BY Judd Hollas, Founder & Chief Inventor, EquityNet
The crowdfunding industry is gaining serious momentum, and with the implementation of Title III of the JOBS Act coming up next year, entrepreneurs will soon have many more options when it comes to fundraising. Title III will allow many Americans who are not considered high-net-worth individuals to invest in private small businesses and startups to own a percentage of those companies. This is going to give entrepreneurs a much larger selection of potential investors than ever before. It’s anticipated that Title III won’t come into effect until sometime next spring, but proactive entrepreneurs can take action now to be prepared to leverage this new law when it gets passed.
1. Assess your need to utilize Title III
Fundraising needs vary depending on a company’s industry and Title III will put certain rules in place that some entrepreneurs may find cumbersome. Under the Title III exemption, funds raised from all types of investors will not be able to exceed $1 million in a 12-month period. This might be suitable for entrepreneurs looking for capital in the six-figure range, but those seeking larger investments will need to be willing to launch multiple fundraising campaigns.
Other equity crowdfunding (ECF) options exist that might be more appropriate for certain entrepreneurs. Type I ECF uses Regulation D exemption 506(b). Type II ECF uses Regulation D exemption 506(c). Both Types I and II allow qualified companies to raise an unlimited amount of capital. Under Type I ECF, however, the offering cannot be publically advertised. Type II ECF allows the offering to be publically advertised, but only accredited investors can participate.
2. Familiarize yourself with the regulation requirements
Entrepreneurs will have to supply the SEC with a significant amount of information in order to participate in Type III ECF (that is, equity crowdfunding under Title III). Some of this information will typically include the intended use of funds raised, the financial history of the company, the professional histories of the management team, and information about owners of the company who represent 20 percent ownership or more.
3. Find the right crowdfunding platform
There are several different types of equity crowdfunding platforms; each with their own capabilities and opportunities for both entrepreneurs and investors. Sites like EquityNet and AngelList are the leading equity crowdfunding platforms based on member population and capabilities. As an entrepreneur, you will need to determine which type of ECF platform best suits your needs. Look for a platform that stands by its policies to protect its members from fraud. You will want to make sure the ECF platform you choose vets its investors. You also want to choose a platform that provides you with an impressive array of fundraising tools, such as EquityNet’s patented business plan and analysis software. Lastly, you want an ECF platform that can provide ancillary services and assistance with your fundraising campaign. Source and read more on
See Judd Hollas interview on Live Crowdfunding.tv