NEXT GENERATION CROWDFUNDING STARTED MAY 16TH, 2016: MOVING PAST KICKSTARTER AND GOFUNDME
In the past, equity crowdfunding, where you sell a piece(s) of your business in exchange for cash, has only been available to accredited investors, or those investors who meet sufficient levels of wealth. As of Monday, May 16, everyone is now able to participate in equity crowdfunding. As long as an individual has the cash and the interest, he or she can now be a startup investor. That opens up a whole new pipeline of capital for startups, and opens up a new world of possible missteps for companies and spotlights the need for attorney guidance.
The first startups that use equity crowdfunding under the new rules are going to be writing their own rules. Hiring an attorney to help guide you through this process from the beginning can save a lot of headaches in the long-run.
Taking the time to do careful research on the equity crowdfunding platform they decide to launch their campaign on – will be crucial for startups. Not all campaigns offer the same services, and entrepreneurs should be especially interested in learning what services platforms offer startups when their campaign has concluded.
WHAT THE NEW RULES SAY:
You may only raise $1M in a rolling 12-month periodYou must use an online intermediaryYou must be a U.S. entityYou must disclose certain financial information, and depending on how much you plan to raise, your financial statements may need to be reviewed or audited by an accountantYou must fulfill certain ongoing reporting requirementsYou may raise funds from both accredited and non-accredited investors, although investors are limited to investing a certain dollar amount based on their income or net worth.
WHY ENTREPRENEURS NEED ATTORNEYS TO HELP
Startups are now dealing with the SEC and more due diligence will be necessary. Additionally, the SEC mandates all companies that raise capital under the new crowdfunding rules produce periodic reports so it can monitor the private market on behalf of smaller investors. Attorneys can guide startups through this new process and allow the startup to worry about creating and working on their business.