What Entrepreneurs Need To Know About Equity Crowdfunding

Private Equity

Strong brands with large communities and strong following have a huge opportunity to use crowdfunding to use it as a marketing vehicle for their products and services.

This guest Q&A is by David Drake, founder and CEO of LDJ Capital and The Soho Loft. He recently sat down with Chance Barnett, CEO of CrowdFunder, which enables businesses to raise equity and revenue-based financing.

Drake: How do you feel about the progress the crowdfunding for equity portion of the JOBS Act has taken to date and where are the three industry areas for this new regulation?

Barnett: When I sat down with you at the SEC April 20 to our pleasure and surprise both leadership and the staff expressed their sincere desire and interest to meet the staggered rulings throughout the 270 days timeline.Unfortunately the big boss was not present. While key staffers have worked diligently on crowd funding they have also drafted proposals for commenting on regulation D 506 c which removes the general solicitation ban. Neither of those rulings are making the deadline the SEC had. In an ideal world Walters Chair of SEC would accelerate the ruling on these underlying JOBS Act bills.

What could you ask readers to do to accelerate implementation of the rules?

Reach out to your congressmen and ask how they care for job creation, capital access for small business owners by writing the SEC.

The truth is crowdfunding for equity won’t be around till 2014. Accredited investors are the only game in town for security transactions. We are now getting our hunting gear ready. The more public message is that this is a more crowd funding like environment prior to ruling on the SEC rules where we circulate offerings to accredited investors. Accredited investors are the best “trial group” to solicit as FINRA and SEC would agree.

Guess at a date by which crowd fund equity will be legal in the U.S.?

January 30, 2014

Who should pay attention to companies like CrowdFunder?

People interested in this newly forming capital market for early stage investments. While these investments might carry significant risk, not unfamiliar to traders, but along with that comes potential for large returns for successes. At CrowdFunder we are serving three name areas: small businesses, social enterprises and technology startups.

What’s going to be the total cost for issuers to do crowdfunding for equity before a campaign launches when it is legal?

Gaining to raise any investment round can be costly. Raising investment in crowdfunding will include legal background checks, external accounting reviews and any cost associated with your legal agreements. For less than $500,000 would cost up front $12,500. For above $500,000 raises would cost an additional $25,000 in audits if you have a history of revenue.

How can large companies get involved in Crowdfunding?

Strong brands with large communities and strong following have a huge opportunity to use crowdfunding to use it as a marketing vehicle for their products and services. Crowdfunding offers unique and innovative ways to make people more closely aligned with the brand.

What are else would you advise an issuer on crowdfunding for equity to be cognizant of?

Work with a crowdfunding platform that will protect your proprietary information. CrowdFunder does that by having a private layer to your deals and documents and requiring that each investor has a personal profile connected to their social networks and proof to accredit investor profile. This way you can accept or reject potential investors.

How many investors do you have now and how many are foreign investors?

12,000 and 10% foreign.

What are the fears and pitfalls of crowdfunding for equity?

That inexperienced investors don’t understand the difference between fraud and failure in an early stage company. Crowdfunding portals are required to do things like review disclosures and do criminal background checks. Making an offering you still don’t understand as an entrepreneur and still receiving funding would be my second. The choice of equity or debt is a critical one and entrepreneurs don’t understand this enough.

How big an industry will this be in 2014?

$10.5 billion

How will broker dealers and angels be affected by this law and how can they best leverage it?

Broker dealers will be the sole security participants and beneficiaries of the crowd funding legislation of 2014. Angel investors will have new and unique opportunities on platforms like CrowdFunder to have access to deal flow they would have never had otherwise.

Source: FORBES – Q&A – David Drake with Chance Barnett

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