What Entrepreneurs Need to Know About Equity Crowdfunding to Raise Money
February 19, 2017 Leave a comment
Equity crowdfunding is the process whereby everyday people (i.e. the “crowd”) invest in an early-stage company, which is not listed on a stock market, in exchange for shares in that company. These shareholders have partial ownership of the company and stand to profit if the company does well.
For the first time, the JOBS act is allowing unsophisticated investors to purchase your stock. Whereas traditional investors are a good source of input regarding your business plans, crowdfund investors may invest entirely on emotion, which means the input they provide may not be very constructive.
Equity crowdfunding will benefit many companies that aren’t well-suited for funding by traditional venture capitalists. Equity crowdfunding may be ideal for a smaller business such as a restaurant or a service business that can get itself to profitability on a single funding round with one class of stock.
If equity funding is not for you, then existing crowdfunding platforms are probably your best option when it comes to raising funds. Remember, third party crowdfunding platforms are essentially middlemen; they charge a commission – a percentage of the amount raised – in exchange for matching up companies and individuals to raise funds.
Crowdfunding promotion sites like 40Billion.com have become very popular because they help spread the word without charging a commission. Crowdfunding promotion sites broadcast projects to their large networks of millions of users across online sites, including the most popular social networking sites – Twitter, LinkedIn, 40Billion, and even Facebook. Innovative services like tweet ads and promoted company listings were created for crowdfunding entrepreneurs of all types to tap into a growing, active “crowd” online without spending thousands on pay-per-click ads or traditional advertising.