How to Get Crowdfunded
Several states have opened the doors to mass crowdfunding for equity. "Accredited investors" can now buy equity through crowdfunding sites, and the rest of the crowdfunding universe is awaiting final Securities and Exchange Commission (SEC) approval of "Title III" crowdfunding rules, expected this spring, that will open equity crowdfunding up to the masses.
"What people really need to prepare for is getting together their network," Goren said. "That means making sure you have a Facebook presence, building your LinkedIn community, using Twitter if it's relevant. If you're in fashion, use Pinterest. That's not something you can just do you have to prepare."
Don't go into crowdfunding cold, Goren said. Go as part of a crowd. "You need to do things in advance so you can ask the community for money as an experienced member of it," he said.
There are slightly different rules for crowdfunding based on how much you want to raise. If you're raising under $100,000, you may just need a background check and an accounting of your business, not a full audit. But even in that case, "when you crowdfund it's a light version of an Initial Public Offering (IPO), and for the life of your company you're promising to do these things," Goren said.
You have to act like a public company CEO would.
This can have advantages and disadvantages. Sites like Ourcrowd say that if you have a passionate, intelligent crowd behind you, it's almost like getting venture capital. On the other hand, you have to be ready to take in, and act on, advice that may go against your instincts.
It's the same question asked of anyone taking outside investment. Are you ready to let go? If you're not, crowdfunding equity may be the wrong move. But there are alternatives.
"You can crowdfund debt," said Goren, through sites like Lendingmemo and Prosper. You can crowdfund the old-fashioned way on sites like Kickstarter and Indiegogo, pre-selling what you expect to produce. That's how Pedal-Power, a company seeking to build bicycle-desks that generate electricity, recently raised $30,000, after starting with a goal of $10,000.
How much you expect to produce, Goren said, will help you decide what to do.
Some people want to crowdfund franchises, but the first unit of a store is a small business, not a franchise.
"Startups are a small portion of new businesses," Goren said. "What creates more jobs are small shops, restaurants and things that employ people. That was the intent of the JOBS Act. You can't get a loan for these things from banks. You either have savings or go to the community."