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What entrepreneurs need to know about crowdfunding

Dec 04, 2015 04:07 AM EST

After a five-year downward trend in the startup segment, the new wave of entrepreneurship is gaining momentum in the world and in the US.

The rising number of new entrepreneurs is increasing demand for fresh capital. The crowdfunding platform is the obvious option for new startups. But, a majority of them lack awareness about how to make use of crowdfunding.

A majority of entrepreneurs prefer to raise funds online. Several US states are allowing non-accredited investors to keep funds in startups. 

Many startups don't realize their brand value or at least goodwill among friends and customers, who can be potential investors. Many startups are not aware of latest regulations from Securities and Exchange Commission (SEC) on crowdfunding.

Analysts advise startups to hire a lawyer before going to tap the crowdfunding source. 

According to a report published by Forbes, thousands of investors are investing for the first time. The District of Columbia and other states are now accepting non-accredited investors to invest in startups registered in their jurisdiction.

This is really pushing more people with surplus money to invest in startups. 

Startups need to anaylize crowdfunding costs by studying different fundraising platforms. Several new options on listing offerings are hitting the market every day.

The investors in startups are owners, but not donors. The non-accredited investor crowdfunding is going through the early phase of evolution. The crowdfunding platforms have been in operation in Europe and Australia for several years.

Recently investors of travel jacket with a target of $20,000 mobilizing from crowdfunding ended up with $10million.

A recent report by Entrepreneur narrates that Kickstarter campaign to raise money to fund all-in-one travel jacket was very successful for Hiral Sanghavi and his wife Yoganshi Shah. They published on Kickstarter website that they want to mobilize $20,000, but it resulted in a rake up of $10.6 million. Sanghavi and Shah manufacture 80,000 jackets. 

The US SEC is firm on the provision that investors and companies should be in the same state to qualify for the provision. East state's rules vary on how much can an individual raise funds.

It could take another six months to reach 'crowdfunding for everyone,' some startups consider that regulations by SEC are more restrictive. Startup are advised to be cautious on intellectual property, regulatory compliance, document preparation and valuing shares. 

Despite states' efforts to make crowdfunding easier, small businesses still find it difficult to tap this route.

According to a report by The Wall Street Journal (WSJ), small businesses are not able to sell investments.

Many consider crowdfunding as investing in exchange for rewards in forms of gift items such as coffee mugs and T-shirts. However, over 24 states including Georgia, Kansas, Texas, Vermont and Oregon, and the District of Columbia revised laws making them easier for small investors. 

The 2015 Kauffman Index is indicating that the five-year sluggish period after the Great Recession has reversed. This confirms the stabilization of economy and credit markets.

Considering the growing demand for fresh capital, several states are positively responding to amend legislation to allow non-accredited investors to invest in startups.

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