You may be a real estate developer or technology entrepreneur or private manufacturer or other business owner who has spent many years raising capital through traditional advertising and marketing channels. However, you have probably heard the word crowdfunding and understand the general concept surrounding this method of raising capital. You might have pondered tapping into this method to enhance your capital position and possibly open up whole new possibilities for development and expansion of your business. In any event, below are some questions about crowdfunding that may help you take the next step.
1. Are Banks Inclined to Fund Crowdfunding Deals?
Banks engage in this type of funding on a routine basis. Now that the crowdfunding marketplace has matured and the results for issuers and investors speak for themselves, institutionalized banks understand the benefit to them when funding these deals. A company that has successfully crowdfunded might actually be more attractive to a bank if they see that success as validation of the borrower or it’s product/services.
2. How Does the Process of Investor Verification Work?
According to Title II Crowdfunding requirements, the issuer must verify that each investor has accredited investor status. In order to obtain this verification, the issuer may need the investor’s brokerage statements, W2 forms, tax returns or other applicable confidential information. However, practically this process can be performed through a third-party if reliance on that third party is reasonable.
3. How Can I Evaluate Crowdfunding Platforms?
No one platform is right for every person or business. Determine the main user group on the crowdfunding platform you are researching. What target group are they marketing to and you fall into that group? You may want to find a site that specializes in your particular industry. The nature of your project and your industry, along with the terms of the site should all be considered before choosing a crowdfunding platform. But…also note, you don’t need to crowdfund using someone else’s platform. Most crowdfunded capital raises actually use their own platform or just crowdfund through other means of general solicitation and advertising while closing transactions offline.
4. How Much Trouble is It Dealing With So Many Investors?
The first thing to remember is that in the crowd funding space, investors often do not have management or voting rights, unlike in other avenues of corporate investing. You can dictate the terms of your crowdfunded offering. You won’t have professional investors watching over your every move constantly. Using technology, you can also help manage large pools if investors. If you are funding through a crowdfunding portal, they might have tools to help you manage the investors. Some of them manage the investors themselves (but often because they want to keep the identifies of the investors hidden from you).
Title II crowdfunding requires the investor verification process to be precisely followed. Be sure to streamline your verification process by accessing an efficient third party portal to the work quickly and efficiently so you can move forward with your fundraising requirements.
