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It represents the beginning of Web 3.0, where the social web (or Web 2.0) combines with businesses raising capital.\nIt creates a new way for businesses to get seed funding or growth capital, and it will generate an entirely new ecosystem of businesses, business models, processes, and strategies that can be used in starting or growing a business. Just like the ecosystem that was formed around the social web, the formation of an ecosystem of businesses to support and enhance this new, highly innovative industry.\nAnticipate new forms of capital creation and financial instruments\nCreativity and opportunity generate the possibility for new strategies, tactics, and services to begin. It’ll be fascinating to watch as this new way to raise capital creates new business models and ways of thinking.\nAs society continues its move toward deeper customization of experience, more digital connections will occur, making in-person connections less regular. People will create more experiences, value, and relationships online. These sociological changes will affect how businesses grow and succeed.\nAs nations, investors, and business owners become accustomed to these types of relationships and transactions, more governments will allow cross-border capital flows via crowdfund investing. The regulatory frameworks will need to be revised to allow this, but over time, governments will see the benefits and will be able to put reasonable safeguards in place to protect business owners, investors, and communities.\nRedefine community\nWhen people discuss crowdfund investing in terms of “community-based financing,” you must understand that “community” is not just related to the geography of where you live and work. The web has made it far easier than ever before to create communities online. These communities could be communities of origin, communities of interest, or communities of diaspora.\nThe web can now connect these communities in ways that enable them to support businesses and ideas in convenient and engaged ways. This should be a great benefit for all types of communities. These communities also can assist in crowd vigilance to provide additional security and protection to reduce and eliminate fraud wherever possible.\nBuild communities and businesses based on the power of crowds\nThis is the beginning of a new chapter in the history of corporate America. Many individuals feel disconnected and disappointed in large corporations. They want to find ways to shop and invest locally, ways to support their own communities and interests.\nA few companies that were unable to get the attention of traditional venture capital and angel investors have been able to find crowds to invest in them. In some cases, these same companies have gone on to receive investment from angel or venture capital investors because the company had already received the support of the crowd and proved there were customers for their services.","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","financing"],"title":"The Future of Crowdfund Investing and Crowdfunded Businesses","slug":"the-future-of-crowdfund-investing-and-crowdfunded-businesses","articleId":167958},{"objectType":"article","id":167960,"data":{"title":"Distinguish Crowdfund Investing from Other Types of Financing","slug":"distinguish-crowdfund-investing-from-other-types-of-financing","update_time":"2016-03-26T15:12:14+00:00","object_type":"article","image":null,"breadcrumbs":[{"name":"Business, Careers, & Money","slug":"business-careers-money","categoryId":34224},{"name":"Business","slug":"business","categoryId":34225},{"name":"Financing","slug":"financing","categoryId":34240}],"description":"Before you dig deeper into what crowdfund investing is and how you can tap into it for supporting a new venture or a small business, you should have some sense of how it differs from the types of funding that have previously been available to businesses.\nSelf-funding\nSelf-funding your business differs significantly from getting crowdfund investing support. One involves your own wallet, and the other involves a whole bunch of other wallets.\nWith that technical explanation out of the way, here’s how crowdfund investing changes your need to self-fund your business: It doesn’t. The first dollars invested in your business should be your own money, and crowdfund investing doesn’t alter that fact. If you’re going to launch a business, you need to believe in its success all the way down to your core.\nTo show this belief, you need to invest in your own company. If a potential crowdfund investor were to look at your campaign and see that you’re starting off with $0, this fact would be a big red flag. By investing your own money, you demonstrate that you believe in yourself and your business model.\nHow much of your own money should you risk? It’s important to understand how you work under stress with your money on the line. Aim to invest an amount that will give you just enough stress to drive you to work hard, but not so much stress that you’ll be a worried mess and distracted from productivity.