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Sabrina Parsons’ Weekly Tip: Key Insight Into Crowd-funding

Sabrina Parsons’ Weekly Tip: Key Insight Into Crowd-funding


Hi, I’m Sabrina Parsons and this is your Tip
of the Week. A lot of times people want to ask me about
crowd funding. What is it? Is it legal? You’ve probably read a lot of things
about crowd funding and the Jobs Act, and it can be really confusing.
I think my biggest tip is to do some reading. Just type in “Jobs Act” and
“crowd funding” and you’ll get a lot of informative articles. We have one on
Up and Running that you can take a look at. At the end of the day, very little about crowd
funding is actually completely legal today. What crowd funding
was intended to mean was the idea that you could put some information about
your business somewhere, for instance, a website, and then you could solicit
investors and they would get equity or shares in your company for their
investment. Right now that’s not legal. You can only do that with accredited
investors. You can’t actually go out and get money from
anyone. It’s got to be someone who has been deemed by the federal government
to be an accredited investor. Again you can research what that means. Mainly,
this is a wealthy individual and they’ve got to prove it through
their tax returns, that they’re a wealthy individual. So people have a lot of confusion about, “Well,
what about Kickstarter? Isn’t that crowd funding?” There’s a big,
big difference. In Kickstarter, you’re not selling equity to your company.
What you’re taking, for the most part, is pre-orders or simply donations or
support for your business. You’re not actually giving equity away. It’s
a great way to think about potentially raising some funding if you have
a product in particular that you can put out there and you can excite people,
and you really, truly will deliver the product. But it’s not crowd funding
in the sense of crowd funding being a way for any person, random
people, anyone in the world, in the United States, to invest and get a share
of your company. It may be that crowd funding becomes legal
in the future. Right now you can publicly announce and publicly go out and
advertise that you’re raising money, and that’s a big change from the past.
But if you publicly go out and announce that you’re raising money, you
need to make sure that you’re accrediting your investors in a very thorough
way in order to comply with where we are today with the Jobs Act. So read up on the Jobs Act. Understand the
difference between Kickstarter and sites like Kickstarter – Indiegogo is
another one – and understand what’s allowed and what’s not allowed. When
you start to think about fundraising, touch base with a lawyer or somebody
who’s got experience in really going out there and helping to raise
money, and can help you understand the pitfalls, the agreements, the
contracts, everything that you need to have in place if you’re actually going
to go out and raise investment money. So that’s my tip for the
week.

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