe talk a little bit about syndications in 506(c)s, it may roll over some of you. However, Jillian has an amazing style of making it entertaining and fascinating and we're talking money. The other thing we talk about is the music business and how Jillian had her own record label and how she started off in that business and then how she ended up in law school and eventually helping people to raise money. This is a very fun, fascinating and a very beneficial show, especially if you need money or recognize that cashflow is critical and any business. With that said, let's get to it.

Dustin
Crowd funding, private money, 506(c), Regulation A, syndication and private placements, Jillian, you are a money superwoman. It’s easy for us to start the conversation with money. I think we should flip the script because I'm sure you can take us down some rabbit trails here. You travel the world, going to places like South Africa, Canada, Europe and all over the US with artists signed to your record label. How did you come to start your own label?
Jillian
This is a true story. I was in law school and I was completely stressed out from law school and I always wanted to be in the music industry. I got into law school so I could be in the music industry. I decided one day that I'm just going to do it. I dropped out of law school to start a record label.
Dustin
What did the parents think?
Jillian
They were so happy. They were like, “This is the best decision you've ever made.”
Dustin
What kind of music are we talking?
Jillian
It was hard rock.
Dustin
You were a rocker. That must've been pretty scary, dropping out of school or not?
Jillian
Actually, it wasn't scary at all and I’ll tell you why. When you get to that point where you're so stressed out from just pressure of being great and being awesome and doing well in school and surrounded by other people who wanted to be lawyers. They were very argumentative people, high achievers themselves and you're just surrounded by that environment. It was a great relief to just embark on a new adventure.
Dustin
You didn't feel the pressure though. Oftentimes in those situations I think of the military, med school, law school, that pressure of like, “That’s another dropout or someone leaving.”
Jillian
No, I didn't. I’ll tell you why. It’s because the play was never to be, “I'm going to leave law school and I'm going to go do this and it's going to be so successful that I'm never going to go back to law school.” No. The idea was I'm going to see how far I can take this. Maybe I went into this all wrong, but my intention was to scale and exit to be honest, to get this to where I needed it to be so that I could exit and get my butt back into law school. I am very much one of these people who does not like to leave things undone. I never had the thought that I'm dropping out permanently. I had the thought I'm dropping out so I can get this jump-started and get it to where it needs to go.
Dustin
We need to hang out more because I wish I had the idea of building something to sell. I had heard it's thrown around, but to embrace that at such a young age is incredible. Was your dad like Van Halen or Bruce Springsteen? What made you think music business?
Jillian
It's so funny you say that because my parents were actually the exact opposite. They were absolutely anti-entrepreneur all together. My dad was in the government and my mom was a nurse and their idea was, “You need to get a good job with a good pension and then any money you have left over, you should be putting into mutual funds.” My parents are the most educated, non-real estate investors I'd ever met in my life. I'm the oldest of five kids. They would pile us in a car on the weekends to go look at properties and never buy one single one. They knew all about the market. My dad got his inspection license. He was a professional building inspector as a side hustle. He was an agent as a side hustle. You could ask my mother about any market and what it was doing and the economics behind it, but never bought one single property.
Dustin
Why didn’t they?
Jillian
They were just fearful. They were in constant fear. They’re like, “Let's just put money in mutual funds. That's the way it's supposed to be.”
Dustin
That's pretty interesting to get like so close, I don't want to say to the finish line, but to go get an inspection and be a realtor.
Jillian
That's how they thought they needed to be educated about the real estate market. That's how they thought, “That's how you do this.” They just never made any moves on anything. I saw that and I'm sure deeply psychologically that played a role. When I was, “I'm going to go start this business,” there wasn't a lot of gnashing of teeth or yelling. They could see that I was not feeling well. I wasn't well. I had a cold every two weeks. I looked like I should just throw myself in front of a train. They didn't fight with me a lot, but they also didn't think it was an amazing idea to be like, “I'm just going to drop everything, buy an RV off of eBay for $1,500 and drive across the country and see what happens.”
Dustin
You get this idea and you're excited of course. What is the first step to creating your own music label? Did you buy the RV first? Did you go sign an act? What did you do?
Jillian
A lot of this was my boyfriend at the time and my husband now was in a hot band in Boston.
Dustin
What was the name?
Jillian
It was called Rain Shine. You’ve probably never heard of them. They did well for themselves in Boston. My brilliant idea was, “If we want to get in right in front of the right people,” and this was obviously before the internet was a big thing, “we’ve got to be out on tour. You got to be meeting the people.” It started with just dialing for dollars. My husband and I would start around 10:00 AM and just start calling. Because we're on the East Coast, we started calling every single festival, fair, county event it from in North America. We ended up booking some big shows. I got him opening for the Foo Fighters. I got them opening for Sum 41. On a lark one day I called this festival that was happening in New Hampshire in two weeks. I just called them up and I said, “I saw you have this festival and I know it's probably already booked, you’ve got everything worked out. If you have any slots, that would be amazing. I got this band from Boston and we'll do promo.” They said, “Sure. Come on up. We've heard of you. We like your music.” I got them opening for some big metal bands.
