Crowdfunding Could Be the Boost Your Startup Needs

  • Share
  • Read Later

If you haven’t heard of crowdfunding, you might want to at least take a look at it. It could be an easy way to fund your startup.

The JOBS Act that passed earlier this year allows for greater use of small investors without restrictions. Crowdfunding, which is essentially appealing to a large group of potential investors via the internet, is one such funding source.

A number of websites have sprung up to facilitate crowdfunding, including Kickstarter, Indiegogo, Crowdfunder, WeFunder and Quirky.

The sites range from the informal to ones that are closer to traditional venture capital and angel investing, with formal review of business plans and approved entrepreneurs offering a stake in exchange for funding.

If you have an innovative idea, a strong business plan, social media savvy and a compelling incentive to offer potential investors, crowdfunding might be for you. But study the terms carefully and make sure you pick the option that gets you to your goal without giving away too much of your company.

Adapted from 5 Crowdfunding Sites for Entrepreneurs at Small Business Computing.

3 comments
Sort: Newest | Oldest
Tom_Allen
Tom_Allen

Getting a head start on crowdfunding a business

 

To get a head start on crowdfunding a business, an

entrepreneur could work on 4 of the 7 steps of crowdfunding—now—before the

SEC’s crowdfunding rules are issued around the end of 2012.

 

The 7 steps to crowdfunding a business are: 1) prepare your

business plan, 2) assemble your due diligence package, 3) have your due

diligence package reviewed either by a service or your crowdfunding

portal/broker, 4) conduct “pre-rules” advertising, 5) have

your portal/broker sell your securities, 6) receive the funds from your

portal/broker when your target funding amount is reached, and 7) execute your

business plan.

 

Before the SEC issues the rules, executing Steps 1, 2, and 3

are straightforward, but doing Step 4 (pre-rules advertising)

would be up to the entrepreneur’s interpretation of Section 302 of the

Crowdfund Act, which says:

 

"....an issuer who offers or sells securities

shall....not advertise the terms of the offering, except for notices which

direct investors to the funding portal or broker...."

 

Entrepreneurs may consider pre-rules advertising

in order to prevent their offer from getting lost in the flood of crowdfunding

advertisements that is sure to come when the crowdfunding rules are issued. A

pre-rules ad will have much greater visibility than an ad published after the

rules are issued. A pre-rules preview advertisement would plant the seed in the

mind of an investor of an upcoming investment offer.

 

(Tom Allen is editor of Crowdlist.info, a website

that provides free classified ads to businesses seeking crowdfunding.)