Way back when, we helped several clients raise funds from “accredited investors” using SCOR (Small Company Offering Registration) programs. (These were often called U-7s, since that is the form that is employed for the offering.) This limited the capital raised to $ 1KK, but often provided just what they needed to “capitalize” on their markets. And, in at least two of the cases, provided the investors magnificent returns when they were acquired. (The other companies still provided a return to their investors, but more along the lines of a 10 to 14% gain.)

And, why am I reminiscing? Today is the first day that folks can crowdfund their ventures, raising $ 1KK without seeking accredited investors. I’ve written about crowdfunding a lot. (The first link above also mentions the program, and you can search the index for more than this additional post, too.) In a nutshell, crowdfunding means you can acquire investments in your company from a bunch of folks. Think Bernie Sanders and his campaign financing. Which is a great analogy, because you will need to have folks believe in you- and your pitch- to ensure you reach your funding goals.

By the way, that $ 1 million annual cap- that’s per year. This change may mean that the use of SCOR programs has probably been eclipsed. But, not really how the systems work- since many of the crowdfunding regulations seem to mimic those of the SCOR program. Such as the need to use a registered broker-dealer.

Which brings up another wrinkle or change from these new crowdfunding rules that differ from SCOR offerings. If we don’t want to use a broker-dealer, we are allowed to choose an approved funding portal. Those normally are places like Indiegogo.com and kickstarter.com- but Indiegogo is not willing to be among the first and Kickstarter is sitting the hoopla out- for now. Some sites that will be participating are NextSeed.co, SeedInvest, WeFunder, and Republic.co. However, don’t expect the choice to let you keep more of the proceeds that using a broker-dealer. Both the broker-dealers and these funding portals are going to keep between 5 and 10% of the proceeds – and maybe retain some equity in your venture.

There’s yet another wrinkle. There are 31 states plus the government of DC that let firms solicit funds from their own state residents. (That means, for example, we can raise funds for our DC-based entity if we only collect funds from DC residents.)

There are other restrictions on obtaining investments from those non-accredited investors. Because we can only obtain the greater of $ 2K or 5% of the investor’s net worth (if their net worth is less than $ 100K) or their annual income- whichever is lower, over that 12-month period. If their net worth exceeds $ 100K, they can invest up to 10% of their annual income or net worth.

But, whether we plan to raise $ 100K or $ 1KK, there are several factors we need to know about crowdfunding. First- this process can be used by for-profit entities- or by non-profits who wish to accomplish one specific goal. (By the way, when a non-profit uses crowdfunding for a specific project, we advise you keep all salaries out of the funding equation.) And, the best funded business programs via crowdfunding tend to be in technology and the arts-music field.

There’s more to consider. Our teams will find that all their activities may be devoted to this effort- full-time- for the first 60 days a so. Because we have to effectively manage the crowdfunding campaign. (Of course, your frim could retain our services for this effort.)

Oops. Something else. All of of our social media programs better be robust. Because that is one of the critical ways we will garner publicity- and, therefore, interest- for our crowdfunding campaign.

Finally, another piece of advice. We are going to need commitments for about 30% of our goal BEFORE we start. Because that is another milestone “achieved” that will make investors feel secure in joining the effort.

So, what’s holding you back?

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