Dustin
Was it paid? Is this a point where you’re trying to get paid gigs? What's the model here?
Jillian
It varied very much so. It just depended on the event. As a matter of fact, it was funny because Sum 41, they offered us money. It was crazy. This is one thing that I definitely learned and I try to pass down to my children was you have got to hear no three times from the same person before you accept it as an answer. That was the Sum 41 show. They told us to get lost. Don't call here again, stop calling. There is nothing available to you. We called one last time and the right guy picked up the phone. He said, “I’ve heard of you guys. Everybody's been talking about you over here. I’ll give you guys $1,000 and I’ll have you open for Sum 41.”
Dustin
Was the play to get discovered and sign a music record deal?
Jillian
Yes. We had some labels that were interested. I literally was getting emails from major labels. The labels, in my opinion at the time, are run by two different people. They were kids who are trying to make a name for themselves and get in and find that act and then older guys who don't want to go out anymore. You better be playing Monday afternoon at the Viper Room or else they're not going to come to see you. I'm not even joking. We had a couple of people contact us and say, “We're super interested in this band. When are you playing?” We'd say, “We're playing at this time at this club.” “We'll get you a band. You can get in the industry.” I can't tell you how many times I had a record label guy say, “I got caught up here. I wasn't able to make it. When are you guys playing again?” In the case of Virgin Records, the kid showed up right as my husband was getting off stage. Stuff was happening like that all the time to us. That was not fun. What was really not fun was not having any money.
Dustin
I can relate. I think it's funny because most of our conversation is going to be about money. I think it's funny how life has that thread through it.
Jillian
That was exactly what happened. That's how I got into what we're about to talk about, was this label. We ended up on tour, we went to South Africa. They were practically famous in South Africa. We still had no money. We toured across Canada twice. We toured across the United States. That RV that I bought on eBay, I don't know if you realize this, but if you buy an RV on eBay for $1,500, the likelihood of it making it across the country several times is very slim. It didn't make it across the country. For the sixth or seventh time, we broke down in a place called Memphis, Nebraska. I did not say that wrong. That is the real place. It was a town of 100 people in two teeth. No one from Memphis, Nebraska is reading this. I don't fear saying this story, but I had this epiphany when I was in Memphis, which was that this cannot be how businesses are run. People cannot possibly be shoe-stringing businesses along with the cash from their $10 an hour job and their credit card. That can't be how businesses are built. That's when I made the decision right there. I'm giving up the record label and going back to law school.
Dustin
How did the hubby take it? You would put your time in. Was it like that thing? “We gave this a go, now we're moving back?”
Jillian
When we ended up getting out of Memphis, we got back to California and he told me I'm not going back to Boston. He stayed in California and I flew back to Boston and got my butt back in school. I stayed in Boston and he stayed in California and he kept trying to get a go of it. The reality was for him, it was a very tiring and exhausting existence. It all turned out okay. He might disagree with me on whether it turned out okay but he still writes, he still produces, he still does things. It's just different now with the internet. It's not the same. You don't have to go out on tour. If you get enough traction on your YouTube videos, you can build an online presence. He right now is just focused. He's a stay at home dad, so he focuses a lot on doing that.
Dustin
Are we going to get the band back together or have there been talks? I'm very curious about how this conversation in the household goes.
Jillian
As I said, he does a lot of producing and writing for other people now. He plays still with those younger people. I’ll tell you and I don't mean to sound like an old woman and I know I do with the statement. My husband put it best actually when we were talking about a young girl he was working with. People just want to stand in line. They want the American Idol quick satisfaction, “I get this done right now. I'm famous overnight,” and it doesn't work that way. There are no such things as overnight sensations, especially now because people's attention is pulled in so many different directions. The perception is a reality for a lot of teenagers and young adults are that they see people have five million followers on YouTube and that's the way it is.
Dustin
I wish this to be true. I always thought about going to law school. I wish I could just put the initials after my name. I want to ask about this. You're rocking out. You come to this realization. You said law school, but I thought I noticed a finance degree. You’ve got to get a traditional degree before you get the law degree?
Jillian
There is a pre-law degree that you can get. I never went to school to be a lawyer in the first place. My upbringing and my background were so sporadic. I thought I was going to go to school for music. I thought I was going to go to school for film. I realized I'm not sure that's going to put me in a place that I want to be. I decided to go to school for business. A huge part of my going to school was I enjoyed international relations. I originally went to school to go into international business. When I got there, they're like, “You don't just do international business. You’ve got to concentrate on something.” I was okay at math so I did finance.
Dustin
I'm curious because numbers are not my strength. I was going to ask you why not just get a biz degree?
Jillian
The school I went to, you had to focus on something, whether it was accounting, which I was not going to do. The other thing they had was human resources and I didn't particularly care to deal with people. There was a problem there. Transportation Management and Logistics, which is like UPS and FedEx and learning how that all works, which I think with Amazon and you see what Amazon does. It would be so amazing to have that degree now. It’s geographic, spatial type things. I didn't know what that was at the time. Marketing and finance, I thought finance sounds the most valuable. Finance is something, no matter what, I can do something with it. That was where my thought process was.
