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- What are the terms of the proposed investment? You will need to structure the terms of the investment. Will your company offer equity or debt securities? Will there be a minimum amount of investment before any funds are released to your company? What additional rights, privileges and preferences will the investors require? It will be important to design a balanced investment structure that not only is good for your business but also attractive to potential investors. Over time, it is likely that the equity crowd funding transactions will evolve to have standard terms and structures, which should result in more efficiency and lower costs for document preparation and other fundraising logistics.
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- What are the costs? There will be accounting, legal, funding intermediary and other investment-related costs for these equity crowd funding transactions. It definitely will be a situation where you will need to spend money to get money. Cost will be a critical factor in determining whether equity crowd funding really can help small businesses.
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- Are you ready? Quoting John Wooden, failing to prepare is preparing to fail. You will need to prepare and file documents with the SEC, both as part of the investment transaction and annually thereafter. Your filings will need to meet the required regulations and reflect well on your company. You also will need to prepare marketing materials (such as an executive summary, slide presentation and business plan) and a video presentation that describes your company and the investment opportunity. With the limited attention span of the Internet, you will need to optimize the opportunity to attract investment when potential investors review your company materials.
What Do You Think?
It is an exciting time for small business and equity crowd funding should present a tremendous opportunity for many companies. Do you believe that the JOBS Act will create significantly better financing opportunities for your company and small businesses in general? Will the setup, legal, intermediary and ongoing disclosure requirements be too burdensome for most small companies?
I look forward to hearing about your plans to use equity crowd funding and how you believe it will help your company.
Upcoming Webinar: Equity Crowd Funding Is Coming.