There are a number of different ways you can raise capital to start your business. One of the new tips you can consider is crowdfunding.
Crowdfunding sites give you the opportunity to pitch your content to people all over the world who may share a common vision. Entrepreneurs who have a great business idea will probably find no shortage of people who are willing to endorse it. You can reach a larger audience and arenâ??t subject to all of the SEC regulations startups are otherwise forced to abide by.
Unfortunately, crowdfunding isnâ??t necessarily an easy way to raise money for your business. You may run into challenges if you have trouble raising funds if you donâ??t go about it the right way.
You also need to be careful how you go about crowdfunding your business. People who endorse your business are depending on you to follow through with your promises. Failure to live up to your obligations can destroy your businessâ?? brand name or land you in court.
Does your idea really have any merit? You are making a promise to your investors. They have an obligation to use their own judgment, but you also have an obligation to make sure that you arenâ??t making obscene promises to them.
Make sure youâ??ve done your research and can show that your project can actually work. Some of the best ideas can fail and investors have to share that risk with you. However, you donâ??t want the idea to fail due to negligence on your part. That could weigh on your conscience and open you up to potential lawsuits.
Getting the Necessary Funding
There is no guarantee that you will raise any money through crowdfunding. You are going to need to be proactive about selling your idea and showing that you are serious about making it work. Here are several things you will need to take into consideration:
- Sell your idea well. Donâ??t expect complete strangers were just going to give you money because you asked them. You are going to need to convince them that your idea has some merit.
- Give an incentive. People are investing in your business because they want something in return. You will need to offer them a share of your future earnings if you intend to get them to back you.
- Promote your project as much as possible. Investors will probably be reluctant to invest in a company that theyâ??ve never heard of before. Put them at ease by making sure they understand who you are and what you are working on. There are a number of ways to get the word out about your project. Try to create a great idea that you can sell through your social networks. You will have a much better chance of gaining funding if your idea has gone viral.
Understand the Regulations
There are a number of laws you need to understand if you are going to try to raise money through a crowdfunding site. All crowfunding is regulated by a number of federal agencies, including the Securities and Exchange Commission. You could be slapped with serious fines or threatened with imprisonment. Also, unhappy investors could sue you if they feel you didnâ??t live up to your obligations or deliberately misled them.
Make sure that you take all necessary precautions to ensure you donâ??t face any civil or criminal charges.
- Be careful which sites you use. There are a number of sites out there that claim to be crowdfunding sites. However, all crowdfunding is regulated by the Crowdfund Act, a provision in the JOBS Act signed by Barrack Obama in 2009. The Crowdfund Act stipulates that certain documents must be disclosed to the IRS, SEC and individual investors. Also, sites complying with the law must make sure investors understand the risks involved. You donâ??t want to invest in another site, because inexperienced investors who donâ??t understand the risks could file a lawsuit against you.
- Seek legal advice. There are a number of provisions in the Crowdfund Act that you need to be aware of. They stipulate what you can use your funds for and when you need to file with the SEC. You should seriously consider consulting an attorney before you seek any funding.
- You will need to invest some funds as well. Donâ??t expect that you can place all of the risk on your investors. The Crowdfund Act requires that you invest some of your own money in the startup before investors have to pay you a dime.
Crowdfunding can be a great way to raise money. However, you can also run into a number of complications. This is a new concept and you will need to take a variety of measures to make sure that you can raise the capital you are looking for and donâ??t end up facing legal charges.
Kalen Smith writes for Blue Sky Formations where he shares tips on incorporating in the UK.