Dustin
You got a finance degree. You passed the bar and you go out into the world. What are you doing at that time?
Jillian
I didn't like other lawyers. I know this sounds like, “You cannot make a decision, girl.” That is so true. I could not make a decision, but I saw that there is this world of real estate. Everywhere you stand is real estate. I knew two things to be true. One, I knew that you should not be financing a business with just your credit card and your $10 an hour job. Two, everywhere you stood was real estate. I got to San Diego so I could take the California bar exam. While I was studying for that, I went to every real estate investment firm in San Diego and asked for a job. I said, “I can do your books. I have this degree in finance. I could do that. I could file for you. I can answer your phone. I’ll do whatever it takes to learn real estate. That's all I wanted to do.” I got into a firm that loved the fact that I had my own record label. That's why they hired me.
Dustin
That definitely is serving you. You’ve got stories, you’ve got a job from it. I love it.
Jillian
It served me so well because I got into the real estate firm and started doing things like bookkeeping, simple stuff like that. They were doing condo conversions. We started doing bigger and bigger condo conversions right here in San Diego. I decided, “We need to get more money for these kinds of conversions. We're running out of money.” That's when I learned all about this world of leveraging with equity and debt. You can't just go to the bank all the time. You have to go to other people because you're going to run out of money if you want to grow.
Dustin
I want to get into the money. We're close. You were in private practice. You were with that firm and then you went out on your own private practice.
Jillian
I have another funny story, but yes.
Dustin
Here's what I want to know. I'm very curious about why private practice and then the research elves tell me that you were there for seven years. It was your biz for seven years, but then you changed your mind about other attorneys. You partnered with a few. Take us there.
Jillian
We were doing real estate and I was doing all the money and I figured out this world of Securities Law, “You have to do this properly. If you're going to take in investor money, you’ve got to do it right.” I did that and then we saw the writing on the wall. I'm going to plug a guy really quick because he helped me tremendously, which was there was a book I read when I first came to California called California Countdown by this guy named Bruce Norris. The book basically predicted year-by-year the last downturn. I read it in early 2005 and I said, “We need to start selling properties now and storing money away because this guy says in 2007 everything's going to hell in a hand basket.” It was crazy. He was like, “It's going to start in 2007. We're going to hit rock bottom in 2010. We'll start seeing an incline in 2011.” That's literally what the book said.
Dustin
This is not a message people want to hear.
Jillian
Not at all, and neither did anybody at the office I was working at because the response I got was, “Even if the market turns down 20%, we're still okay.” I was like, “I don't know a lot, so I’ll go with that.” 2006 rolled around and we could see the writing on the wall. We started selling every property. I’ll tell you, my boss at the time was smart about a lot of things. He made some very difficult decisions that turned out to be smart but very difficult decisions. By the time all was said and done in early 2007, we didn't have any properties left. We were done. It was over and it was not a good time to start investing again. We got out, skin of our teeth, and then there were no more properties, which means I didn't have a job. I realized that I don't have a job anymore.
I live up in Temecula, which is about 60 miles north of San Diego. I drive up from the Mission Valley part of San Diego doing this lonely, slow drive back to Temecula. I was always not for naught. I decided to right then and there start calling anybody who would take my phone call. I called everybody I knew and I said, “I just want to let you know I started a law firm. I'm going to just be doing general corporate transactional business. If you have any needs, let me know. I just want to let you know.” I got to the Riverside County border and I got my first client and I turned around and I went down and met them in San Diego. That's how I started that. For seven years I just started helping not really raise capital, but make sure they were legally compliant to be able to raise capital from investors.
Dustin
In dealing with you said general corporate business stuff, the life of every business is cashflow is money. Is that where it took you back to, to money? They'd come to you for something else perhaps?
Jillian
It just became an obsession of mine, to be perfectly frank. It did. That year, 2007, I got pregnant with my first son and I was super sick and I made it a personal mission to start reading every single Securities Law in every single state. That's exactly what I did.
Dustin
This is not a normal activity.
Jillian
No, but I wanted to know, I wanted to get to the bottom of this. How does this work? How do you do this right? How do you stay out of trouble? How are you successful at doing this? How do other people get money through the door without violating the rules? I even took the time to call all 50 states and talk to somebody in every single state.
Dustin
You were like a rare bird.
Jillian
I wanted to know. I wanted to know how does this tick, how does this work? The best one that I called was the State of Colorado because I don't know how this happened, but I ended up getting the commissioner on the phone. He's like the salty old guy. I said to him, “I'm curious, how many companies raise money in your state under your state rules as opposed to the federal rules?” He says, “We probably get like two a year and it's churches. Churches always want to build a new building and they want to go to their parishioners or their members of the church to get the money. They want to advertise so they do a securities offering here in the State of Colorado.” I said, “What are you normally seeing?” He goes, “You know what my favorite thing to do is?” He goes, “I get a cup of coffee and I get a copy of the newspaper and I open it up to the classified ads. I look for anything that says, ‘Offering investments in real estate, low-risk, guaranteed, safe and secure. Call now. I call them and I nail them.’” This is the Commissioner of Colorado telling me this like, “You're an awfully nice guy.”
