How crowdfunding works
To verify that crowdfunding is right for your business, let’s do a quick review of how it works. More detailed information is available in our booklet:
“Silicon Prairie Online Investment Crowdfunding”
Investment Crowdfunding is a way for small businesses to raise funds by selling financial securities, (stocks, bonds, debt notes etc.) to a Crowd of regular people and/or wealthy “accredited” investors (Angel Investors and Venture Capitalists). Investment Crowdfunding is like rewards crowdfunding sites like Kickstarter, except the campaign company can sell shares of their business instead of just rewards like T-shirts.
Silicon Prairie provides the platform and tools to do crowdfunding legally and in compliance with financial regulations.
Please note: the issuer is still responsible to invite the investors to participate.
Investment Crowdfunding is a multi-step and highly regulated process.
The JOBS act in 2012 paved a way for small businesses to seek funding
without having to hold an IPO or “registering” their offering with the SEC (Securities Exchange Commission). To do this, your company must comply with many rules and seek an “exemption” from registration. This shifts oversight of your offering from the SEC to another body, such as the State Department of Commerce. Many restrictions apply, but the general steps are:
- Sign a contract with an approved portal operator
- Complete paperwork with a securities attorney
- Seek and obtain an exemption
- Market your offering
Several types of exemptions exist at the state and national level. Each
exemption has slightly different rules and maximums that effect the both the campaign company (issuer) and investor. Generally, this format is appropriate for companies seeking at least $50,000 and up to $5 Million, $10 Million, or up to $75 Million. Because Silicon Prairie is a licensed Broker Dealer, we are able to support Section 4 (a) (2) or what are known as private placements. These do not have an upper limit. Examples of currently available exemptions and their 1 Year raise limits:
Above p30 Exemptions chart
The Campaign Company (issuer) may sell Equity, Debt, Convertible Notes, SAFE Units, Revenue Share, or other types of Financial Securities. You decide what to offer (sell) and set the price – then the crowd decides if they want to buy it. For simplicity, we refer to those buying shares as investors. Your relationship may be technically different i.e. Creditors vs. Investors etc.
If your company has a legitimate need to raise funds by selling a financial security, you should expect to spend some operational funds on necessary professional services. We do charge fees for our services as a registered portal operator, Broker Dealer, and software company. Here typical fees and campaign service costs:
Placement on the portal:
- $2,500 plus 5-7% of raise total as a success fee
- Discounted Accounting Vendor: $3,000 to review financials for
“Reg CF” offerings
- Discounted Securities Attorneys: $5,000 – $7,500 to prepare/review
Note: You may use our preferred partners, or bring your own.
Offering document preparation
Silicon Prairie can provide creation of securities offering documents using our Geppetto Smart Document automation software. This service reduces the cost to prepare offering documents up to 80% allowing a securities legal professional to spend less time with data entry.
You Promote Your Offering
We cannot legally promote, solicit, or endorse any offering hosted on our Portal. It is the responsbility of the issuer (you), to invite the investors to participate. This workbook is intended to guide you through the best practices of building your crowd and promoting your offering.
If you’ve fully considered investment crowdfunding, this review has likely been a reminder. If it prompts questions, use the Action Item to help decide.
Complete the following questionnaire to determine if your business is ready, and a good candidate for Investment Crowdfunding.
Investment Crowdfunding Readiness Questionnaire
Make into interactive table or survey.
You must ensure your team is 100% on-board before choosing this form of capital raise. Investment Crowdfunding is not a quick fix for your cash-flow woes… it is a sustained effort over time to convert your social capital into financial capital. Your team must agree on your fundraising path or you will not be able to sustain the effort to reach your goals.
Achieving success via team stakeholders
Plan your raise.
Raise your plan.
This effort will not manage itself, you will to need to assign a project owner and delegate tasks. Expect to budget 70+ hours spread over 2-3 months. Most of the work is done in the planning stage, which is why the Before section of the workbook is the largest.
Some of the tasks you and your team members will need to complete:
- setting goals and milestones
- performing research
- creating a compelling investment story
- obtaining brand assets such as logos/diagrams
- generating contact lists
- perk selection and budget
- content creation (written/video) and,
- communicating updates to prospective investors
The items above are a quick reality check. Below are example tasks with likely time required. You’ll find the most complete list in the Campaign Project Plan.
Identify who “owns”
management of the campaign and assign the categories of tasks to your team if possible. The Campaign Project Plan has the most detailed list of tasks and deliverables.
Assessing team readiness
P34 table Team Member Name, Role, Hours
****Make notes here