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The Pros And Cons Of Equity Crowdfunding

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Equity Crowdfunding Platforms: How Many Will There Be? (Expert FAQ)

Im worried there will be some entrepreneurs who think that since they are taking money in smaller increments that they dont have to put as much thinking into their business plan, said Sherman, who has written 24 books about business growth. The legal commitments of equity crowdfunding could also be a heavy burden for tech startups.

Companies may raise up to $1 million per year in equity. Caron Beesley , the community moderator for the U.S. Small Business Administration’s blog, says, “Previously, small businesses were also limited to seeking investment from SEC-accredited investors only.” These high income people that are more apt to understand what they are buying. “Change is coming, however, and soon the investors like you and I will be able to enter the crowdfunding market,” Beasley says. The initial deadline for SEC to finalize its rules and launch the program was set for Dec. 2012. But in an effort to prevent fraudsters from ripping off unaccredited investors, the agency labored with keeping them off the portals. At the same time, SEC did not want to tighten the rules so much that it becomes too costly for small-business owners to participate. One rule in particular was problematic.

Equity Crowdfunding Is Set to Begin This Fall for Small Business Owners. Are You Ready to Snag $1 Million?


The businesses that are most likely to benefit from equity-crowdfunding are those that find it challenging to locate capital through other means. For instance, entrepreneurs located in rural areas, first-time entrepreneurs that have yet to establish the right connections, or businesses pushing a value proposition that is somewhat ambiguous or unclear. Businesses that are aimed at providing products or services to individual consumers also have a leg-up here, because they can benefit from directly engaging with those customers early on. However, you will also want to keep in mind that angels and VCs are often able to provide other support, since they often have business experience and can help guide you. If you are a first time business owner, or you are new to the industry in question, this guidance could prove critical. Crowdfunding comes with its own particular costs and benefits.As far as the benefits go, a major selling point of crowdfunding is that it allows you to engage with customers early on, to stimulate word of mouth and buzz.

SEC Attempts ‘Balance’ In Equity Crowdfunding Plan

In this extremely unlikely scenario, your crowdfunding investment will still maintain its value, or grow in value, 20 percent of the time. Thats a nightmare for most investors, and a nightmare for the crowdfunding industry. But compared to the lottery? Its a gold mine. More money than it seems The lottery may still appear benign compared to crowdfunding, because most tickets cost only one or two dollars. And the SEC is concerned about people who dont have a lot of money losing thousands to crowdfunding scams. But the low price of lottery tickets is illusory.

Love Powerball? Try Crowdfunding

What can possibly go wrong? According to Crowdfund Capital Advisors (CCA) principal and co-founder Jason Best,The bottom line in all of this is the importance of education for both investors and entrepreneurs. To that end, CCA has created an educational resource called Success With Crowdfunding for entrepreneurs and investors to use. Swart notes several interesting takeaways from the proposed rules, as follows: First, intermediaries will be able to collect commissions. The rules are silent about enforcing a broker-dealer requirement. This is significant in that as written, the plan allows FINRA (the Financial Industry Regulatory Authority, which operates as an SRO, or Self-Regulatory Organization) to craft rules for its members for the protection of investors, but does not impose SEC-driven requirements on the crowdfunding platforms to become broker dealers themselves. Second, the rules lay out a framework for the paying of commissions to people promoting the deals. This language supports a broader use or marketing and promotion agents in the equity investment arena than is currently allowed.


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