Considering Crowdfunding Your Start Up?
In 2016, entrepreneurs and business owners gained access to a new funding source. Under Title III – Regulation Crowdfunding of the 2012 JOBS Act it’s possible for start-ups and established businesses to raise up to $1 million from family, friends, community members and other non-accredited investors. And under Title IV, known as Regulation A+, you can achieve much higher funding levels – up to $50 M. This fundraising needs to happen via a FINRA-registered web portal, and as of this writing there are thirty-four (34) approved.
There are four types of crowdfunding: reward crowdfunding, philanthropic crowdfunding, equity crowdfunding, and debt crowdfunding. Reward crowdfunding is perhaps the most familiar model, where investors receive a tangible reward in exchange for their investment, such as products or access to creators. Philanthropic crowdfunding leverages investors’ charitable instincts to do good in the world. Equity crowdfunding provides investors with common or preferred equity in the start up; debt crowdfunding provides investors with interest payment in exchange for their investment.
Each particular type of crowdfunding has a place in the start up world. Each type of platform attracts a different investor base, with unique motivations and expectations. Knowing which type of crowdfunding platform makes the most sense for your business depends upon what type of product or service you’re bringing to market, the earnings potential, and your organizational goals. For example, philanthropic crowdfunding is an ideal platform for start ups desiring to achieve meaningful social change, whereas equity and debt crowdfunding are more appropriate for start ups focused on profitability.
Irrespective of the crowdfunding option you chose, the fundamental preparations that prepare your project for launch and investor consideration are the same. For more on the preparation process contact Galileo here.