Raising capital for your brilliant business idea through crowdfunding sounds like a simple and straightforward process, but it involves much more than setting up an online donation box. The SEC missing its original July 5 deadline to finalize regulations indicates this investment strategy is a little more complicated than it sounds. As the authors of the crowdfunding framework used in the JOBS Act (and life-long entrepreneurs ourselves), we offer the following insights when considering a crowdfunding campaign.
Debt-based crowdfunding may NOT be utilized until the SEC issues its final rules regarding this method of raising capital. The SEC’s deadline to do so is Dec. 31, 2012.
Businesses that want to be successful with crowdfunding will still need to complete all the steps normally required to raise money in the traditional manner: create a business plan, specify exactly how much money needs to be raised, set a budget, determine how much of the company you’re willing to sell (if you are doing equity-based crowdfunding), etc.
3. Picking a Platform
Choose the crowdfunding platform that best meets your needs. There will be a number of excellent, SEC-approved crowdfunding platforms (websites) available to select from. Do your due diligence on which one best suits your business needs, market and process.
Check your credit and repair any irregularities prior to seeking crowdfund investments to avoid financial obstacles down the line.
5. Plug In
Build your social network. Most (if not all) of your funds will be from people within your social network (first-, second- or third-degree connections). Make sure to complete and regularly update your LinkedIn, Facebook and Twitter profiles and connect with everyone in both your personal and professional networks. However, do not over-connect — you do not want to create an artificially large network that will backfire on your fundraising efforts.
Strengthen your physical network. Are you a member of your local chamber of commerce or other organizations in your industry, city and interest groups? Find associations that you truly care about and want to engage with. Active participation will position you as a leader in your city or industry and will help heighten your profile when raising capital.
These insights only address equity- and debt-based crowdfunding’s basic considerations – we encourage you to seek more information about this investing revolution. The Crowdfunding Professional Association’s (CfPA) Crowdfunding Bootcamp is a great event for entrepreneurs to network and master the topic.