Crowdfunding promises to give some startups access to capital they wouldn’t have had otherwise, but it could set up unwary entrepreneurs for a headache.
Crowdfunding is a way of raising capital that involves getting small amounts of money from a large number of investors. A new law, called the JOBS Act, changes the formerly donate-to-my-cause-for-a-tote-bag industry into a popular way for small companies to raise the cash in two ways: It allows businesses to raise money from investors in exchange for a piece of their company (equity) and it allows non-accredited investors (regular Joes and Janes like your neighbor and Grandma) to sink their own cash into startups.
If you have been quietly sitting on a business idea that you are convinced will change the world, but you have been struggling to get money to get started, this is great news. But, beware, eager entrepreneur-to-be. If you rush without caution, you could be digging your own grave. Check out these tips on how to tread safely in this new era of equity crowdfunding.
1. Refrain from the desire to raise $1 from a million people. “Entrepreneurs should not go into this unless they have worked out, ‘What is the maximum number of people I can deal with?’ ” says Sara Hanks, a securities attorney, and a cofounder of CrowdCheck, a startup that plans to help entrepreneurs access capital and protect their investors when the law is fully implemented. At this point, Hanks is working out of a home-office in Northern Virginia, but she has plans to open an office in Alexandria, Va.>>> READ MORE at: