A successful equity crowdfunding raise takes work. Have you decided equity crowdfunding (Reg CF) is right for your company? Great! You have joined a revolution in business capitalization. You will lead your industry. And you some earned media and free marketing is on the way. And, oh yeah, cash!
But saying yes is only the first step. A long sometimes difficult road awaits. But as an entrepreneur you already know nothing worth doing comes easy. Luckily for you, there are industry professionals (like me!) to guide you through the process of a successful equity crowdfunding raise.
Here are four keys to a successful equity crowdfunding raise:
1. Hire a lawyer to help your equity crowdfunding raise succeed
Some entrepreneurs don’t like lawyers “in their way” or believe that standardize forms reduce representation needs. Yes, as a lawyer who helps companies succeed in the equity crowdfunding process, I am biased.
But consider these facts:
The Reg CF regulations are 685 pages. They are full of mind-numbing jargon and securities legalese. (And Reg CF changes may be coming). Plus, they cover a range of topics not directly related to the legal documents like solicitation rules, adherence with state laws, year-end reports etc. A competent lawyer will guide you through the process soup to nuts.
Also, you may need other legal work to prepare your company for a successful equity crowdfunding raise including amending and restating your articles of incorporation, reviewing bylaws, converting legal entities, and other compliance issues that always arise.
A lawyer can discuss pros and cons of particular financial instruments, different portals, and recommend CPAs, marketers, and other professionals you may need.
The bottom line is if you don’t think you need a lawyer for a potentially million-dollar securities transaction you’re not ready for this and may want to consider Kickstarter.
2. Lead Investors jump start a successful equity crowdfund raise
One question that arises when explaining the process to potential clients is why they need a lead investor. After all, isn’t that what the crowd is for? A lead investor signals the larger investor community you have a serious raise. The worst thing that can happen in a Reg CF equity crowdfund raise is for the issuer to languish weeks without substantial investment. No marketing, superior product, or brilliant team can overcome a lack of initial investment.
Even before that, lead investors provide the big portals with confidence your company is worth hosting. The big portals don’t want for companies trying to access their investor lists. Lead investors can also ensure a raise will hit its minimum target giving the portal confidence to place your company.
Portals also usually have minimum investment triggers before they will promote you to their investor list. If you don’t have that minimum guaranteed up front the chances having a successful equity crowdfunding raise greatly drops.
At the least that minimum should be $25k but you may want to hold out for $50k. And remember what the wise man says: The better you are to the crowd, the better the crowd will be to you.
3. Together Everyone Accomplishes More
You’ve likely heard the acronym for TEAM since little league. And as an entrepreneur you’ve chosen your team carefully. These are the people you grind with, who accept the long days and stressful situations. But not all are salesmen, maybe you have technical people, or financial people who don’t usually sell your company.
Everyone is part of your raise. That includes your lawyer! Everyone has social media, Linked In, Twitter, Minds etc. Everyone should be responsible for bringing in investors. And it’s not just those directly employed. Your lead investors, board members, friends, family, acquaintances that believe in you are your “ambassadors.” You need them for buzz. They should be on board beforehand and be willing to open their networks to you. (SEC regulations apply). Keep up with them even after you’re live. After all we’re all salesman whether we like it or not. It’s three months out of your life. Do it.
4. Commitment to a successful equity crowdfund raise is a commitment to your company and your vision
If people told you this would be easy, they lied. You’ll have to manage your company and the raise simultaneously. You’ll have potential investors asking you questions on message boards, media and marketers contacting you, complaints, concerns, congratulations. You should prepare for this and prioritize what is most important, delegate what you can, and plan how to maximize your raise daily and weekly.
A successful equity crowdfund raise signifies that not only are you an industry leader but that you can effectively multi-task. And at the end you should have a big pile of money, because that’s what it’s all about right?
Of course, you now have investors and the responsibilities that go with that (psst you need a lawyer!). But you will have taken a major step toward achieving what you started the company for in the first place.
A good team a great plan and you’re on your way
These are few things you can do to ensure you have a successful equity crowdfund (Reg CF) raise. For more insight check out this article. From the portal perspective see here. Click here evaluate whether your company is right for equity crowdfunding. For other options beyond Reg CF see here about Reg A+ and Reg D. See here for an overview of Jossey PLLC equity crowdfunding services.
This post is for informational purposes only. It does not represent a contract, offer, or any legal obligation on the part of Jossey PLLC. Many factors go into a successful raise including appeal of the product, competition for the product, the quality of the marketing, operating history of the company, experience of management, and ability to self-generate crowd investors. Legal and regulatory compliance is only one part. Investing in small companies and startups carries lots of risk, there is no guarantee your company will have a successful raise.