You’ve seen it in your Facebook or Twitter feed – the campaign to raise money for an independent movie project, a product line, or an obscure but seemingly cool new invention. On the outside looking in, crowdfunding seems like a cool way to raise money for your small biz. But, like most business decisions you need to research first. Don’t just hop on the band wagon, as exciting as it may seem. Most of the websites that you are familiar with such as Kickstarter, indiegogo and RocketHub offer rewards, and not equity, in exchange for donations for your creative projects or endeavors.
Last year, President Obama signed the JOBS Act (Jumpstart Our Business Startups) which legalized equity crowdfunding for the mom and pop shops of the world. Privately held companies can now use the internet to sell up to $1 million dollars to investors in exchange for company equity. Small businesses drive the economy and equity crowdfunding is a vehicle to support access to capital for small start ups like you and me. Passing the JOBS Act was the first step. Now, the Securities and Exchange Commission must release rules to dictate how crowdfunding will work, and to minimize fraud and risks.
Before you move forward with equity crowdfunding you should consult counsel and familiarize yourself with the requirements of the SEC rules. Of course, nothing is as simple as it seems. Additionally, I encourage you to be prudent about how many investors you accept for your small biz, in order to minimize risks and the complexities of investor relations.
The SEC rules will be released any day now. In the meantime, check out this great infographic that I found on Fundable.com: