CrowdFunding Explosion! Not Just Yet...

 

The SEC has made dramatic headway in terms of its eliminating the rule regarding public announcements ("solicitations") by companies of their intent to raise money through the sale of securities such as stock, bonds or other instruments. That bodes well for the U.S/ capital markets in general, and especially for smaller business, such as start ups, technology ventures and small businesses who wish to become capitalized through an initial public offering ("IPO") or something similar.

By the same token, The SEC now has a firm deadline of mid-October by which it must promulgate its rules and compliance standards for smaller, i.e., crowd funded, public offerings of securities over the internet. These are both great strides.

What troubles my colleagues and myself here at CFI CrowdFunding Incubator LLC is that each state has its own securities governing body, generally under that state's attorney general's office, and each state is within its constitutional rights (assuming that the Constitution is still considered relevant by someone in issuing its own individual laws and guidelines with respect to offerings of securities within its jurisdiction.

These "Blue Sky" - like laws will undoubtedly come cropping up like crabgrass in springtime as soon as the October announcements are made by the Securities And Exchange Commission.

An article from a CBS newsbrief follows to shed some further light on the issue:

For crowdfunding, the revolution will be localized Despite hoopla over the JOBS Act, few believe that national crowdfunding is set to take off -- and states aren't waiting around to find out

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I strongly believe that each state's attorney general will want to have his or her respective say about its own "supplemental compliance rulings" to the JOBS Act. And because of this, interstate offerings, multi-state offerings and national offerings may require compliance with multiple sets of rules, which could be quite expensive (in terms of legal bills), and could make the SEC's rules almost irrelevant. There could even be some interesting legal challenges.

Yes. We are making great strides within the US with respect to crowdfunded online offerings.

But the issue that remains is: What will the states, each respectively, do, in terms of helping with the process, or hindering it. Those of us at The CFI Group Of Companies want to see legislation infused with the original spirit of the JOBS Act -- but whether or not the states' attorney generals will agree is a story yet to be told.

We will be keeping you up to date.


Douglas E. Castle, CEO

Tags, Labels, Keywords, Categories And Search Terms For This Article: JOBS Act, IPO, CFI, Crowdfunding,SEC, crowdfunded public offerings, business, raising capital, funding ventures, Blue Sky, Douglas E. Castle 

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• Fantastic CrowdFunding Video by El Gastronomo Vagabundo (wellpreserved.ca)
• SEC approves advertising for hedge funds and private offerings (smartbrief.com)
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• To Crowd Fund or Not to Crowd Fund (fibercompulsion.com) - A Sourpuss? You've got to rally your own core of contributors to any crowdfunding party. If you can't fill a batch of the seats with your own true believers, while would someone else choose to jump in and be first? The thing that I must say in support of this article is that the sad truth is that the more eccentric that you are, generally speaking, the more likely it is that you will pick up some "drive by" contributors. So much for a good business plan and sensible presentation. It's 'bread and circuses' for the masses once again. *****
  
  
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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  

Keywords, Tags, Labels, Categories And Search Terms For This Article:
CrowdFund, Business, CFI, InstantBiz101, campaign costs, post-offering costs, CrowdFunding compliance costs, post-funding costs, raising funds, startups, JOBS Act,

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