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 script.
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.
Map out an investor relations plan. It should include how and when you are going to communicate with investors and respond to their queries. What's more, let your investors know what to expect. Otherwise, managing the relations with dozens or hundreds of investors will become overwhelming. It "risks being really distracting and very hard to manage," says Michael Greeley, general partner in Flybridge Capital Partners, a venture-capital firm based in Boston. "If you ask any public-company CEOs, their biggest gripe about the job is investor relations."
Read more: http://www.entrepreneur.com/article/223270