SEC Approved Crowdfunding for Equity Investors
As crowdfunding took off, many serious investors noted that something was missing from the process.
Savvy investors want to put money into a promising crowdfunded product, but they also want more than an early edition of the product or a branded T-shirt for their money.
This difference has made crowdfunding more of a consumer process than one that attracts serious equity investors.
Equity crowdfunding brings traditional investing into the picture, allowing investors to put their money into companies they believe in.
Instead of receiving a product, these investors get equity in the business.
If you are seeking investment dollars, here are a few things you should know about equity crowdfunding, as follows:
1. SEC approved selling of securities via Crowdfunding
Both investors and entrepreneurs have kept close watch on the battle over the legality of equity crowdfunding. In late October, the Securities and Exchange Commission (SEC) approved the selling of securities through crowdfunding. The creation of new rules relating to equity crowdfunding opened up investors to buy a stake in businesses they believe in online, which also opened up businesses to connect with investors in new ways. A private company can now post information about itself online and hopefully have that information seen by the very investors who are searching for solid investment opportunities.
2. US is just getting started
The US is a little late to the equity crowdfunding game, compared to other areas of the world. In areas where equity crowdfunding has been active for a while, growth has escalated rapidly. This could be good news for the US, where equity crowdfunding is just getting started. Businesses can gain an edge by setting up a profile as soon as possible, while competition remains at a minimum.
3. Anyone can invest.
Until now, when businesses were interested in seeking investment dollars, they thought immediately of only accredited investors. With equity crowdfunding, there are no accreditation requirements for investors. That means anyone from an Angel investor to the bag boy at the grocery store can buy stake in businesses on these sites. This means entrepreneurs can reach out to friends and colleagues or attend crowdfunding events to put in money alongside the investors who see a business as a wise investment. Once a profile has been set up on a equity crowd funding site, business owners then have a place to direct people who ask about investing in their efforts, in addition to the strangers who will see it.
4. Solid business planning is a must
When meeting directly with prospective investors, you have to have built a solid business plan that will win them over. With crowdfunding, a business can present marketing and manufacturing plans in place before getting started. However, most investors will still want to see extensive information on a business before buying a stake. The more information provided showing your business is viable, worthy and strong, the better the chances of reaching the fundraising goal.
5. Funding has limits.
The SEC has approved equity crowdfunding, but there are funding limits. Investors who make less than $100,000 annually can invest$5,000 or 5% of their income each year, whichever is greater. That limit increases to 10% of income for those making more than $100,000. As a business, you’ll be limited by the amount you can raise before you have to start answering to the SEC. Once you’ve brought in more than $20-M in funding, there are stricter reporting requirements. However, this should not stop business owners from raising as much as they possibly can through the crowd funding platform.
Equity crowdfunding is an exciting new way for businesses to fund there activities. Now that these platforms are recognized by the SEC, investors can easily connect with great opportunities and businesses can reach investors they would not have met otherwise.
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