Crowdfunding Prep Guide for Businesses: Survey Question at end.

Posted by Paul Winkle 

inIf you own a business (start-up, early stage or established) and want to capitalize it using the newly passed Crowdfunding Exemption, you will find the following information vital.

There are 8 months before the SEC is required to issue final rules for the protection of investors and to carry out the terms of the Act as it pertains to Title III – Crowdfunding.  Before businesses (issuers) can raise any funds, they are required by the Act to disclose and report a laundry list of information about their companies to a registered Crowdfund Investing Portal (CIP).  There are preparations and positioning strategies an issuer can implement now to ensure a successful raise, grow their business and create jobs. 

Here is an outline of action items you, the owner, need to be thinking of.  This is presented as a motivational guide and act as a tool for further research. 

 Corporate housekeeping and governance

The level of preparation needed here will depend on the stage of development your company is at (start-up, early stage or established). First of all, your company must be incorporated to offer equity shares.  This means researching the rules and procedures of the state you plan on incorporating in.  Consulting an attorney or accountant experienced in this area is advisable.

You should establish a management team capable of handling daily business operations and the financial and regulatory reporting requirements.  Having an Advisory Board of trusted and experienced mentors is suggested. In general, you are setting up a system of rules to follow while running your company.

Business plan and financials

Have a business plan.  All of the information you are required to file with the SEC and report to the CIP will be contained in your business plan.  This includes a description of your business, names of officers and directors, a description of the financial condition of the company, the stated purpose of use of proceeds, ownership and capital structure, the target amount to be raised and the deadline for reaching that target.  The business plan should include an elevator pitch, executive summary, due diligence documentation, financial statements and pro forms.

Utilizing cloud based electronic business plan and due diligence reporting systems that provide complete transparency as required by the Crowdfunding Exemption is preferred.  Your business plan will need to evolve as your company does.  Using a cloud based service will allow you to easily make updates as your company morphs and keep up with reporting requirements.  If you do not have the time or expertise to write a business plan, hire someone. 

Issuers are also required to produce financial statements.  The amount of the offering will determine the level of review required.  For example, companies raising under $100k are required to disclose their most recent tax return and financial statements (certified to be true and complete by the principle executive officer).  If an issuer is raising more than $500k, audited financials are required.

Valuation Model

As an issuer, you are required to provide the commission and investors via the CIP, the share price of securities being offered or the method for determining the price.  Issuers must also state how the securities being offered are being valued, and must give examples of methods for how the securities may be valued in the future.

This is an area that the issuer should seriously consider seeking professional guidance.  Look for help from qualified specialists trained at assembling valuation models.  They will draw information from   documents provided in the business plan, financials and pro forms.

In Closing

I have only mentioned some of the requirements necessary to be compliant with the reporting requirements of the Crowdfunding Exemption.   Additionally, the SEC will most likely add to those requirements in order to protect the investor (they have been granted latitude to do so).

Issuers that begin positioning their companies now will have the best chance of getting crowdfunded next year.

Survey Question

As a business owner wanting to prepare your company to raise money via crowdfunding and after researching the costs of services mentioned in the above article, what would you reasonably expect to pay for the collective, bundled services listed below?

• Incorporation services.
• Cloud based business plan, due diligence and financial reporting services
• Business plan writing services.
• Valuation services.

Navocate provides Business Sales and Acquisitions services for Emerging Companies with revenues from $3M - $30M. Specifically, Navocate focuses on the market segment above business brokers, and below investment banks. For more information please visit www.navocate.com