CrowdFunding - The REAL Cost.

 

The conventional wisdom about the "cost" of crowdfunding has now all but been boiled down to a simple rule of thumb. For the most part, prospective Project Sponsors believe that the cost of raising their capital will be about 5% to the hosting portal site owner, and anywhere from 1.5% to 3.75 % to the merchant payment systems processor. This, of course, does not take into account the cost (present or eventual) of rewards to contributors.The fast calculation is that a Project Sponsor might believe that raising his or her funding goal will cost from 6.5% to 8.75%. That's merely a part of the cost.

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I would suggest that you read this article very, very carefully, and then 1) go to the site for CrowdFunding Incubator LLC and read about the admonitions and obligations on the part of the Project Sponsor to do many things, and then go to the Instant Biz 101 blog and download document Number 4, or whichever document talks specifically about The Project Manager's obligations -- the download should become your bible and your principal source of reference.
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An article excerpt from The Washington Post, below discusses this in a qualitative, imprecise way -- identifying some of the types of cost (and missing some others), and avoiding qualifying campaign costs as well as post-campaign costs item-by-item.

What it costs to crowdfund

Entrepreneurs should remember that there will be costs associated with running a crowdfunding campaign, writes Bob Carbone, CEO of CrowdBouncer and board member of the CrowdFund Intermediary Regulatory Advocates. Before beginning the campaign, for example, a business may need to prepare key documents. During the campaign, business owners will need to pay the crowdfunding portal and handle certain compliance costs. In addition, entrepreneurs should be ready to pay for accounting and legal services after the campaign has ended. The Washington Post (tiered subscription model)/On Small Business blog (7/9)


A) Here's a quick checklist of your cost contribution elements prior to your own campaign:

1) prepare all of your video, audio, plan, use of funds and other exhibits;
2) be certain to have a LinkedIn, Facebook and other social media existence;
3) legally protect your intellectual property;
4) get your email and social media list together to "push" your pavilion, once you re up on the site. Your core investors are not generally strangers -- they are your friends, colleagues and social connections. Your going to hit them up constantly. Strangers generally won't believe in you unless your circle of contacts starts to throw money into your company's cup;
5) be certain that you are raising money for your project in the form of a legally-formed entity (in good standing) with a federal Taxpayer EIN.


B) Here's a quick checklist of your cost contribution elements during the campaign:

1) direct email campaigns;
2) social media campaigns;
3) delivering any promised documentation or rewards [Double Miles!] to your contributors;
4) thanking contributors and requesting that they bring in their friends as well -- expand your circle;
5) running your project while you are raising funds;
6) working your social media aggressively and relentlessly;


C) Here's a quick checklist of your cost contribution elements after the closing of the campaign, assuming that you've met your stated goals:

1) delivering a newsletter or statement of progress and success, as well as your thanks to all of your contributors;
2) being certain that you speak with your independent CPA and or tax attorney regarding any tax obligations which you may have for what you have delivered or received, and make certain that all regulatory filings and payments are made;
3) send your benefactors (if you are a for-profit entity or a not-for-profit with a specified project) monthly newsletters regarding your progress -- they way in which you are putting those contributions to work.

Not counting your hours of labor, the cost of your contributor rewards, your fees paid to outside professionals and your tax burden, by the time you are 60 days past funding completion (assuming that you are doing a $50,000.00 funding for a techno or business venture), you can expect to have spent a total of at least 20% of the funds which you've raised -- the beauty is that you only pay the bulk of it (my guess is all but about 5% to 7% of it) out of proceeds raised, and you can reimburse your earlier out-of-pocket costs out of contributed funds. Am excellent deal, actually.

CFI - The risk is minimal, and the potential reward, well... enormous.

Douglas E. Castle  

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CrowdFund, Business, CFI, InstantBiz101, campaign costs, post-offering costs, CrowdFunding compliance costs, post-funding costs, raising funds, startups, JOBS Act,

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