\nCredit card financing\nYou start your business with your savings, but maybe your budget doesn’t reflect every item you need. Or maybe you have opportunities to invest faster than you had planned. Either way, after your savings is tapped, the easiest source of funds is your credit cards. Unfortunately, credit cards are usually the most expensive form of debt that a business can utilize.\nIf you use credit cards to fund your business, pay them off each and every month. If you can’t do so, use them only when absolutely required. Otherwise, when you seek funding from a bank or another resource, your outstanding credit card debt will be a strike against you.\nCan crowdfund investing reduce the necessity of relying on plastic? Very possibly — if you can plan far enough ahead to anticipate your upcoming expenses and spot future opportunities for growth before they’re in your face and begging for cash. Whereas credit cards are quick fixes that often wreak long-term financial havoc, crowdfund investment campaigns demand longer-term planning and commitment.\nBank loans\nBank loans have traditionally been a source of capital for small businesses, but one of the reasons that Title III of the JOBS Act passed is that banks are not lending like they used to. Capital is not flowing from the people who have it to the people who can use it to grow businesses and create jobs.\nTo qualify for a bank loan these days, you likely need a lot of collateral to secure your loan, three years of business financials to support your case, and an ongoing relationship with your bank. If you’re an entrepreneur or a new small business owner, chances are, you don’t meet these qualifications.\nCrowdfund investments can be structured in various ways to suit the specific needs of your business. In many cases, a crowdfund investment campaign will offer investors an equity stake in the operation (meaning, they own stock in your company and earn dividends if you make a profit). However, your campaign could be structured so that your crowd is actually giving you loans, and you’re repaying those loans with interest over a set amount of time.\nClearly, the way in which you choose to structure your campaign determines whether your crowdfund investments closely mirror the services that banks provide through small business loans (in the case of debt-based crowdfund investing) or are quite distinct from bank loans (in the case of equity-based investments).\nShould you look to crowdfund investing to completely replace your need for bank loans? Probably not, even if you opt for a debt-based crowdfund investment structure. Instead, your goal may be to seek a combination of both types of financing (in addition to self-funding and any other financial resources you can muster).\nPrivate money\nWhat exactly is private money? It’s money that comes from companies or very wealthy individuals — people called accredited investors by the SEC — who, just like regular investors, want to maximize the returns of their investment portfolios.\nPrivate money organizations aggregate capital from a mix of accredited investors (including companies and financial institutions) for the purpose of making investments primarily in private companies or nonpublic offerings.\nThe goal of these organizations is to pool large amounts of investment capital and employ investment experts who can find and invest in great deals that will deliver higher rates of return than more traditional investments in public companies. (Of course, these deals also carry a lot of risk.)\nThere are three types of private money investors, which differ based on the size of the investment made and when during the company’s lifecycle the investment is made. At each stage, these private investment firms provide not only capital, but also advice, connections, merger/acquisition targets, and external accountability and expertise to help companies succeed.\nHere’s a brief overview of the three types of private money entities:\n\n Angel investors: These people usually make bets on companies at their earliest stages (sometimes called seed-stage investments) and can play the role of a guardian angel. Angel investors usually form groups to allow them to jointly review investment opportunities, share information, and provide a potential pool of dollars that will attract good company founders who want both expertise and cash.\nTypically, these types of investors have some experience in entrepreneurial ventures and want the excitement of being part of something and helping it succeed. Individual angel investors typically make investments in the $25,000 to $100,000 range, which are small compared to later-stage investments.\n \n Venture capitalists: These investors (which are usually firms, not individuals) often invest between $1 million and $10 million in companies that have begun to grow out of the seed stage and are showing traction and results in their market space.