Is Equity Crowdfunding Right For You?

For Companies General October 23, 2016

Is Equity Crowdfunding Right For You?

The greatest ideas mean little until they become a reality. But the process of turning your idea into a viable business takes commitment, know-how, and of course, capital.

Fortunately for businesses today, there are many options for raising funds.

In the last year or two, the options for funding your business have fundamentally changed. More and more companies are now considering an Online Public Offering (also known as equity crowdfunding) as a way to fuel their business in addition to more commonly known options such as Debt, Angel, or VC funding. New crowdfunding technologies combined with the recent passing and implementation of the JOBS Act, have unlocked tremendous new avenues to raise money for your business.

The Power of the Crowd

First and foremost, equity crowdfunding is much more than raising capital — it embodies the

spirit of building a great company together with your fans and customers. All forms of crowdfunding inherently provide a powerful marketing, engagement, and fundraising tool, however that doesn’t mean it is right for you and your business. Below is a list of pros and cons for an Online Public Offering (OPO). It is by no means an exhaustive list, but whether you’re considering Regulation A+ or Regulation CF, it should provide a great place to get started.

PROS

  • Set Your Own Terms: You determine your company valuation, how many shares to issue, and the minimum investment is amount.
  • Retain Company Control: You don’t have to provide preferred stock or board seats.
  • Access A Larger Pool of Investors: Both accredited and non-accredited investors now have the chance to invest in your company. You’ll have a real chance to grow even without a handful of wealthy backers on hand.
  • Create Brand Ambassadors: Customers can become part-owners, increasing their commitment and affinity for your company’s success. Investing provides them a reason to become evangelists for your company and you’ll have the ability to activate them as needed.
  • Increase Brand Equity: This modern approach to funding a company offers much more than traditional methods possibly can such as increased visibility and brand equity through the marketing efforts of your campaign. Which in turn gets people talking about your products and services.
  • Attract Additional Sources of Funding: Crowdfunding and other sources of funding are not mutually exclusive. You can pave the way for future funding by leveraging a successful campaign and making your company more attractive to big investors.

CONS

  • You have to put real effort into it. Running a campaign requires more than slapping up a campaign page. To be successful you’ll need to put time, effort, and money into it. It’s a lot like launching a new product. And you wouldn’t do that without preparing and promoting, would you?
  • Cost. It takes money to make money. While there is no set amount that running a campaign will cost you, there are the legal and accounting costs to consider, as well as the marketing costs, which include video, artwork, copy, and pushing your message out to the public.
  • Ongoing reporting requirements. Doing an Online Public Offering requires filing with the Securities Exchange Commission (SEC). They have the public’s best interest in mind, and it is important to consider any ongoing costs and annual reporting requirements.
  • Financial Disclosures. Another part of working with the SEC is that you must disclose your financials. These often need to be reviewed or reviewed by an independent accountant so be ready to open yourself up to public scrutiny.

Is It For You?

Ultimately this is a question you’ll have to answer for yourself. Equity crowdfunding is new, and there isn’t a lot of data on it yet. We’re learning more every day about this new option that opens doors for companies wanting to raise capital.

What we’ve seen so far is that it’s not only exciting for businesses, it’s exciting for investors. And they want to invest in forward-thinking companies. So far, the most successful have been companies in progressive areas like cleantech, green tech, transportation, health & fitness, and health care, that are consumer-facing and have a pre-existing online footprint.

Although we’ve seen a few companies raise capital without a strong social following or passionate fan base, it definitely seems to be a differentiator between companies who are successful and those who are not. The important thing is to realize that crowdfunding is a different beast, and you must embrace the idea of building a like-minded community before jumping in.

What Do You Think?

Do you have an opinion about the future of Online Public Offerings? Share it in the comments below. And be sure to follow me here on medium.com — I’ll be back with a series of blogs about relevant industry topics and best practices.

 

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