The term “Crowdfunding” is used to describe how corporations and LLCs can give out rewards, borrow money and/or sell an ownership interest to the public using the internet.
Before the JOBS Act was passed in April 2012, unless you were a publicly traded company, raising capital this way over the internet was illegal. The JOBS Act directed the Securities Exchange Commission (SEC) to adopt rules to allow small businesses to raise money by eliminating the prohibition on soliciting potential investors using the internet.
So here’s the buzz: The SEC has not adopted the rules yet, but as of October 23, 2013, the SEC released proposed rules (Click here to read proposed rules).
Many experts are expecting the SEC to take effect in early 2014, which means businesses, investors, brokers, lawyers, and accountants are all anticipating a full roll out of crowdfunding in 2014.
Imagine the time before the internet launched and someone allowed you to build any website you wanted. What would you have built?
Now is that time for crowdfunding.
If you are considering using crowdfunding to raise funds for your business, then here are 10 suggestions to get prepared:
1. Do some market research on your potential internet investors to understand what type of marketing appeals to them.
2. Participate in social media websites where your potential internet investors have a presence.
3. Research crowdfunding platforms (websites that host your fund raise).
4. Consider allocating at least one employee/consultant to manage your crowdfunding process.
5. Understand how much money you need and what the investor will get for it.
6. Prepare a business plan including financial projections.
7. Engage an accountant to help prepare financial documentation.
8. Contract a videographer to tell your story via video.
9. Stay informed on the status of the SEC’s adoption of rules.
10. Consult with an attorney to review your corporate structure and provide advice on how crowdfunding best works for your business.