Dustin
To each their own, you’re calling states and asking securities questions and he's calling classified ads and nailing them.
Jillian
He’s trying to keep bats off the streets. They are breaking the law.
Dustin
Thank you for sharing that. I'm very curious. In this time, these seven years, you get to the end and your stance changes on other partners or other attorneys. How so?
Jillian
Gene, who's my partner now, came to me and he actually was a huge mentor of mine. I learned so much. His book, It's a Whole New Business!, has been out for years and he keeps writing it to update it with the times. His book, he so graciously gave me a copy of that book while I was studying for the bar exam and I just devoured it and read it. I actually literally took the binding off of it. I took the binding off of it, three-hole punched it and put it into a binder so I can more easily go through it. I was a little obsessed. I learned so much from him and I would call him from time to time and say, “Gene, can you tell me about this or tell me about that?” He would always so graciously help me out. One day he called my office and talked to my operations manager, Dave, who's still my operations manager to this day and said, “I'd like to meet with Jillian. I'd like to come to your office and meet with Jillian.”
Dave goes to me, “This guy, Gene Trowbridge, wants to meet with you.” I go, “No, don't let him call me. He's just going to yell at me for something.” I thought maybe something had happened, like somebody had told him I said something and it was wrong. I thought that's what he was coming down to talk to me about. He said, “No, I think he wants to talk to you about something else.” We came down and he said, “How would you like to join our firm?” At first I said, “I don't know if that's a good idea. I’ve been doing this by myself and I don't know. That might not work.”
I kept seeing him at events and I realized we're all at the same events. We're eating our own. I cannot tell you what an amazing decision that was to make. I'm forever grateful for him for approaching me like that because there is truly power in numbers and building a team and having a team working for you. I know this sounds terrible, but now I almost look forlornly or sadly at solo practitioners because I know the struggle that they're going through. I didn't even realize the struggle until I was out of the struggle.
Dustin
I feel the same way about WealthFit and my previous thing. We have partners that are associated with it, but I feel the same way as is all I'm saying. When you join a powerful team, there are resources that you don't know that you're missing at your other thing.
Jillian
It was funny because I remember another solo practitioner calling me when I was still a solo practitioner and she was an older attorney and very experienced. She was closing in on retirement. That's why she was a sole practitioner. She called to ask me a question. She was trying to help me out actually. She says, “I saw you wrote this this way. Can you tell me why you wrote it this way?” I said, “I don't know. I just wrote it that way.” She goes, “One of the things I totally miss about being in a partnership is the ability to go into your partner and say, ‘Can I run this by you? I feel bad that you can't do that.’” She actually said that to me. I found that very profound. “I don't need anybody to like bounce ideas off of. I got this. I’ll just read the law.”
Dustin
I’ll read the law, I’ll get the phone. The phone is the theme in your life. That's amazing. I'm with you on it. Let's get into real estate. Let's talk money here. We have a lot of investors here. Let's start off with a baseline. For folks that are sitting, let's think of your parents. They know some stuff about real estate, but maybe afraid to pull that trigger. Why would a stranger want to give me money to do a real estate deal?
Jillian
It comes right down to are you doing something that they're not doing? That's a huge part of it. Whenever I go into an event, let’s say a Saturday conference, a Saturday event at your local Sheridan or whatever where you're going in the room and you're sitting there. You're taking notes and you're spending time and you're learning something about real estate. You're taking that home and you're doing whatever you're going to do with it. Here's the thing, you're in that room. Your investor was not. Your investor is enjoying a day of playing with his kids or enjoying a day of watching football or whatever it is, cleaning their house, raking leaves. It doesn't matter, raking leaves in Southern California, but you get what I'm saying. You can tell I’m from the northeast. Whatever they were doing, they weren't in that room. They weren't spending the time to get educated. You already have the edge over those potential investors. You've already invested something. You've invested something, by the way, that you can never get back, which is time. That to me is huge. I'm going on a tangent here, so if you have to pull me back, I will.
I actually did a whole presentation one time on Dr. Phil quotes. Why that is relevant is because Dr. Phil, at the beginning of the downturn, he did a whole series of shows on foreclosures, how real Americans are being affected by this terrible tragedy, economic tragedy. It was all drama. I'm sitting there watching Doctor Phil, because that's my pastime. National hero, Dr. Phil. I'm sitting there watching Dr. Phil and he's dealing with this couple from Orange County whose crying over losing their million-dollar home that they put no money down on. He just chose the vapidest people on the planet and then paraded them in front of the Midwestern housewives that are watching Dr. Phil. It was tragic for everybody involved, but he did have some good advice. One thing I always explained about Dr. Phil to people is that although he’s made by Oprah, he’s not Oprah. Oprah will tell you to reach under your chair and pull out your new car, Dr. Phil will not.
Dr. Phil instead wants to tell you how it is and give it to you. He's telling these people how it is and he goes, “I want you guys to know something. All this fighting you're doing about money, all this fighting, that is time you are never going to get back. Listen to me very carefully. Money is fungible.” They are all confused. He turns to the audience and goes, “Money is fungible. All of you here should know that money is fungible.” Much to the relief of everybody, he turns to the entire audience and the people on stage and goes, “That means you can get more of it, but this time you are wasting, you will never get back.” I find a lot of entrepreneurs or potential real estate investors, syndicators don't value their own time. They don't value their own time that they're spending reading this. To me, that's the most tragic part of it all. You’ve got to have a little more respect for yourself, a little more respect for your time and that doesn't mean you should start stealing people's money. That doesn't mean that you should charge exorbitant fees, but you do have to have a little more respect for your time because you can't get that back.
Dustin
I got that and I can buy that, but let's say I'm that person that hasn't done a deal yet. I don't have funds myself but I want to do real estate investing or I want to start this business. What is your advice? What is the pitch? I can get the time pitch but it's like, “That’s great, Jillian,” if you're the person making the pitch. Who are you and why would I give you money? What's your advice there?
Jillian
The who am I is less important than what the opportunity is. If you can prove the opportunity, then that's what counts. Do you have the statistic and the story to back it up? If you don't have that, don't even bother because you don't matter if you don't have the statistics and the story to back it up. For example, one of the big things I'm telling people right now is to hold onto your cash. Don't buy anything because we're about to go into a recession. We're about to go into a recession and here are the statistics. I can give you the statistics that say, “We're going to hit rock bottom in ‘21, ’22. Once we hit rock bottom in ’21, ‘22, that's when you can start buying again. We'll start coming out of that recession. You could even start buying all the way up through ‘24 and still be at what we would call the bottom and get great deals at that time.” I can't give you the exact places I can get the statistics, but I pulled the statistics. That's where you should start is like, “Why is this a good why?” You're not the why. The opportunity itself is why.
If you come armed with that, it is a place to start. If you don't have the background, if you will, you can surround yourself with people who do have the background. A lot of times we talked about me being away for seven years and I have my own street cred, but a lot of times I drag my partner, my 70 year old partner who's been doing syndications since ‘78 to be alongside me to say, “I got this old guy with me.” He would totally go with that too. He would think that was so funny actually. No, I do that. That's my cred. That's what you have to look at. It’s like, “I have Dustin as a coach. I have Dustin helping me out. Dustin's been doing this. Dustin knows marketing.” Those are great attributes if you don't have it yourself. If you have a history of stealing from people, maybe you aren't the right person.
Dustin
If you're a con man reading or woman, there’s an equal opportunity here. This strategy will not work for you or might not work. Results are not guaranteed.
Jillian
Although I do know a con man who would come right out of jail and get right back up on that course. Who knows?
Dustin
The big takeaway here is it's the opportunity because a lot of people say, “Why would they choose me? I'm not worthy.” All the trash goes on people's head. It's not necessarily about you. It's about the right opportunities. Let's say you get somebody sold on the opportunity. How do you go about doing, I guess without getting too legal, but just like, “Am I drawing up a contract? Am I going to LegalZoom and drawing up a contract? Do I need to go hire $1,000 an hour attorney? How do I solidify this deal?”
Jillian
At the end of the day, we're about to enter into a space that's wide and vast and extremely confusing. I don't want to get too obtuse or also too narrow. I'm going to talk in a lot of generalizations and say, “If you don't get this right away, I understand.” I sat on a couch for a year and read 50 states laws. I read Gene Trowbridge’s book, I went to law school. I don't want anybody to feel a little overwhelmed by this. What you need is you need a good document that tells the investor what it is they're about to get into. Just like a newspaper reporter would, who, what, where, when, how, how much and why, those are the things that an investor needs to know in order to make an informed investment decision. If you're thinking, “Does my investor need to know this?” You think about, “Is this so material that will influence their decision to invest?” That's when you know whether or not you should put it in there. The other thing is what I think is important and what people often look at is as, “They're not going to invest if I tell them that.” I will tell you right now you're wrong.
I’ve got several anecdotes that say otherwise. You need to tell them the risks associated with investing. It's important. You could lose all your money because we live in California. Earthquake insurance is expensive to buy and this property could be hit by an earthquake and crumble to the ground and not be properly insured. That's extreme, but you get the point. If you're buying a property now, economic indicators indicate that we may be entering into a recession, so we may not see a return on investment for several years. We may not cashflow positively and therefore maybe repo’d by the bank or things like that. Those are real risks. To me, a lot of times they get pushback on that, “That's extreme, Jillian.” When people invest and I say to say to that person, “They'll invest.” Do you know why? Because you spent the time to research the risks associated with investing and disclosing.
Dustin
This is more about being transparent and bringing it versus by law you have to do it right.
