Business 10 November 2016
Sick of chasing after Angels, VCs and Bankers for funding to grow your business?
You might not have to anymore.
Equity Crowdfunding is giving promising young companies a chance to raise money from the crowd in a whole new way. Ever heard of it? If not, think of it like a Kickstarter campaign, but instead of a physical reward, people get shares of your company.
Sound too good to be true? It’s absolutely real: you can now sell shares of your business to almost anyone, as long as you’re incorporated, your head office is in a participating jurisdiction, you have a business plan, and you’re not doing anything illegal.
You also have to raise your funds on a secure equity crowdfunding portal. Securities regulators set the rules for exactly how you can raise money. In the USA, the JOBS Act allows equity crowdfunding, and in Canada the Startup Crowdfunding Exemption is the one you want to look at. There are a number of other exemptions that allow for equity crowdfunding as well; check with the National Crowdfunding Association, or the National Crowdfunding Association of Canada, to learn more about those.
But before we get to the specific rules, let’s talk a bit more about this exciting new opportunity.
If it seems like everywhere you look, doors are slamming and you just can’t get the money you need to grow your business, equity crowdfunding might be your answer.
How does Equity Crowdfunding Work?
To raise any money with equity crowdfunding, you have to be totally transparent about your company’s performance and finances. This is a marketplace where the crowd gets to know everything about your business so they can make an educated decision to invest in you – or not. So if you don’t have a business plan, now’s the time to write one. If you’ve been slacking on ANY filings or taxes, catch up.
There’s an important legal component too; a securities lawyer can ensure your corporate documents are in order and help you structure your equity crowdfunding offer, including the type and price of shares. There are actually quite a few legal considerations to be made before you launch an equity crowdfunding campaign, so you must connect with a good lawyer. Yes, it costs money and no, it’s not the most exciting part of your campaign, but you absolutely have to do this part. It’s non-negotiable.
Once all the housekeeping’s done, you can choose a platform to showcase your company and your equity offer. Look for a portal that offers a lot of resources to help you mount a successful campaign. Just like Kickstarter, you have to have a great marketing campaign to make sure investors know about your offer, so the more support you can get from the platform, the better.
Also take a look at the due diligence or vetting process that the platform uses. Some portals make companies apply to work with them, while others require just a simple sign-up process. The ones that are really easy to sign up for don’t always have the best companies using their services, and are more vulnerable to fraud and unethical businesses. You might not want to be associated with those businesses, so take a look at the companies that are already raising money on a given platform before you decide to use them. Platforms also charge a fee, which could be a flat rate or a percentage of the money you raise. Fees could range from a few hundred dollars to several thousand.
Know that it will cost you some money to launch an equity crowdfunding campaign (in legal fees, platform fees, and consulting or business plan coaching fees), but it’s so worth it to know that your business is healthy and organized, you have a superb business plan, and you have an excellent crowdfunding platform to help you boost your campaign.
Is My Company a Good Fit for Equity Crowdfunding?
Like rewards-based crowdfunding, equity crowdfunding requires a great marketing plan; you need a good way to get the crowd behind your idea and excited about investing in it.
But a successful campaign is about more than just good marketing. Your company also needs to be fundable, and that’s a bit of a subjective judgment.
Most companies need to be more than just ideas when they get into equity crowdfunding. If you’re not generating revenue, you’re about to. You might have a working prototype, or you’ve done beta testing to prove your concept. Perhaps you have investors or advisors endorsing you already, who will increase the confidence of the crowd.
A successful campaign is about more than just good marketing. Your company also needs to be fundable, and that’s a bit of a subjective judgment.
Here are a few other ways to assess whether your company is fundable:
How Equity Crowdfunding Fills the Financing Gap
If you’re a startup owner then you know how hard it is to find financing for your business, especially if your company is really new. It’s hard to get bank financing as a new company, because you don’t have many assets and startups are considered high-risk to lenders. Most Venture Capitalists won’t take a chance on a really small company and it’s hard to even grab their attention when thousands of new businesses are popping up all over North America every month. Angel funding is so incredibly risky that there just aren’t that many Angel investors out there, and many of them are tapped out already because they get so many pitches.
