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Equity crowdfunding question?

Does anybody has experience with Equity crowdfunding? - does it work for a startup with zero budget, is it feasible for an app that everyone with a cell phone needs?

6 Replies

Dan Goldman
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Dan Goldman Entrepreneur • Advisor
Serial entrepreneur
I'm interested in some insight about this general subject as well.
Devin Thorpe
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Devin Thorpe Entrepreneur
Journalist | Author | Speaker
I've written extensively about this for Forbes, for my own website GoodCrowd.info, and elsewhere.

Equity Crowdfunding in general refers to multiple specific and distinct funding activities, most defined by the 2012 JOBS Act, which has not yet been fully implemented by the SEC.

Here are the features for quick background:

Title II: Now fully implemented, Title II allows general solicitation, that is public advertising, of securities offerings to accredit investors when following key rules. It requires help of an attorney, but is probably the cheapest fundraising strategy.

Title III: Crowdfunding, not yet implemented, will allow startups and other businesses to raise up to $1 million per year from ordinary as well as wealthy or accredit investors. The SEC is expected to issue final rules this fall.

Title IV: Regulation A+, fully implemented just 60 days ago in June, allows for an offering to ordinary investors but requires a formal offering document to be reviewed by the SEC. Think of this as a mini-IPO and shouldn't be thought of as a good alternative for first dollars in as the cost is significant.

In addition, many states now allow intrastate crowdfunding. This works best for real estate based businesses like restaurants as a business that will do business on the web is typically understood to be ineligible for raising money in a state. A single store restaurant could, however, raise money from investors in the state where it operates. The rules vary by state, but are generally very flexible and require very little to raise up to $1 million.

So, given that you have no cash and would need a lawyer, I don't think you're ready for an equity crowdfunding raise.

You may be able to raise enough money to pay for the legal work and such by doing a Kickstarter campaign. That would also be a great test market.

Good luck!

-ddt
Dan Goldman
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Dan Goldman Entrepreneur • Advisor
Serial entrepreneur
Devin,
From the quick research i have done, which correlates with everything you just said, it seemed to me that one option might actually be available in the market which overcomes the issues with the JOBS act as it stands right now.
I seem to have found several "crowdfunding" platforms that work only with accredited investors, essentially allowing you to raise money from tens of thousands and up to millions from accredited investors, but in a crowdfunding approach.

I haven't had time to really investigate this in fine detail, but it seems like a viable option.
The question is how well those sites work, how hard it is to get investors interested there and any number of other questions I can't come up with now off the top of my head.

Worth looking into though, I think.


Devin Thorpe
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Devin Thorpe Entrepreneur
Journalist | Author | Speaker
You're right. Those sites operate, or should, under the rules from Title II of the JOBS Act according to the SEC's rules for Regulation D 506 C. You'll need an attorney.Your success will depend on how good your deal is and how big your network of accredited investors is. -ddt
Stan Zhekov
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Stan Zhekov Entrepreneur
CEO, Reverd.com / Owner, Space Master Interiors
"You may be able to raise enough money to pay for the legal work and such by doing a Kickstarter campaign. That would also be a great test market."

Thank you the advise Devin!
The problem I see with a Crowdfunding is that usually the funding seeker has to give something to investors. With an app that all in-app purchases are going through the Apple system (or Google) there is no way to give investors something like free subscription... although there might be a solution if I provide app downloads from my server so that I can offer investors something. I such case though the trust of the source (the server) is lost and that brings more complications...


Stan Zhekov
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Stan Zhekov Entrepreneur
CEO, Reverd.com / Owner, Space Master Interiors
What exactly is included in the term "legal work"?
In many cases the "legal work" can be done without a lawyer by spending some time to read and educate yourself... I believe... For example: one can file a patent for $400 without lawyer, but a lawyer will charge for the same work $2000-$6000+
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