10 things to know when preparing to crowdfund.

Author:Temes, Stephen
Position:PRIVATE COMPANIES
 
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The Jumpstart Our Business Startups (JOBS) Act--which effectively legalized equity-based crowdfunding for accredited and unaccredited investors--is expected to be implemented later this year. As many wait for the U.S. Securities and Exchange Commission (SEC) to issue final regulations, here are 10 items to know when preparing to crowdfund.

  1. Create a Business Plan and Budget. How much do you really need to crowdfund to get your business where you want it to go? A smart approach to equity crowdfunding is to be prepared with all the details from the start. When budgeting, make a future projection and consider whether the business needs to itemize new employees, consulting costs, branding (e.g., a website), manufacturing, etc.

  2. Consider 'Raise' Fees and Expenses. Nearly all crowdfunding platforms will require due diligence and vetting fees for required compliance services like background checks. Also expect to pay a small percentage (5-8 percent) of the total raise to the platform to cover costs associated with hosting the campaign on the platform.

  3. Select the Platform That Best Suits the Company's Needs. Be sure to research crowdfunding platforms before committing to launching a campaign on one. Choosing the right platform is advantageous when considering the business's exposure to a larger pool of investors. Research a platform's management team and look for their experience in the crowdfunding community.

  4. keep Realistic Expectations. When starting this process, keep the phrase "If you build it, they will come" in mind. That means it first actually has to be built, so don't expect hordes of adoring investors to come knocking at your door just by virtue of posting your crowdfunding project online. There is a significant amount of planning that goes into the application process and the actual capital raise.

  5. Build a Strong Network. Start with friends and family. They are going to passionately explain the venture to others because they believe in you and want you to succeed. If all of the donors share the story with the same enthusiasm, the network will grow exponentially. If the business is a service, consider inviting customers and clients to become investors.

  6. Listen to the Wisdom of the Crowd. Crowdfunding will not only revolutionize the capital-raising process for entrepreneurs, but also usher in an unprecedented era of transparency and "groupthink." Having a great idea is not enough--ensure that the company you're investing in has a...

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