How to choose an investment crowdfunding platform

How to choose an investment crowdfunding platform

So you want to raise money under Title III of the JOBS Act.  You know you are required to use a platform but you have no idea which one is right for you.

Here are some questions to ask the platforms you’re considering to help you choose the best one:

  1. What are all the fees and costs for using your platform?  What exactly is included and what isn’t?  If I have my own lawyer, are the fees/costs lower?
  2. Do you specialize in any particular type of business or type of offering?
  3. Can I offer any type of security or do you only allow certain types of offerings?
  4. How do you choose who can raise on your platform? Is there an application process?  How long does it take?
  5. Once approved, how long does it take for me to be able to launch my campaign?
  6. Specifically what services do you provide:
    1. Pre-raise – do you help with the design of my crowdfunding page?  do you help with completing the Form C?  do you help with marketing and communications strategy?  anything else you help with?
    2. During raise – do you promote my offering to your list?  if so, how big is your list?  do you offer any other support during the raise?
    3. Post-raise – do you help with the required reporting following the raise?  do you service the investors in any way or help with investor relations?  do you provide W-9s for the investors if I need them?  how long does it take to disburse the funds and provide a final accounting?

Also: Ask others who have used the platform about their experience – how is the customer service?  did things get chaotic right before you were about to launch?  how long did it take for them to send you the money and the final tally of the amount raised?  what kinds of support did they offer and what was the quality of the support?

Next Gen Crowdfunding is another resource you can use to compare platforms.

 

Interested in learning more? Get in touch!

If you are interested in working together, send us an inquiry and we will get back to you as soon as we can!

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Bull market may be nearing its end

Bull market may be nearing its end

Stock market investors are rewarding companies that are able to show high growth, while fleeing from companies that are not able to meet ambitious growth projections.  This preference for growth stock results from lower earnings and narrower profit margins.  Stocks are hitting records and valuations are at 15-year highs.  But how much longer can companies like Amazon, Apple, Alphabet, and Facebook continue to sustain high levels of growth?  This is exactly the situation that preceded the last two recessions.  As the Wall Street Journal puts it, “the rally in growth stocks will probably end badly.”  (For complete article click here.)

Now may be a great time to sell some of your publicly traded stocks and invest in a small private business you love!

Interested in learning more? Get in touch!

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What is the Bootstrap Trap and are you in it?

What is the Bootstrap Trap and are you in it?

Here are some signs that you are in the Bootstrap Trap:

  • You are using personal credit cards to pay for business expenses
  • You have or have seriously considered doing work outside your business to pay your expenses (consulting gigs, freelancing, driving uber, etc.)
  • You have taken out a second mortgage or home equity line of credit to pay for business expenses
    You know you need support like a bookkeeper, web developer, administrative assistant, etc., but you can’t afford it so you do all of those jobs yourself
  • When you do get outside help, you always go for the cheapest option even though the quality is not up to your standards
  • You desperately need some new equipment or supplies to be able to run your business effectively but you can’t afford to buy it or you buy the lowest quality version of what you need
  • You aren’t paying yourself a salary
  • You’re using unpaid interns which can put your business at risk (this could be a violation of labor law)
  • You know your business would grow if you could hire a sales team, professional marketing support, or some other kind of support, but you simply can’t afford the things you need that would help your business grow

How many of these are true for you?

Should you continue as you are and keep hoping that you will finally get enough revenues to be able to do all the things you want with your business?

If you have been trying to reach that goal for a while and you keep falling behind, it is time to acknowledge that a lack of resources is making it impossible for you to have the business you want. You are in a vicious cycle – without upfront resources, you can’t buy what you need to create a business that generates sustainable revenue.

If you need help escaping the Bootstrap Trap, take my new course, Escape the Bootstrap Trap 30-Day Challenge. You can start today!

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Investment Crowdfunding – now you can raise more!

Investment Crowdfunding – now you can raise more!

It’s been about one year since Title III of the JOBS Act went into effect.  This is the law that makes it possible for any business to raise investment capital from the general public in all 50 states with a relatively low level of effort and cost.

Last fall, my colleagues and I at LIFT Economy used this new law to raise over $400,000 in just two months for the Force for Good Fund.  This experience has made me a fan, although there is certainly room for improvement.

