What You Need to Know About Equity Based Crowdfunding

If your business needs financing, consider equity crowdfunding. Equity crowdfunding is different than donation crowdfunding because donation crowdfunding allows for nominal consideration in exchange for donations, equity crowdfunding entails the offer and sale of debt or equity securities in exchange for financial support.

A fundraising business that offers and sells securities needs to comply with SEC regulations. The SEC’s proposed equity crowdfunding rules regulate, in part:

• Your business
• The broker-dealer or funding portal
• The investors

Set a Fundraising Goal

The proposed equity crowdfunding rules allow your business to fundraise up to one million dollars per a 12-month period in its aggregate equity crowdfunding campaigns. Your business’s securities offering may not supply all the funding your business needs. You should look at equity crowdfunding as only one of many tools in your business’s funding arsenal.

Ask yourself the following two questions for crowdfunding success:

1. Is this a strategic amount for my business to fundraise?
2. Does my business have the necessary resources to conduct this equity crowdfunding campaign?

In equity crowdfunding, your business must fundraise its target amount at minimum to collect any funds. Your business can collect funds even if it fails to fundraise its maximum offering amount.

Additionally, you need to set your business’s strategic funding goals in conjunction with your business’s valuation and share price.

Develop Your Business Plan

The public convening to weigh the value o your business’s securities offering forms the centerpiece of equity crowdfunding. The proposed equity crowdfunding rule requires that your business has its business plan to enable to prospect investors to have an informed discussion.

At minimum, your business must submit a description of its project, idea, or business for the public to probe. When drafting your crowdfunding business plan, comply with crowdfunding regulations and selling a sufficient number of crowdfunding securities. To attract crowdfunding investors with your business plan, include the following to help them to buy.

Grow Your Network

Your business’s equity crowdfunding campaign depends on the power your business’s network. Try to develop a vast business network that will both buy crowdfunding securities in sufficient amounts and promote your business’s crowdfunding campaign to others.

To keep people engaged with your business efforts, generate and spread news about your business. The internet offers an easy, economical, and ideal platform to share your business’s narrative. Most of the retention of your network will come through your interactions and networking on social media platforms such as Facebook, Twitter, and more. They deliver a superior form of communication with the public because you alone can craft the message you want the public to know, and direct interactions allow the public to feel a deeper connection to your business.

Background Checks

Saving investors from the prospect of fraud and evaluating your business for any red flags. For this reason, you must conduct a background and securities regulatory history check on some of your business’ covered persons.

Hire Attorneys and Accountants

Applying this legal and accounting advice should demonstrate your conscientiousness in preparing a creditable security offering. Increasing your understanding of the crowdfunding regulations diminishes your business’s likelihood of non-compliance.

Your business’s choice of accountant and disclosure of financial information may influence prospective investor’s assessments of your business’s credibility and viability. Make sure you understand your business’ financial statements. The proposed rules require your business to describe its financial condition including your business’s historical results of operations, liquidity, and capital resources.

Your business needs to include the effect the crowdfunding proceeds will have on its financial condition.

Cover Upfront Costs for Equity Crowdfunding

It is going to take some money upfront to finance your business vision with equity crowdfunding. The bigger the securities offering, the higher the upfront costs. Some bills can be delayed and paid for with crowdfunding proceeds. Prioritize upfront costs based on your budget and needs.