When the SEC releases their rules about equity crowdfunding as required by the JOBS Act, there is going to be an explosion in crowdfunding startup businesses on the Internet.
That loud noise you hear coming our way is the sound of billions of dollars pouring into new businesses through crowdfunding as soon as the SEC releases the JOBS Act rules. If you’re an entrepreneur, you need to be ready now so you’re not trying to play catch up when the rules are released.
The Jumpstart Our Business Startups Act (the JOBS Act), signed into law in April of 2012, will allow equity crowdfunding – raising startup capital by selling small amounts of stock online to a large number of people. Equity crowdfunding online is illegal, even though rewards-based crowdfunding on sites like ClickStartMe allow people to raise money to start a business as long as they do not sell stock or ownership. [pullquote]That loud noise you hear coming our way is the sound of billions of dollars pouring into new businesses through crowdfunding as soon as the SEC releases the JOBS Act rules.[/pullquote]
Congress gave the SEC until January 1, 2013 to release the rules for crowdfunding. Unfortunately, most Americans are all too aware that government legislation is not exactly a poster child for efficiency and meeting deadlines. Mary Jo White, the new head of the SEC, has said that finishing the rule-making mandates of the JOBS Act is a priority. Most people expect that the rules will go into effect in late 2013 or early 2014.
We’ve got our fingers (and toes) crossed that it will be sooner rather than later. If you’re an entrepreneur who is planning to utilize equity crowdfunding once it’s legalized, you should do certain things NOW – with the emphasis on “now” for a reason. If you wait for the SEC rules to come out to start these preparations, you’ll miss the first huge wave of money flowing into new startups.
Here are 5 tips to help entrepreneurs prepare for equity crowdfunding now:
Build social media networks
Crowdfunding relies on getting the word out to potential investors, and there is no better way to spread the word than through social media. Everyone involved in your business startup needs to personally be active on Facebook, Twitter and LinkedIn at a very minimum. Start building your network of friends and followers now. It’s too late once you launch your business social media pages.
Interact with your social media friends and followers
Just going out and adding hundreds of friends and followers to social media is not enough. You need to engage them so your posts and Tweets are on their radar when the time comes to launch your crowdfunding project. You have to interact (post, comment, like, tweet, etc.) with people for your posts to actually register on people’s timelines. This takes time. If you wait until you’ve started your crowdfunding project, your posts and updates are going to be lost and unseen. Start interacting with as many people as you can now so that they actually see your posts when it matters for funding.
Interact With Writers and Bloggers
No matter what your new business is going to be, there are already people writing and blogging about it. Find those writers and bloggers now. Friend them on Facebook, connect with them on LinkedIn and follow them on Twitter. Getting a writer or blogger to eventually publish something about your crowdfunding project could make or break you, so start to establish those relationships now, and make sure you add a @blogger or @writer when you tweet to give them a shout-out.
[pullquote]A proper business plan is a necessity to give your crowdfunding project the best chance of funding success.[/pullquote]
Write a great business plan
Unlike rewards-based crowdfunding, where people often donate based upon pure emotion or a great video, equity crowdfunding is an actual investment into owning a business. If you think investors are going to buy into your startup company just because you have a cool video, think again. A proper business plan is a necessity to give your crowdfunding project the best chance of funding success.
Get an accountant involved
In all likelihood, the final JOBS Act rules are going to require a level of professional financial review before you are allowed to use equity crowdfunding. Even if you are starting a business from scratch, you will need preliminary financial statements of everything you have done to start the business. These financial statements can take time to complete, so get in touch with an accountant who understands the JOBS Act, and can help you now.