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Crowdfunding is Not as Easy as Everybody Thought

On Behalf of | Nov 11, 2016 | Business Management, Raising Capital, Uncategorized

What now? There’s certainly been a lot of attention on crowdfunding. People have been talking about it for some time. Congress approved crowdfunding back in 2012, with the Jobs Act (Jump-Start Our Business Start-ups.) The SEC took a while to come out with regulations and, in 2015, they adopted those regulations allowing companies to start using crowdfunding starting May 16, 2016.

There was quite a build-up – about four years from the time the initial law was passed until crowd funding actually happened. With all this build up, we expected people to go rushing into crowdfunding. However, many people found that crowdfunding regulations were difficult and required a lot of paperwork (in order to have protections for the investors). This process made crowdfunding difficult to use by companies; and it doesn’t help that you can only raise up to one million dollars.

Many people just found that crowdfunding wasn’t practical after looking into it and the stats are starting to show it. Wefunder (https://wefunder.com/stats), the self-proclaimed largest platform for regulation crowdfunding offerings, has been tracking statistics of the use of crowd funding from May 16, 2016 to November 7, 2016. They found that there have been 49 successful offers made. In almost five months now, between May 16, 2016, and November 7, 2016, and yet only 49 companies have raised money through crowdfunding. Of those 49 companies, only three of them reached the maximum of one million dollars, according to Wefunder. (A special thanks to Arina Schulga, of the Schulga Law Firm http://www.shulgalaw.com/, for directing me to these statistics.)

If crowd funding’s not what everybody thought it would be, and it’s being used on such a limited basis, what are companies to do? How are they to raise capital? I think there’s a few options which are not being fully considered, because of all of the excitement around crowd funding.

One very viable option is the 506 offerings under Reg D. With the changes, there’s more ways that they can be utilized. Companies can consider using some type of regulation 506 offering.

In addition, Reg A+ is now looking very favorable for companies that want to raise money. I think it was under-celebrated. There was some initial attention and people have not paid as much attention to it because of all the noise with crowd funding. We found, when talking to several companies, that a Reg A+ offering may be the right way to go.

The key here is to get your council involved. Talk to them. Think about what may be the right alternative, and what might work for you. Then, start building a customized plan for you and your company’s needs.

What’s been your thoughts when looking at the crowd funding options? Are they good for you? What would you do differently? Join us in the comments below.

This posting is intended to be a tool to familiarize readers with some of the issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Tracy Olson.

 

About the Author

Shawn McBride — R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Firm, PLLC. Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can reach R. Shawn McBride at [email protected] or 407-517-0064.

Check us out on the web at www.mcbrideattorneys.com and www.rshawnmcbridelive.com

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