In April 2012, President Obama and Congress passed the Jumpstart Our Business
Startups (JOBS) Act to support and encourage entrepreneurship and small businesses.
Easing federal regulations, and allowing individuals to become investors provides such encouragement. One of the important aspects of this Act is that it allows entrepreneurs to sell financial stake of the company to anyone – discounting the fact that they are accredited investors.
According to the Act, entrepreneurs are allowed to raise funds while publicly posting information about their businesses on “funding portals” and accept investments countrywide. This is not a platform that guarantees fund raising, but will leverage entrepreneurs’ efforts to raise funds.
An online campaign for fund raising is only the beginning of the process; entrepreneurs need to have compelling stories and rationales for individuals to invest in their respective startups. Connecting to potential investors on grounds that are valuable to them will prove to be beneficial.
It is crucial to understand that the platform provided by the JOBS Act can play both a positive and negative role. Entrepreneurs need to carefully analyze the possible repercussions when they upload information that would be visible to all. Additionally, entrepreneurs need to be comfortable sharing their business and personal information. This is especially important for crowdfunding, which demands complete information of your business before potential investors decide whether or not to invest.
There are different models that are adopted for crowdingfunding. It depends on the type of crowd that the business owners want to attract and kind of project that requires funding.
This platform is usually used for projects with a good cause. Investors tend to donate for moral and ethical value. In this case investors are not looking for return on investment or detailed information about the project. However, they would like to be updated regarding the progress of the project.
This platform is typically suited for projects that are short term in nature and will not provide full reimbursement to the investors. The investors expect a small portion from the investment made. It is highly recommended that business owners immediately send out small gift once the money is received and a small portion of the profit once the project is completed as a token of appreciation.
Equity model is suitable for business owners who are willing to share 49% of their company’s share. This is a fast method to generate funds for your project. However, equity model will only suit those business owners who are comfortable sharing their business information and also the controlling power of the business. Investor expects certain amount of return on investment in this type of funding. Your project period should be around 2 or more years and business owners need to generate certain minimum number of shares with minimum liability within those two years.
To read more, please visit http://www.12crowdfund.org
Thanks for reading, and until next time… stay WISE!