In April 2012, the US Federal Government enacted the JOBS Act (aka Jump Start Our Business Startups Act) to help stimulate investment in small businesses and to enable entrepreneurs to more easily advertise and solicit capital funding for projects without having to complete and file the type of extensive documentation that previously existed under Federal regulatory rules and requirements.
Before you advertise your fund raising initiative on the Internet, and if you propose to offer a percentage of equity shares in your enterprise in exchange for investment, you will want to become fluent in Regulation A+ of the JOBS Act before searching the best equity crowdfunding sites, as you will still need to comply with some basic rules and guidelines.
Here is a seven-point checklist on how to conduct a Rule 506(c) equity crowdfunding offering in the United States:
Prepare your company First, hire an outside accounting firm and prepare financial statements for the past few years of operations. Then hire a securities lawyer to draft a proper shareholders agreement, which will contemplate how to operate the company after the offering, and what rights new shareholders will have in the company. The attorney should also assist in preparing some form of offering document, as well as a subscription agreement through which investors will purchase their shares. If you expect to gain many new shareholders, you should consider engaging the services of a company such as KoreConX to help manage investor communications, and information sharing post-offering, as well as a transfer agent to handle the shareholder registry in book-entry form rather than having the company issue and manage physical share certificates.
Prepare to publicize Take a good look at all the company’s media properties: website, blog, Facebook, Twitter, LinkedIn, Instagram to determine how to use them to promote the securities offering.
Consider using the services of a financial public relations firm to help draft and distribute your press releases and conceive and execute a PR strategy for the duration of the equity crowdfunding round. You should also consider engaging in Twitter and LinkedIn campaigns to magnify the reach of your posts on these platforms.
List on a reputable equity crowdfunding site It should have a proven track-record of successfully raising money. In the United States, CircleUp is one of the premier accredited investor equity crowdfunding portal for consumer packaged goods. CircleUp has helped companies raise more than $40 million from accredited investors and has a growing list of big name companies, including Virgin America, Johnson & Johnson and Proctor Gamble, that invest in companies on its platform. To comply with Rule 506(c), you will also need to get a representation from the crowdfunding portal and certify internally that none of your or the site’s executives, officers, directors, partners or shareholders are “bad actors.”
Produce a kick-ass video This is probably the most important part of any crowdfunding campaign. Your video has to be really good. Engage the services of a videographer who has experience in short-form documentary, commercials and advertising elements.
Line up some of your current shareholders to participate To make your online equity crowdfunding offering a success, you must show you are continuously raising money from the crowd and progressing toward your fundraising goal. It helps to line up existing shareholders to participate in the offering during the first few weeks of the offering. The best way to do this is to offer existing shareholders a special deal.
Verify all your investors are accredited Rule 506(c) offerings require that only accredited investors be allowed to invest in the offering. The easiest way to verify this is to either engage the services of an accredited investor verification agent (such as KoreConX or Accredify) or if you are offering your securities through a U.S. registered broker dealer such as CircleUp, to get a representation from the registered broker dealer that it has taken reasonable steps to verify the accredited investor status of all of the investors on their site.
Close your offering and file a Form D with the SEC Companies relying on Rule 506(c) of the Securities Act need to file a Form D Notice of Exempt Offering of Securities with the SEC within 15 days of the first sale of securities in the offering.