A recent article by Amy Cortese on Locavesting cited some interesting statistics about companies that are raising funds using this new tool:

Women and minority-led ventures were more successful at meeting their crowdfunding goals than their white male peers. In particular, the success rate for women was 87.5%, compared to 41% for male teams. Minority-only founders, meanwhile, had a 46% success rate.

This is amazing when you compare the success rates for women and minorities seeking venture capital.

When the JOBS Act was passed, the amount you could raise under Title III was capped at $1 million.  But the SEC was directed to increase this amount as well as other caps in the law to keep up with inflation.  So now you can raise more than $1 million per year and the per investor caps are higher.

Amount you can raise per year:           $1,070,000

Per investor caps:

For investors whose annual income or net worth is less than $107,000, the cap is the greater of (1) $2,200 or (2) 5% of the lesser of the investor’s annual income or net worth

For investors whose annual income and net worth are equal to or greater than $107,000, the cap is 10% of the lesser of the investor’s annual income or net worth

Required financial disclosures:

For offerings up to $107,000, financial statements prepared in accordance with Generally Accepted Accounting Principles

For offerings above $107,000, financial statements reviewed by a public accountant that is independent of the issuer.

For more details on the rules for raising money under Title III, click here.

If you’d like to figure out your best next step for finding the right investors for you, click here.

 

 

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Women and Capital Raising: Preliminary Research Findings

Women and Capital Raising: Preliminary Research Findings

By: Jenny Kassan and Amrita Sankar

The capital raising landscape can be extremely challenging for female entrepreneurs to navigate. We have both seen this challenge time and time again through our professional experience: Jenny has spent over two decades as an advisor to start-ups attempting to raise capital, and was curious why, when focusing on female entrepreneurs, there seemed to be a fundraising gap. Amrita has worked for the past several years in the impact investing industry as an Investments Associate; and while impressed with the new products and services targeting gender lens investing, she has still felt frustrated by the challenges female entrepreneurs face accessing capital.

We attempted to find empirical research about why female entrepreneurs are less successful raising capital, but unfortunately, we found that there are few studies that focus on this subject. While numerous studies have indicated the positive benefits of investing in women, or promoting women to positions of leadership, none of the studies we found address the nuanced question of why women entrepreneurs generally raise less capital and at a slower rate than their male counterparts. The literature that addresses this issue at all focuses on raising funds through venture capital[1], but this source represents just a tiny percentage (estimated at one-tenth of one percent) of the full array of fundraising options that are available.

Amrita talked to experts in the field of women entrepreneurs raising capital, such as Alicia Robb of Next Wave Ventures and Nancy Hayes of Golden Seed Investors, and they agreed that there is a lack of research on this topic, especially outside of the venture capital realm.

We set out to begin to gather data from women entrepreneurs about the challenges they face when raising capital. We interviewed women that had worked with Jenny to raise capital. Admittedly this group may not be representative of women entrepreneurs in general since they have been steeped in Jenny’s approach to raising capital. However, they do represent a diverse group in terms of geographical location, industry, age, and stage of business.

We heard very similar themes repeated over and over in our interviews of the women entrepreneurs. The comments we heard can be roughly divided into three categories: (1) challenges created by women’s own beliefs and mindsets; (2) challenges created by lack of knowledge of the options for business funding; and (3) challenges created by biases that exist in the world of business and finance.  Of course, these challenges are very much interrelated because external biases can cause women to have more fears and self-doubts and women’s limiting beliefs and limited knowledge can exacerbate external biases when women appear less confident in investor meetings.

Women’s Limiting Beliefs

Based on our experience and interviews (unfortunately not a large enough sample to draw any definitive conclusions, but suggestive for further research), women entrepreneurs appear more likely than men to hold beliefs about themselves and their businesses that make it more challenging to raise capital. Examples of the kinds of things we hear from women are

  • I’m not ready to raise capital (many women think everything about their business needs to be perfect before they can ask for investment)
  • I’m not qualified to raise capital (women have an image of what kind of business is “eligible” to raise capital and they assume they don’t have it)
  • I can’t guarantee I’ll be able to pay investors back (women seem to think it is only okay to offer an investment opportunity if the return on investment can be guaranteed, which of course is not what investors expect, unless they are investing in an FDIC insured bank account!)

Other things that come up are fears around rejection. Women seem to take rejection more personally and therefore feel more hurt when they get a no from a potential investor, causing them to be more hesitant to ask in the first place.

