5 Things You Should Know About Crowdfunding for Startups

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May 29, 2012 at 12:00AM

Editor's Note: this article originally appeared on Social Driver's blog

With the passage of the JOBS Act, securities-backed crowdfunding for small companies has become a reality. A lot is not yet known about this new fundraising tool. Luckily, we have our good friends Sara Hanks and Brian Knight of CrowdCheck to help us through the thick of it.
 
Here are five big take aways:
 
1. Valuation
Your venture is worth a billion dollars, right? When your just starting off, you can pretty much presume that your company is worth whatever you think it should be worth. When crowdfunding though, you will have to go through a valuation process to prove to the crowd why you think you’re worth what you are worth. Are you using future revenues? Are you basing it on current cash flow? How did you get to that number? You will have to disclose it.
 
2. Early Investors
You aunts and uncles are loaded and generous. That’s great! But, if you are someday planning to turn to VCs for big time funding, you’ll have to provide clear plans for how these early investors get to influence the business before bringing on the big guys.
 
3. Marketing
You can market your product, but you can not market your crowdfunding at all. If so, the SEC will be angry. That means no statements on your site asking for funds or directing people to a page. All marketing must go through a crowdfunding portal.
 
4. Portals
What is a portal? The new law provides the formation of online “portals” for crowdfunding, basically websites that will be online clearinghouses for investors and businesses to raise money. These portals don’t yet exist, but when they do, there will be a variety of options for investors and entrepreneurs alike.
 
5. Wait and See
When we say that a lot is still not yet known, we really mean it. Everyone is still waiting for the SEC to consider public comments and determine many of the open ended questions that crowdsourcing poses.
 
Crowdcheck gives business a tool to demonstrate that they are a bonafide business venture and a pathway for investers to avoid fraud. Watch Sara and Brian’s video below and be sure to check them out for any additional thoughts or questions.