Friday, December 9, 2016

Crowdfunding: Some considerations

Crowdfunding allows the average consumer to invest in the average [new] company, while before the JOBS Act of 2012 that early participation was open to accredited investors only.

Things for anyone considering investing under Regulation A+ or Regulation CF that came out of CrowdInvest Summit 2016:

  1. Businesses need people who care about what they are selling. Crowdfunding is the ultimate validation of product value to their best customers.
  2. Crowdfunding seeks out the "investomers" and democratizes the investment process.
  3. What is the Pre-Money Valuation ? Where is the business heading ?  Where will the funds be spent and why? Marketing budgets can be around 5% of a crowdfunding campaign.
  4. People invest in what they love, and in what they understand.
  5. What's the exit strategy ? 
  6. Regulation A+ requires an independent GAAP audit, while Regulation CF an independent review of two years of financial statements

Key takeaways For Entrepreneurs

  • Can you be the best evangelist for your product ?
  • Do you have a proven ability to execute ?
  • Can you balance teams in a start up ? (for example don't have three engineers and zero marketing people, but have engineers, marketers, as well as salesmen on your team)
  • What does your business need ? That's where you want your focus.
Real Estate Crowdfunding Considerations

  • There is some idiosyncratic risk at the asset level
  • Lots of opportunities with an asymmetric risk profile
  • What CR funds look for are great assets, but mismanaged

Mistakes [some] entrepreneurs do

  • When they pitch they don't tell a story
  • If they have patents, don't realize patents can be difficult to protect.

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