I can’t help but continue to remain optimistic about the new possibilities for entrepreneurs with CROWDFUND INVESTING under the new JOBS ACT. Crowfunded start-ups could range across a spectrum of ventures from local shops and restaurateurs, to movie projects, to construction, to tech companies, and more. In an interesting twist to marketing plans, your best patrons are going to be your crowdfunding investors. Talk about brand loyalty! Communities can now invest in themselves and community members will share in the upside (be incentived to help prevent a downside).Further, business start-ups and/or spinoffs rarely have the support of the banking or investment community these days. Money follows money, but how do you get the first round of investors to take the leap? Do an initial capital raise through a crowdfunded offering, and you now generate interest among angels, VC’s, and bankers, for follow-on capital. Lots of exciting stuff here, but also lots of regulations to learn and navigate, all of which are to be forthcoming during the remainder of this year before CROWDFUND PORTALS can be launched.What we know already is that the JOBS Acts will require any business seeking crowdfunding (a.k.a. the “issuer”) to make certain disclosures about its business (though compared to public stock offerings, much less will be required). General disclosure requirements will include:
The identity of the company’s board of directors, officers and current investors that hold more than 20% of the shares of the company;
A description of the business;
A business plan;
Company financials (audited or unaudited depending on the size of the offering);
Disclosures how the business will use the proceeds;
The target offering amount;
A description of the ownership and capital structure of the issuer; and
Such other information as the SEC may require under rules it must prepare for the JOBS Act.
I expect that the anticipated funding portals will be ready for launch in accordance with forthcoming SEC regs by the second quarter of 2013. Meanwhile, with these general requirements in sight, you can start now on the compliance side.1. FORM A WRITTEN BUSINESS PLAN.Your written business plan will be the centerpiece under consideration for prospective investors. Not to mention it will be a required element for your crowdfund offering. If you don’t already have a written business plan, make this your first priority. If you do have one, then you need to hone it for the intended audience, i.e. the “crowd” of small investors whom you would ask to part with their hard-earned money to enter with you into the risk. A tremendous and often overlooked national resource is SCORE – pro bono advisors to help you start and/or grow a small business. Find your local chapter and schedule a meeting to go over your business plan today.2. FORM YOUR TEAM.In addition to the corporate directors and officers that will form the backbone of your corporation (see below), you will need a team of professional advisors and consultants. The professional makeup of your advisors will depend on the particulars of your business, but at a minimum, you will need a a business attorney and a business accountant.3. FORM A CORPORATION.To solicit crowdfunding you will need to identity of the company’s board of directors, officers and current investors that hold more than 20% of the shares of the company. This means that step one is to form a corporation and appoint a board of directors. Now place yourself in the shoes of prospective investors. What do you expect they will be looking for in terms of the makeup of the board of directors? How about the officers of the corporation? You will need to appoint a CEO, a CFO and a Secretary at a minimum. Who can fill these shoes in a way that attracts investment? Lastly, much thought will need to go into how the corporation is initially capitalized. Again, from the perspective of a prospective investor, would you invest in a company in which the founder has no skin in the game? Be prepared to disclose a description of the ownership and capital structure of the corporation.The opportunities presented by the CROWDFUND ACT are exciting, and I sense that a new wave of entrepreneurship will result. I suggest that you get ready to ride the wave by starting now on the compliance side so you can begin crowdfunding your business next year.
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