\nThe companies may or may not have revenue but likely are not profitable because they’re spending all they make, in addition to the money that’s invested in them, in order to grow as quickly and effectively as possible. Venture capitalists invest in companies that are believed to have very high growth potential and need capital to be able to scale quickly to take advantage of the market.\n \n Private equity investors: These firms tend to invest even larger amounts than the venture capitalists and look for more established companies with profits and successes that are looking for growth-stage capital.\n \n\nToday, the lines between venture capital and private equity are fairly blurry. Many times, the way the firm wants to position itself from a marketing and strategy perspective makes the distinction (as opposed to what the firm invests in).","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","financing"],"title":"Distinguish Crowdfund Investing from Other Types of Financing","slug":"distinguish-crowdfund-investing-from-other-types-of-financing","articleId":167960},{"objectType":"book","id":282128,"data":{"title":"Crowdfund Investing For Dummies","slug":"crowdfund-investing-for-dummies","update_time":"2013-02-11T12:11:27+00:00","object_type":"book","image":null,"breadcrumbs":[{"name":"Business, Careers, & Money","slug":"business-careers-money","categoryId":34224},{"name":"Business","slug":"business","categoryId":34225},{"name":"Financing","slug":"financing","categoryId":34240}],"description":"The easy way to get started in crowdfund investing Crowdfund investing (CFI) is going to be the next big thing on Wall Street. U.S. investment banks, brokerage houses, and law firms are gearing up for the creation and regulation of new financial products that will be available to the general public starting in early 2013. The introduction of these products will revolutionize the financing of small businesses and startups for these key reasons: Entrepreneurs and small business owners, who have had difficulty obtaining capital through traditional means (such as bank loans and angel investors) in recent years, will have access to investors around the world through social media. For the first time, investors (so-called unqualified investors) will be able to purchase an equity stake in a business or new investment vehicle. The Securities and Exchange Commission (SEC) is overseeing the creation of online portals that will allow entrepreneurs and small investors to connect. When these portals go live in 2013, Crowdfund Investing For Dummies will be on the front line to educate business owners, other entrepreneurs, and investors alike. Crowdfund Investing For Dummies will walk entrepreneurs and investors, like yourself, through this new investing experience, beginning with explaining how and why CFI developed and what the 2012 JOBS says about CFI. Entrepreneurs will find out how much funding they can realistically raise through CFI; how to plan and launch a CFI campaign; how to manage the crowd after a campaign is successful; and how to work within the SEC’s regulations at every stage. Investors will discover: the benefits and risks of CFI ;how much they can invest; how a CFI investment may fit into a broader investment portfolio; how to provide value to the business or project being funded; and how to bow out of an investment when the time is right. Crowdfund Investing For Dummies is an indispensable resource for long time investors and novice investors alike.","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","financing"],"title":"Crowdfund Investing For Dummies","slug":"crowdfund-investing-for-dummies","articleId":282128},{"objectType":"article","id":170856,"data":{"title":"Key Crowdfund Investing Business Parameters","slug":"key-crowdfund-investing-business-parameters","update_time":"2016-03-26T15:49:52+00:00","object_type":"article","image":null,"breadcrumbs":[{"name":"Business, Careers, & Money","slug":"business-careers-money","categoryId":34224},{"name":"Business","slug":"business","categoryId":34225},{"name":"Financing","slug":"financing","categoryId":34240}],"description":"If you want to raise money via crowdfund investing, you must grasp the statutory requirements set forth in the JOBS Act. Here are the key provisions that affect how small businesses and entrepreneurs can use this funding opportunity:\n\n Funding is limited to $1 million per year. This limit for crowdfund investing allows for sufficient seed money or early-stage investment for most businesses, while avoiding the unintended consequence of having larger organizations use this asset class as an ATM.\n \n Funding occurs on an all-or-nothing basis. This provision means that the entrepreneur or business determines upfront the financial goal for a crowdfund investing campaign, works diligently to accomplish that goal, and either succeeds (and receives the full amount) or fails (and receives nothing, despite whatever investment pledges have been made).