With equity crowdfunding, you can raise small amounts of money from almost any member of the public, connecting your company to capital that simply wasn’t accessible until now.
And once you do, you have direct access to a group of investors who can become powerful ambassadors for your brand.
I hope you’re as excited about that as I am!
Ready to grow your business? Download your FREE Ultimate Guide to Prepping Your Business for Equity Crowdfunding and get set to skyrocket your business!
This article was first published on StartUp Mindset.
3 Min Read
"How did you ever get into a business like that?" people ask me. They're confounded to hear that my product is industrial baler wire—a very unfeminine pursuit, especially in 1975 when I founded my company in the midst of a machismo man's world. It's a long story, but I'll try to shorten it.
I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up—even if it involved a non-glamorous product. I'd been fired from my previous job working to become a ladies' clothing buyer and was told at my dismissal, "You just aren't management or corporate material." My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.
Over the years, I've learned quite a few tough lessons about how to successfully run a business. Below are five essential elements to keep in mind, as well as my story on how I learned them.
Find A Need And Fill It
I gradually became successful at selling various products, which unfortunately weren't profitable enough to get me off the ground, so I asked people what they needed that they couldn't seem to get. One man said, "Honey, I need baler wire. Even the farmers can't get it." I saw happy dollar signs as he talked on and dedicated myself to figuring out the baler wire industry.
I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up.
Now forty-five years later, I'm proud to be the founder of Vulcan Wire, Inc., an industrial baler wire company with $10 million of annual sales.
Have Working Capital And Credit
There were many pitfalls along the way to my eventual success. My daughters and I were subsisting from my unemployment checks, erratic alimony and child-support payments, and food stamps. I had no money stashed up to start up a business.
I paid for the first wire with a check for which I had no funds, an illegal act, but I thought it wouldn't matter as long as I made a deposit to cover the deficit before the bank received the check. My expectation was that I'd receive payment immediately upon delivery, for which I used a rented truck.
Little did I know that this Fortune 500 company's modus operandi was to pay all bills thirty or more days after receipts. My customer initially refused to pay on the spot. I told him I would consequently have to return the wire, so he reluctantly decided to call corporate headquarters for this unusual request.
My stomach was in knots the whole time he was gone, because he said it was iffy that corporate would come through. Fifty minutes later, however, he emerged with a check in hand, resentful of the time away from his busy schedule. Stressed, he told me to never again expect another C.O.D. and that any future sale must be on credit. Luckily, I made it to the bank with a few minutes to spare.
Know Your Product Thoroughly
I received a disheartening phone call shortly thereafter: my wire was breaking. This horrible news fueled the fire of my fears. Would I have to reimburse my customer? Would my vendor refuse to reimburse me?
My customer told me to come over and take samples of his good wire to see if I might duplicate it. I did that and educated myself on the necessary qualities.
My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.
Voila! I found another wire supplier that had the right specifications. By then, I was savvy enough to act as though they would naturally give me thirty-day terms. They did!
More good news: My customer merely threw away all the bad wire I'd sold him, and the new wire worked perfectly; he then gave me leads and a good endorsement. I rapidly gained more wire customers.
Anticipate The Dangers Of Exponential Growth
I had made a depressing discovery. My working capital was inadequate. After I purchased the wire, I had to wait ten to thirty days for a fabricator to get it reconfigured, which became a looming problem. It meant that to maintain a good credit standing, I had to pay for the wire ten to thirty days before my customers paid me.
I was successful on paper but was incredibly cash deprived. In other words, my exponentially growing business was about to implode due to too many sales. Eventually, my increasing sales grew at a slower rate, solving my cash flow problem.
Delegate From The Bottom Up
I learned how to delegate and eventually delegated myself out of the top jobs of CEO, President, CFO, and Vice President of Finance. Now, at seventy-eight years old, I've sold all but a third of Vulcan's stock and am semi-retired with my only job currently serving as Vice President of Stock and Consultant.
In the interim, I survived many obstacles and learned many other lessons, but hopefully these five will get you started and help prevent some of you from having the same struggles that I did. And in the end, I figured it all out, just like you will.