Why should I consider using investment crowdfunding?

 

Businesses need money to start, operate and or expand their businesses.  Banks have very strict lending guidelines and angel investors and venture capitalists either say “no” more often than “yes” or they desire unreasonable terms or control over the business you have built.  Investment crowdfunding allows business owners to set their own terms based on what they think is best for their company and their investors.  There are also other benefits to investment crowdfunding including creating a large database of brand ambassadors or potential customers.

 

How much money can I raise?

 

Regulation Crowdfunding currently allows a business to raise up to $5,000,000 during the 12-month period preceding the date of such offer or sale, including the securities offered in such transaction.  There are several other exemptions available that allow companies to raise more than that amount. We will be happy to discuss those options with you further.

 

Can any type of business raise capital using investment crowdfunding?

 

Most businesses can use investment crowdfunding to raise capital.  The basic requirements are:

 

• They must be organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia;

• They can NOT be a “reporting company” pursuant to section 13 or section 15(d) of the Securities and Exchange Act 0f 1934;

• They can NOT be an investment company as defined in section 3 of the Investment Company Act of 1940;

• They can NOT be disqualified as a “bad actor” as specified in §227.503(a);

• They can NOT have sold securities using the investment crowdfunding exemption and NOT filed the required reports within the past 2 years;

• They MUST have a specific business plan; and

• They can NOT raise capital to engage in a merger or acquisition with an unidentified company or companies.

 

Does an issuer have to say what they are going to do with the money?

 

Yes.  A business must disclose to investors how it will use the money it raises.

 

What other kind of information about a business must be provided?

 

There are many requirements for the disclosure document.  For instance, a company must disclose:

 

• The name, legal status, physical address of the issuer;

• The names of all directors and officers, including their principal occupation if employed elsewhere;

• The names of all persons owning more than 20% of the voting stock of the company;

• A description of the business and its anticipated business plan;

• Current number of employees;

• Financial statements;

• Material factors that make the investment risky; and

• The target amount of the raise.

 

The above are just a sampling of the requirements of the disclosure document.  All disclosure requirements for issuers can be found at https://ecfr.io/Title-17/cfr227_main

 

If I issue debt, to I have to personally guarantee the loan?

 

No.  Personal guarantees are an option but are not a requirement.

 

If I decide to raise money using investment crowdfunding, am I guaranteed to get funded?

 

No.  There is no guarantee that your offering will be funded.  There are many factors that will determine your success including the location of your business, what type of business you operate, what stage of the business lifecycle you are in, how realistic your business plan is, the security and terms that you offer and how your market your offering (within the rules).

 

Can I ask my customers to invest?

 

Yes.  Current customers may be a very important factor in your success.

 

Are there any advertising or marketing rules that I must follow?

 

Yes!  This is very important!  An issuer may not directly or indirectly advertise the terms of an offering except by meeting very specific requirements.  Generally, you want to direct any potential investor to the website where your offering is located.  This is where they can learn about your offering and make an investment if they want to.

 

Do I have to file ongoing reports?

 

Yes.  Generally, an issuer must file periodic progress updates as well as an annual report until it is no longer required to do so.

 

How long does the process take?

 

It all depends on how long it takes you to gather and provide the information necessary for the offering materials.  You should expect to spend 30 - 90 days preparing for the raise.  Once the documents have been filed, the law requires the campaign to be open for a minimum of 21 days.  How quickly you raise the money depends on many factors, but you should be prepared for it to take longer than you may want or expect.

 

How much does it cost?

 

We charge issuers an initial upfront fee, monthly maintenance fees, and a percentage of the amount of money they raise.  Our current fee schedule is:

 

• $1,000 upfront onboarding fee that gives you access to a business planning and financial projection tool;

• $500 per month maintenance fee; and

• 8% of the capital raised (credited for the $500/month maintenance fee)

 

The above costs do not include the cost of a review or audit of financial statements as required by the rules.

 

We also have a separate monthly fee for services related to reporting requirements, investor data maintenance, including cap table maintenance for equity offerings and investor principal and interest payments for debt offerings.  We offer this service as a convenience for you and it is completely optional.

 

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