Part one of a 4-part series on the nitty-gritty details of actually (really) getting crowdfunded.
It’s no secret that getting funded can be a long and difficult process. Access to capital relies on so many specific details, and at the end of the day, the more you know, the easier it is to find money. Join me as I take you through a four week 4-part series on 1) actually (really) getting funded, 2) the different types of capital available, how to know which option is the best one for you, 3) the language you need to have to speak investor, not inventor, and 4) how to overcome the particular challenges women and minorities face.
Let’s Kick-Off Part One With Equity Crowdfunding
In May of last year, the SEC Equity Crowdfunding rules went into effect with 8 platforms initially filing for registration to become Equity Crowdfunding portals. Dreamfunded is one of those firms and I tapped into co-founder Manny Fernandez’s expertise so I could bring you the details you need to know. Manny claims he has a network of investors totaling over 160,000, Dreamfunded is enabling investors to receive company equity in return for investment capital on a very large scale.
Equity Crowdfunding is quickly becoming the most efficient way to raise money from people all around the world, by offering them equity ownership in the company in return for their capital investment. This is different than Rewards-Based Crowdfunding (Kickstarter), which you can read about in Part Two about different types of capital.
Even though the rules are new, crowdfunding has a long history of success says Manny, “Crowdfunding has become very popular over the past few years, but the process is nothing new. Crowdfunding has been around for hundreds of years. In fact, it is one of the oldest forms of raising money. In 1884, France donated the Statue of Liberty to the United States. The only caveat to the donation was that the U.S. had to fund the pedestal that Lady Liberty stands on. When Congress refused to pay for the pedestal, newspaper publisher Joseph Pulitzer started a crowdfunding campaign through his newspaper, that ultimately raised over $100,000 from more than 120,000 supporters. The average investment size was 83 cents.”
I’ve Never Heard of Equity Crowdfunding, What Are the Risks?
If you are going to go the route of Equity Crowdfunding, then I cannot stress the importance of educating yourself on the rules and high compliance requirements. Berny Dohrmann founded CEO Space International over 30 years ago, and his personal experience with SEC violations has given him a mission to teach the realm of over-compliance. He and I talked about the risks involved in Equity Crowdfunding, or raising capital of any kind, and we agreed that these are the things you need to think about:
- The portal you choose needs to be registered with FINRA.
- Your portal should have a pool of investors matched to your interests – you don’t want to be raising capital for a clean energy company on a portal that is comprised of investors looking for medical investment opportunities.
- Your IP should be properly protected by the portal and not shared openly.
- If you bring in your own investors to the portal to have them accredited, you need to know if they will stay ‘yours’ or if they will be exposed to other start-ups in your niche.
- Educate yourself the compliance (or over-compliance) model and protections provided for you by the portal and required of you by law. This one is monumental in protecting yourself.
- Do NOT take checks prior to bringing an investor in for an accreditation check.
- Most importantly, make sure you use licensed experts every step of the way: Securities Attorney; Certified Accountant; or Broker.
In addition to CEO Space and Dreamfunded, there are plenty of firms, like Mark Jones’ Sprowtt Crowdfunding, or Paul Hoyt with Hoyt Management Group, who specialize in providing support to those looking to navigate the Equity Crowdfunding waters in a ship rather than a dinghy.
Whether you go it alone, or seek out help, one thing is for sure: there will be sharks. Avoid the murky waters by educating yourself, following compliance, and vetting your captains before they take the helm.
Next Up: PART TWO of Everything You Need to Know About How to Get Funded – Your Options for Raising Capital & Which To Choose
Read the original INC article published on March 1, 2017.