Jillian
It's both. It cuts both ways. First of all, legally speaking, you should be telling your investors this is a material fact that will influence their decision to invest. Risks aren't necessarily facts. They're what ifs. That is a material thing that you have to be disclosed to your investors to let them what's going on. The other side of that is it tells them, “I’ve thought about everything. I’ve thought about all these terrible things that could happen. I believe I'm going to be a good steward of your money.” That's what it comes down to. Are you going to be a good steward of somebody else's money?
Dustin
You say a document. When I hear the Word document, I think of a couple of pages and I imagine with some advanced tools or advanced documents, these hundreds of pages?
Jillian
I wouldn't say there are hundreds of pages. We've got to look at the situation. I normally say if you're going to be raising something north of $500,000, then you need to be considering a full-blown private placement memorandum, which is the story of the investment. It's a depressing story of investment because we're telling people all the risks. We're also telling them the who, what, where, when, how, how much and why. We're saying to them, “This is who I am. This is the property,” or it doesn't have to be property, actually. It could be a business. One of the examples I was going to bring up was I have a client right now. You can read this. They did what's called a Regulation A offering, which is a mini IPO. That's the vernacular that they use, which basically means they can go out in a public forum and raise money from any investor.
Dustin
Public being like we're going to advertise?
Jillian
They can advertise.
Dustin
Versus private money and other instruments? That's the word.
Jillian
Yes. It's still not publicly traded. They're not a traded company. They're not on NASDAQ or the New York Stock Exchange, but they can go out on Facebook and say, “Who wants to invest in our opportunity?” That's how they're set up. It's still a private offering. It’s still a private company. However, they can advertise publicly for investors. What's this company do? This company is attempting to 3D print a heart, allegedly. What they're proposing that they're going to do is they're going to take your own stem cells and then put it in a 3D printer and print you a heart. When your ticker goes, they can replace it with this heart. That's the story. The guy who runs the company isn't even a scientist, but he had this idea, he knew the technology. He put together a team of scientists. He put together a team of smart heart surgeons and they're on their way to 3D printing a heart. What's the risk with that? One of the risk factors we have is we're not going to make money for at least ten years. Do you know how long it takes to get through the FDA? That's the risk. If they can pull it off, that's an amazing opportunity. It's run by a guy who doesn't have that science background.
Dustin
I'm in pitch mode now. I feel like I want to pitch on his behalf. Steve Jobs didn't put the circuits in the iPhone or the iPod. He put together the team. I love it. You mentioned real estate, like it could be real estate, it could be a business. What are the nuances of the difference here? Because we’ve got to two audiences we're serving, Jillian. If it's real estate, it's one thing that's pretty straight forward. If it's business, what are the nuances here?
Jillian
You've got to look at what you're dealing with. Real estate is a huge bread and butter factor. It's where I started in a lot of ways. If we look at this, we're looking at different strokes for different folks, truly. I represent a lot of alcohol companies, for example, like a new luxury brand of vodka or tequila perhaps. CBD and cannabis are huge right now. You have the biotech space and biotech hits in a couple of different ways because you're looking at a money factor or a lifesaving factor, a comfort factor. One of the other companies I'm dealing with right now is a gel. It's a viscous gel that you can put an opioid in. To prevent addiction to an opioid, you inject it with the gel and it will time-release the opioids so you don't have to continually inject the opioid or take it orally or whatever. You just take it once and you're done for up to four months. It’s pretty amazing.
These are amazing things that are hedging against opioid addiction and things like that. You can get to know the audience of who you're speaking to. Those investors are mostly people who understand opioids, they understand addiction and they understand the need for opioids. A lot of their investors are doctors who understand the need to prescribe opioids, but they don't want to be getting their patients addicted to something like that. With real estate investors, I think the real estate game is super simple.
Dustin
You went to law school.
Jillian
It’s not that. It sounds very like, “Get off your high horse, Jillian, before I kick you down.” The thing is everybody out there who's like, “How do I get money for my real estate deal?” The same way you got into real estate is how you're going to get everybody into your real estate deal, which is everybody is either in real estate or wants to be in real estate. There are no other people. You just have to speak to your former self if you're a real estate syndicator or a real estate fund manager. Which is, “I got into real estate because,” and fill in that blank and then speak to that blank when you're talking to people. “I got into real estate because I wanted passive income and my job as a doctor was not providing passive income.” I'm a passive real estate investor. I invest in other people's deals all the time because, guess what, being the lawyer requires me to actually do something. Jillian doesn't want to do something forever.
Dustin
I want to ask you this. All these opportunities sound cool. Are you allowed to invest? If you represent a company, can you invest or is it weird?
Jillian
No, it's weird. I try not to, to be perfectly honest.
Dustin
Do you have to pinch yourself like, “This is awesome?”
Jillian
Actually, the Nestagel, the one that I was talking about, I would love to invest in that. I’ve been very wary of investing with them because I know too much. I don't, for that reason. I'm afraid it will be viewed as a market. They're also a publicly advertised opportunity, they’re Regulation A. I’ve always been fearful of the fact like if I buy the stock now and then this thing happens that I know might happen, how does that optically look?
Dustin
Is that borderline insider trading?
Jillian
It's very borderline because there's no trading market, so I can't exactly trade the stock. I just don't want anything untoward. My insurance doesn't allow me to accept stock in lieu of compensation. I try to be very careful about investing. I usually look for opportunities that are outside of the realm of what I'm writing.
Dustin
Can you have friends and tell them? I am just kidding. I don't want to get you in trouble. I want to make sure we covered this ground here. Jillian, these PPMs, this document, it sounds crazy to a new person. You make it sound so easy and simple, which is a gift in itself. If people are going that route, I definitely recommend you have a conversation. Are you taking clients? I’m just making a check. I might be sitting here saying, “Miss Attorney, you've got your schooling, you know how to create these documents. I'm just going to go crowdfund. I'm going to go use Kickstarter and GoFundMe. I'm sure that all that legal was baked in when I sign up for an account.” Why is that maybe a misnomer?
Jillian
There are a couple of different things. There's equity crowd funding, which is what I focus on, which is you're looking for investors into your business who will have a stake in your business with their money. They're expecting their money and then a return on their money, whatever that may look like, whether it's through notes or equity. Most of my clients do equity as opposed to debt financing. That's what they do. Crowdfunding is this big term. We look at crowdfunding like you said, GoFundMe, which is in a lot of ways internet begging. I don't like GoFundMe. I feel like as a society as a whole, we've become far too reliant on this entity to cover people's medical costs, for example, instead of trying to solve the problem at hand, which is these medical costs. I don't love GoFundMe. I try not to donate.
Dustin
I'm not as versed in these platforms. GoFundMe is more for stuff like that. What about the other ones that are more business-y?
Jillian
Kickstarter and to a large extent how Indiegogo got started. One night I signed up, I was like, “I can be a producer of this film for just $1,000.” I actually got my money back because that film didn't end up launching. They didn't raise enough money. That was what I was getting in return. My $1,000 was going into an abyss so I could get a credit on a film. I believed in the concept of the film, which is why I wanted to “invest,” but I wasn't really investing. I was buying a title. That's the difference with Kickstarter. We'll just take the couple of examples I’ve given you so far. You've got to think, “What do I have to offer? Do I have a robot that I can sell somebody in advance?
With real estate, you can't do that. There's nothing you can provide unless you're going to provide, “You can stay in my Airbnb, you can prepay for a stay in my Airbnb or you can buy so many credits to stay at my hotel. You can buy your future residents at my senior living facility,” I don't know. Kickstarter is not going to work for that. It’s the same with my Nestagel example. Are you going to buy a supply of Nestagel to inject so you don't get addicted to opioids? You're not going to do that. There's not a lot of perks, if you will, that they can offer there. You have to think about that. That's Kickstarter.
Let's talk now though about some of the equity crowd funding platforms like StartEngine or Wefunder, which I deal with a lot. If you look on these websites, for the most part, they have deals that are allowing the fundraiser or the company to raise up to $1,070,000. That's usually the limit. I know it's a weird number. That's the statutory number. It's $1 million. The idea is that it's $1 million and then the $70,000 takes care of all your legal fees, other costs, they just baked it into the law and inflation and whatever. You go onto these websites and then you got to get approved by the website. You have to still get your legal work done because they still require you to have the proper paperwork in order for them to invest. You have to get an audit from an auditor. There are all kinds of steps you have to take. Why is that? That's because then we start entering into the world of securities. When you're entering into the world of securities and you're dealing with anybody off the street who might want to come across your listing and say, “I’ll invest in that,” that's what you're dealing with.
For my real estate entrepreneurs, I say, “That's not an appropriate platform for you,” because first of all, you can only raise $1 million, number one. Number two, you are restricted to only advertising on that website. Number three, you're going to have a ton of different investors from all different walks of life that have not been vetted at all. Number four, the average crowdfunding platform investor invest $250. You have these kinds of restrictions. How do you overcome that if you're going to go on one of these platforms? There are statistics that show most investors don't want to invest the bottom, like the minimum. They want to invest more than the minimum. You always set your minimum. Do you always think about what do I want my average investor to invest? You have that minimum be half of that because the average investor will invest double the minimum. If your minimum is $100, the average investor's going to invest $200 and so on and so forth. That's how you do it.
Dustin
I think we should probably define here accredited and unaccredited. Define those. Do you have to be accredited to partake in these equity crowdfunding platforms?
Jillian
It depends.
Dustin
Define it first, accredited and unaccredited.
Jillian
An accredited investor is somebody who makes $200,000 a year as an individual, $300,000 a year as a married couple or has a net worth of $1 million exclusive of their primary residence. That's an or statement. They only have to have one of those, the $200,000, $300,000 or $1 million.
Dustin
I’ve always wanted to ask this. Can you piggy back? Can you create an entity with an accredited investor, let's say family, and then be part of that entity and make an investment together? Can you ride on the coattails if you're unaccredited or not?