Women also tend to downplay their accomplishments and dwell on the things that can still be improved, so it can be hard for them to imagine why anyone would invest in their business.

Many women are used to doing things for themselves and are not accustomed to asking for support. They may feel that asking for investment is a sign of failure or weakness because it shows that they are unable to grow their business without any outside support.

Finally, and maybe most pernicious, many women have fears around growing their businesses. Women assume that growing their business will mean more stress, pressure, and hard work and they simply don’t want to make the sacrifices that would require. And a voice inside may say, “Who am I to do this?”

Here are some of the things the women we interviewed said:

  • Number 1 is confidence, confidence, confidence. You have to be confident that you can take that person’s money and earn some money back.
  • Probably confidence. Feeling confident that I wasn’t going to look dumb approaching someone.
  • Women don’t take themselves seriously enough, nor does the business community.
  • Culturally, female entrepreneurs are not trained to ask directly for what they want, and I think that’s a learned skill.
  • Women internalize they’re not good at math or finance.

Knowledge of the Options

Not all of the beliefs that hold women back from raising money are “limiting” or negative.  Sometimes, women are so committed to the values and mission of their business that they are unwilling to give up control to investors that will push them to grow their business at any cost. Unfortunately, many entrepreneurs are not aware that there are many ways to raise capital and that it is possible to choose a strategy that is in greater alignment with the woman’s goals and values.

External Bias

Finally, there is a great deal of evidence that bias (both conscious and unconscious) continues to be rampant in the world of entrepreneurship. While this can manifest in multiple ways (anything from potential investors making inappropriate sexist comments to women entrepreneurs to investors assuming that women won’t be as committed to their businesses because of child rearing obligations), the most pervasive problem is investors’ unconscious belief about what an investable entrepreneur looks like. I don’t know any investor (including myself (Jenny)) who hasn’t been affected by this unconscious bias. I’ll admit that a tall, gray-haired, white man who confidently introduces himself as a serial entrepreneur may “feel” more investable to me than a woman who reveals that she has had both successes and failures and doesn’t come off quite as self-assured. What I have learned over the years is that these impressions are often very bad predictors of who actually will be the best steward of investors’ money.

Here are some of the things the women we interviewed said about biases they’ve encountered:

  • I think there is a subconscious bias. There’s an expectation that women will take a break to have children, or maybe aren’t viewed as seriously. I think women are equally prepared and capable, and it’s a matter of getting into the room and having those introductions.
  • I’m just speculating, but I would guess that there is an old-boys network that women are not really part of yet. That’s my suspicion.
  • Men have more credibility. I was talking to another entrepreneur, he’s in the same boat I am. And when we spoke he got a $10,000 loan [which I didn’t get]. And so part of me thought part of it was because he’s a white man.

Conclusion

Further research is needed regarding female entrepreneurs raising capital.  As long as women keep their businesses small and struggling, our economy is being deprived of an amazing source of innovation and wealth creation.

The National Women’s Business Council noted there is a strong need to promote a broader range of alternatives for capital access, as female entrepreneurs experience a pronounced disparity in attempting to raise angel and venture capital.[2]  And, as noted above, this approach may be wrong for the vast majority of women entrepreneurs (and entrepreneurs in general).

We call on the academic and research communities to devote some serious resources to the study of what stands in the way of women raising the money they need to grow their businesses to the ideal size and thereby make the contributions they are capable of making to our economy and future.

What to do if you need to raise money now!

Just knowing that you’re not alone – that many of the limiting beliefs that go through your head are so common can help you recognize that they are just thoughts and you don’t have to believe what they say!

Another important step is to get informed about all of the different potential sources of capital so you can find one that fits your unique goals and values.

Finally, don’t try to do it alone! Join a supportive community of like-minded women entrepreneurs and go through the process together.

To apply to talk to Jenny about your capital raising strategy, click here.

[1] Raina, Sahil. “Research: The Gender Gap in Startup Success Disappears When Women Fund Women.” Harvard Business Review. Harvard Business School, 19 July 2016. Web. 21 Apr. 2017.

[2] Entrepreneurial Ecosystems and Their Service of Women Entrepreneurs. The National Women’s Business Council, Apr. 2017.

Interested in learning more? Get in touch!

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