Crowdfunding: A Guide to Raising Capital on the Internet

CHAPTER 5

Business Planning in Preparation for a Crowdfunding Campaign

David Feldman

Richardson & Patel

As we know, before companies may sell equity through crowdfunding, the U.S. Securities and Exchange Commission (SEC) must pass rules to implement the provisions of the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act crowdfunding provisions require the SEC to pass rules, after which companies can raise money. But as of this writing, equity crowdfunding is not yet available.

That said, companies should start thinking about how to get ready for crowdfunding when it does arrive. The first question, of course, is going to be which companies will find crowdfunding attractive? One key provision in the JOBS Act states that a company considering a crowdfunding round must not have raised money in the 12 months prior to doing so. More specifically, the act states that any crowdfunding plus other money raised cannot exceed $1 million in the 12 months prior to the raise. So you can, for example, raise $500,000 before crowdfunding then raise another $500,000 in a crowdfunding round. But if you have raised $1 million within the past 12 months, crowdfunding will not be available.

This is important because it means that many companies will find they are not eligible for crowdfunding. Many of my clients are raising money on an ongoing basis. These companies will not qualify. Who will qualify? Very early stage companies, maybe even doing their very first round of financing. I believe, ...