Learn2succeed.com Incorporated - Crowdfunding for Beginners: How to Raise Money for Start-Ups, Early Stage Enterprises, Charities and Non-Profits

Crowdfunding for Beginners:

How to Raise Money for Start-Ups, Early Stage Enterprises, Charities and Non-Profits

According to an industry report by Massolution, crowdfunding platforms raised $2.7 billion in 2012 and funded over a million campaigns. Even though figures were not yet available for 2013, it predicted an 81% increase in crowdfunding volumes. In another testament to its rapid growth, in mid-2012, The Economist, in an article entitled The Thundering Herd , estimated that there were 450 crowdfunding platforms globally; compared to only 100 in 2007.

In this book, Ill attempt to put crowdfunding into the context of the socially connected world of the Internet. Initially, I will lead you through some of the preparations you will need to make before approaching the equity crowdfunding market and then Ill lead you through some of the issues which you are likely to encounter.

I will then show you the state of play for equity crowdfunding in the United States and the Province of Ontario, together with some of the regulatory hurdles that exist. On the one hand, there is a desire to make it easy for small companies to gain access to capital and thereby create the jobs which the nations so desperately need. On the other hand, there is a fear on the part of regulators that the public could loose lots of money through fraud and that they, i.e., the regulators, will be held responsible.

As a result, regulators in the United States and Ontario are arming themselves with red tape in an effort (intentional or not) to wrap and suffocate parts of the crowdfunding beast to death. Also, if youre thinking of becoming a crowdfunding investor, I hope that I will provide some sober thoughts about the potential risks and rewards.

Equity crowdfunding investments involve rules and regulations. The good news is that some American states and the Province of Saskatchewan have taken different tacks and established more liberalized regimes in which equity can be raised from the crowd.

After that Ill show you the enlightened approach taken by the British, who have adopted a much more laissez faire attitude and even provided encouragement by means of tax incentives. Then I will provide you with a brief review of whats going on in Australia and New Zealand.

Debt-based crowdfunding is already very popular at a personal level but is also gaining traction amongst the business community.

Ill cover reward-based fundraising for books, theatre productions, etc. Crowdfunders, who are supporting artistic or other causes, may be satisfied with small rewards when those artistic endeavours come to fruition. Their reward is their contribution to the social good, rather than making money.

Then, I will show you the stars of the crowdfunding show: those who raise money for charities and non-profits. They face less of a challenge because donors are not concerned about making a return on investment but rather that their money is being put to good use. If you remove the money making motive, you will remove many of the complexities!

Fasten your seatbelts and Ill take you on a roller-coaster ride through the crowdfunding ecosystem. Youll find it entertaining and informative!

ISBN: 978-1-55270-708-1

Written by: Learn2succeed.com Incorporated

Published in Canada by:

Productive Publications, P.O. Box 7200

Station A, Toronto, ON. M5W 1X8

Phone: (416) 483-0634 Fax: (416) 322-7434

Canadian Web Site: www.ProductivePublications.ca

American Web Site: www.ProductivePublications.com

Front Cover Art:

Spider web adapted from copyright free clip art from Corel Gallery 200,000 Corel Corporation, 1600 Carling Ave. Ottawa

Copyright Softcover version 2015 by Learn2succeed.com Incorporated

Copyright ePub version 2015 by Learn2succeed.com Incorporated

Library and Archives Canada Cataloguing in Publication

Crowdfunding for beginners : how to raise money for start-ups, early stage enterprises, charities and non-profits / by Learn2succeed.com Incorporated.

Issued in print and electronic formats.

ISBN 978-1-55270-706-7 (pbk.).--ISBN 978-1-55270-707-4 (pdf).-

ISBN 978-1-55270-708-1 (epub)

1. Crowd funding. 2. New business enterprisesFinance. 3. CharitiesFinance. 4. Nonprofit organizationsFinance. I. Learn2suceed.com Inc. author

HG4751.C76 2014 658.15'224 C2014-904517-4 C2014-904518-2

All rights reserved. No part of this publication may be reproduced, stored in retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without written permission of the author.

Disclaimer

This book mentions the names of a number of publicly traded companies, software publishers as well as private businesses. These are provided only by way of example and are not a solicitation to make investments in them; purchase or sell such securities or to purchase the products they offer. Readers should consult a qualified financial advisor before making any investment or purchase decisions.

No representation is made with respect to the accuracy or completeness of the contents of this book and both the author and the publisher specifically disclaim any implied warranties of merchantability or fitness for any particular purpose and in no event shall either be liable for any loss of profit or any other commercial damage; including but not limited to special, incidental, consequential or other damages.

CONTENTS

INTRODUCTION

Where Crowdfunding Fits into The Big Picture

Crowdfunding Takes Off!

What is Crowdfunding?

The Funding Gap for Small and Start-Up Businesses

Crowdfunding by Micro-Angels Could Fill the Gap

Love Money

Financial Angels

Dwindling Number of Accredited Angel Investors in the U.S.

The Canadian Angel Experience

The Reluctant Venture Capitalists

Bank Financing and Leasing

Initial Public Offering (IPO)

What Happens in Theory May Not Happen in Practice

Where Equity Crowdfunding Fits into the Big Picture

How this Book Will Help You

Chapter 1

Preparing Yourself for the Equity Crowdfunding Adventure

Setting Your Strategic Objectives

Are Your Strategic Objectives Realistic?

The Peril of Too Many Objectives

Figure Out How Much Money You Really Need

Use Cash Flow Projections to Calculate Your Needs

The Importance of Knowing What You Need

Observations on Start-up Capital Needs

Prepare Your Business Plan

The Structure of Your Plan

Economic Benefits

Address the Concerns of Investors

Risks and Uncertainties

The Offering Memorandum (OM)

Prospectus Not Required in Crowdfunding

Establish Your Presence on the Internet: Set up Your Own Web Site

Register Your Domain Name

Create Your Own Web Site

Web Hosting

Web Design Software

Add Sizzle to Your Web Site: Prepare a Video

Editing Video Content

Streaming Video

Progressive Download

Who are the Major Players?

Chapter 2

Issues You May Encounter When Raising Equity-based Crowdfunding

The Hoops Youll Have to Jump Through

The Due Diligence Process

Valuation

Expected Return on Investment

Non-Disclosure Agreements (NDAs)

Points Likely to Be Negotiated

Total Financing Required

How Much Money Has Already Been Invested?

Timing of the Investment

Dilution

Management and Other Fees

Control

Restrictive Covenants

Affirmative Covenants

The Investors View of Management

The Term Sheet

Share Purchase Agreement

Investor Rights Agreement