Jillian
No, you can't. As a matter of fact, if the entity alone was going to be accredited, the entity would have to have a net worth of $5 million. You have a choice. You can either look through the entity to the individuals who hold the entity or you can look at the entity as a whole. For example, a family trust that has a net worth of $5 million, it works out. If the trustee has an individual net worth, that works out as well too as an individual. People try that all the time and come to me and then ask me and I say, “No. If that guy is not accredited, then the entity is not accredited.” We have our type of investors and thanks for bringing that up because that's a huge issue. People go, “How do I become accredited? It's not how do you become, it's either you are or you aren’t. You either make $200,000 or you don't. You either make $300 or you don’t.”
Dustin
Do you send in tax returns to prove it?
Jillian
It depends on what bucket you fall into. What I mean by bucket is under the federal rules and most of the securities laws are under federal rules, we have four buckets, generally speaking. I'm getting general right now. We have what's called the Regulation D buckets. There's two of those and there's Rule 506(b), Rule 506(c). Those are our most used buckets. We have Regulation CF or Regulation Crowdfunding. That's that $1,070,000 on a registered crowdfunding platform. Anybody can invest in those. You don't have to be accredited. There are some restrictions on how much you can invest if you're not accredited. Anybody can invest in those. That's why the importance of legal work and legal paperwork is there because you do have just any Joe Schmo off the street investing in these deals and they need to be fully informed as to what they're putting their money into.
You have Regulation A. Regulation A is that mini IPO I was talking about. It allows people to raise up to $50 million. They can take money from anybody. They can advertise for investors. When I say anybody, I mean accredited or unaccredited investors. Anybody can invest. That takes a lot of effort and money because you have to get approved by the Securities and Exchange Commission to do that type of offering. I'm going to go backwards. Our buckets before, I said my Regulation D buckets. Those are most often used buckets.
We have B and C. I know this is so confusing because it's like a big, huge tree. We have we have a big law in this country called the Securities Act of 1933. You don't have to remember any of this, by the way, for anybody who's reading. Don't remember any of it. You have this big huge act. All of these rules are under this act. There's one regulation called Regulation D. Under that are two rules. There's a rule called rule 506 and under that is a sub section B and C. Under B, you can raise as much money as you want from up to 35 sophisticated investors. These are investors who know what they're getting into, but might not necessarily be accredited and as many accredited investors as you want. Those $200,000, $300,000, $1 million people.
You don't have to prove that they're accredited, they just have to tell you and you can take them at their word. You can't advertise for investors. You’ve got to stay off the internet. You got to stay off of the speaking circuit trying to get investors to the door. Can you advertise your company? Absolutely. Can you position your company as somebody who's a thought leader in your space? I wish you would. You can't go out and say, “Now I'm actively looking for investors who want to invest. I'm offering 18% low-risk, guaranteed safe and secure. Come now.” You can't do that. You should be doing that anyhow, but you know what I mean.
Under 506(c) you can raise as much money as you want. You can advertise. You can go out and say, “I'm looking for investors.” The big but with that is that those investors can only be accredited. They cannot be anything else other than accredited. Once they say, “I'm accredited,” they have to prove to you that they're accredited. You had asked about tax returns. Tax returns are one way to do it. No one ever does it that way. I’ll tell you why. Nobody wants to give you their tax returns. They can do a couple of other things. One, they can give you a letter from their CPA, their RIA, which is a Registered Investment Advisor for their attorney. If they get a letter from one of them, that counts. They can be verified by what's called a third-party verification service, which we'll get the verification for you.
Dustin
Jillian, I am amazed. I could speak with you for hours and I was a little nervous for this conversation because like you did so eloquently there, mentioning 506(c) and (b) and Reg D, I thought you did it incredibly well and would love to know more. We definitely should get you back. I'm very curious if folks enjoyed the conversation as much as I did and are going to open a biz or going to do a real estate deal or simply just want to keep tabs, Jillian, with what you are up to these days, what is the best place to find you online?
Jillian
I love Facebook. Try to find us on Facebook. We have two Facebook pages, Private Money Rock Star, which is where you can get all your education needs met. If you found this excruciatingly difficult at all, which by the way, I did when I first started learning it, it is a difficult subject. I don't want to be dismissive of anybody who is struggling with it. We have these things called Private Money Minutes. It’s a one-minute snippet of information. I try to explain this quickly to you. Go check those out on Private Money Rock Star. We also have our law firm, Crowdfunding Lawyers, so you can come check us out. I love to give away free information and free educational materials. I wish you would come and partake.
Dustin
This alone is incredibly valuable. I can't imagine the information that you put out there. I'm telling you, Jillian, you definitely have a gift because I could do this interview with somebody else in this that would talk way over our heads and would talk legal terms, but you have not done that. You have you have a truly educated us, so thank you.
Jillian
That makes me very happy.
Dustin
Thanks for being on the show. Thank you for all that you do.
Jillian
Thank you.

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