\n \n Here are some key reasons that this provision exists:\n \n To be fair to investors: Business owners must be clear with investors about how much money they require and how that money will be used. If a business aims to raise $100,000 and promotes to investors what it will do with that money, it can't possibly accomplish the same goals if it raises only a portion of that amount. An investor who pledges to support the $100,000 project shouldn't be assumed to support a reduced version of it.\n \n To keep it lean: The all-or-nothing provision encourages entrepreneurs and business owners to think realistically and to set goals at the smallest level possible to be able to grow their businesses to the next level.\n \n To discourage fraud: If this provision didn't exist, a fraudster could potentially go online, set up a bogus business pitch, and pocket whatever amount of money he could drive to his crowdfund investing page before being exposed. The crowd has power and intelligence, and it can sniff out fraudsters before they're able to secure significant amounts of investment pledges. If a fraudster is able to get $1,000 in pledges toward a $20,000 campaign before he gets busted, for example, he doesn't get the $1,000; he gets nothing. The all-or-nothing provision essentially grants the crowd time to sniff out the frauds.\n \n \n \n Money can be solicited only from people who are connected to you via a social network. You can't post an ad to raise money for your startup idea on the radio, in a newspaper, in a magazine, or on television. Instead, you can solicit funds from people who know you by using an online funding portal to reach out to people with a general notice on your social networks. The people in your social networks may then extend your solicitation to people they know, which offers you more layers of possible investors.\nThe Securities and Exchange Commission (SEC) regulates how you can direct people to your funding pitch (on your online portal) using Facebook, LinkedIn, Twitter, e-mail, and other online networks. Visit the SEC to find the most up-to-date information on the regulations at play.\n \n Only SEC-registered websites and broker-dealers can host crowdfund investing campaigns. The JOBS Act mandates that anyone seeking crowdfund investments must do so via an SEC-registered website or, in some cases, through a broker-dealer. The websites, known as funding portals, help the SEC make sure that a company seeking funds has disclosed as much information as possible so investors can make informed decisions. They also prevent a company from getting any of the funds unless it hits its stated campaign goal. If you're going to seek crowdfund investment support, you must use one of these SEC-registered websites (or a broker-dealer). Doing otherwise will land you in trouble.\n \n","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","financing"],"title":"Key Crowdfund Investing Business Parameters","slug":"key-crowdfund-investing-business-parameters","articleId":170856}]},"relatedArticlesStatus":"success"},"routeState":{"name":"Article3","path":"/article/business-careers-money/business/financing/crowdfund-investing-for-dummies-cheat-sheet-208093/","hash":"","query":{},"params":{"category1":"business-careers-money","category2":"business","category3":"financing","article":"crowdfund-investing-for-dummies-cheat-sheet-208093"},"fullPath":"/article/business-careers-money/business/financing/crowdfund-investing-for-dummies-cheat-sheet-208093/","meta":{"routeType":"article","breadcrumbInfo":{"suffix":"Articles","baseRoute":"/category/articles"},"prerenderWithAsyncData":true},"from":{"name":null,"path":"/","hash":"","query":{},"params":{},"fullPath":"/","meta":{}}},"dropsState":{"submitEmailResponse":false,"status":"initial"},"profileState":{"auth":{},"userOptions":{},"status":"success"}}

Crowdfund Investing For Dummies Cheat Sheet

By: Sherwood Neiss and Jason W. Best and Zak Cassady-Dorion and

Updated: 03-27-2016

From The Book: Crowdfund Investing For Dummies

Crowdfund Investing For Dummies

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Crowdfund investing is a new funding opportunity for small businesses and startups that holds tremendous potential, but it's not a free-for-all. Entrepreneurs, business owners, and investors alike should know the legislative boundaries set by the JOBS Act (which opened the door to this funding resource in 2012), the risks involved in this type of funding, and the potential rewards it offers both to companies and their supporters.

About This Article

This article is from the book:

Crowdfund Investing For Dummies ,

About the book authors:

Sherwood Neiss, Jason W. Best, and Zak Cassady-Dorion are the founders of Startup Exemption (developers of the crowdfund investing framework used in the 2012 JOBS Act). They deeply understand the process, rules, disclosures, and risks of capital formation from both the entrepreneur's and the investor's points of view.

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