With equity crowdfunding on the horizon in the United States and available in other countries around the world, businesses are finding that this platform can get them the cash they need to begin to start or grow. In the US, the proposed rules would allow a business to raise up to $1 million from unaccredited investors, or people who have a net worth less than that amount or an annual income of less than $200k.
If you’re thinking about jumping into crowdfunding, then here’s what to expect if you’re expecting success to come your way.
1. You Can Choose the Platform That Works Best for You
There will be a number of approved crowdfunding platforms that will let you raise some equity. Just because a platform is already selling equity to accredited investors doesn’t mean it will be the right platform for you. As long as your preferred platform meets legal requirements, you have the right to choose the crowdfunding platform that you believe will work the best.
2. You Must be Willing to Have Full Transparency
It’s not just the higher level of investors that will demand openness and transparency from you before, during, and after an equity crowdfunding campaign. Businesses will be required to issue financial statements, make disclosures to the ruling body, and have all tax returns audited at any given notice. Information about the officers of a business will need to be disclosed and you’ll need concise plans to discuss where the money will be going.
3. Be Aware of the Limits That are Available to You
It’s not just the $1 million limit that is expected to apply to unaccredited investors through equity crowdfunding. In the United States, an investor will not be allowed to sell their shares in your business for at least 1 year after making the investment. This means you and your investors are going to be locked into place for the long haul.
4. Create a Fair Company Valuation
Because actual equity is at stake in this form of crowdfunding, there needs to be a fair company valuation that is put into place. This can be difficult for ideas that are hitting the market in their extremely early stages. A business owner may need to work out a valuation with their angel investors or venture capitalists before coming to an equity crowdfunding campaign.
5. Make Sure That you Are Able to Deliver
Whenever investors are brought on board, there is a lot of responsibility that comes to a business. If you have promised to do something, then you must do what you have said that you will do. This is especially true when there could be thousands of unaccredited investors on board, many perhaps making an equity investment for the first time.
Equity crowdfunding could be the start of something incredible in the business world. When it is approached correctly, any business can find the success that they want or need. Follow these tips and your business could become the first true equity crowdfunding success story.
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