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How to Secure Crowdfunding for Your Company

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    NEWSLETTERS

    Candace Klein, one of the people responsible for the JOBS Act, which allows entrepreneurs to take advantage of equity-based crowdfunding.

    Recently I got the opportunity to speak with Candace Klein, one of the contributors to the legislation in the JOBS Act, which created the opportunity for equity-based crowdfunding. Klein is an attorney at Ulmer & Berne LLP and the founder of SoMoLend, a web-based company that connects entrepreneurs with investors.

    If you're the owner of a small- to medium-sized business of any kind, then you should be aware what a huge opportunity for capital is about to be available. [There's also a greater opportunity to be exposed to fraud, so please also read an interview Inc. Well also did recently on that subject.—ed.] Candace shared some critical information about what any entrepreneur needs to know about crowdfunding.

    How does someone obtain crowdfunding?

    Candace Klein: Crowdfunding must take place through an intermediary, either a "funding portal" or a "broker." The business must provide [their] name, legal status, physical/web address, names of directors, officers and 20 percent owners, business description and a description of purpose of offering and intended use of proceeds. You also have to submit financial information of the company and the owners.

    What kind of financial information does the company seeking funding need to provide?

    Candace Klein: It depends on the annual revenue of the company seeking funding. With revenues of up to $100,000 annually, they must provide financial statements certified by CEO/CFO to be true and correct, between $100,000 and $500,000 annual revenue the financial statements must be reviewed by a independent public accountant, if the annual revenue is above $500,000 the company must provide an audited financial statement.

    Is the business financial information made public once they file?

    Candace Klein: The financial information does not become public, it becomes reviewable. Your basic profile with your business name is available to everyone. If you say you are not going to give immediate access to your financials the individual [making the loan] can still request your financial information, but you don’t have to provide it. At which point they can decide to make a loan or not.

    How much money can a business raise?

    Candace Klein: A business can only raise a $1 million a year through crowdfunding.

    Can I start posting on Facebook or Linkedin this week to raise money?

    Candace Klein: No, not yet. Beginning July 4, 2012 the change in solicitation rules for Regulation D offerings begins. That allows for general solicitation permitted for accredited investors. Platforms cannot charge for facilitating transactions. Beginning January 1, 2013 the Crowdfunding exemption begins and businesses can issue crowdfund offerings, but they must use platform to facilitate transactions.

    Are there any reasons I shouldn’t seek crowdfunding?

    Candace Klein: Companies with growth trajectory to IPO should not seek Crowdfunding because there is a huge risk and cost associated with having so many small shareholders. Also companies with anticipation of needing additional funding through venture capital or angel investing may want to avoid crowdfunding.

    Do some serious research before you jump into crowdfunding. This is a huge opportunity for small businesses and small investors. You may want to seek legal advice or consult your accountant before you take money through any crowdfunding portal.

    Jabez LeBret is the author of the Amazon No. 1 bestselling law office marketing book How to Turn Clicks Into Clients. As a partner at Get Noticed Get Found, a legal marketing agency, over the last nine years he has delivered over 800 keynote addresses in six countries. His main area of expertise is managing Gen Y in the workplace, advanced Facebook strategies, LinkedIn strategies, Google+, SEO, local directory optimization, and online marketing.