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A Crowdfunding for Equity Success Story in England: Righteous Salad Dressing

By Chelsea Dommert

As AnnMarie explained last week, equity-based crowdfunding has huge potential to help startup or small business owners raise capital from lots of supporters. Crowdfunding can also validate a business idea and simultaneously build a customer base. Creating a successful campaign, however, requires some savvy, and savvy comes from experience. For many, the first crowdfunding campaign has to succeed – small business owners can’t spend time running multiple semi-good campaigns just to gain experience. Luckily, it is possible to learn from other people’s experiences instead of relying on our own.

There are some really excellent case studies out there. I could throw a hundred at you, but we’re going to start with just one from England–Righteous– where crowdfunding for equity is already legal.  In the U.S., crowdfunding for equity is expected to be legal in 2013.

Righteous used a crowd investing campaign to raise £75,000 (about $121,000) for supermarket outreach.  The CEO, Gem Misa, recently did an interview with BBC radio(Gem’s interview starts at 9:13). The interview points out three crucial aspects of a successful crowd investing campaign:

 

1.    Gem started validating her idea before she started the campaign.

Gem already had some supporters before she started her crowd investing campaign. She had asked strangers whether they would buy a vegan, chemical-free, great-tasting salad dressing. She had already tried the product in a few stores. People had already tested the product, and supported the brand. Guess what? Those were the people who invested first in the company.

That surprised Gem. “I was thinking it was more of friends and family that were going to be participating, but I was so amazed that people have heard about the brand and wanted to be able to be part of it.”

 2.    Gem’s company idea was easy to explain and easy to understand.

Everybody gets the idea of an all-natural salad dressing. Crowdcube CEO Darren Westlake explains, “People invest in things that they can understand.” He says, “We’ve had a lot of success in consumer products that have been in supermarkets…people can understand those; they’re very simple.”

Take note: crowd investing isn’t for all companies. Westlake explains, “We’ve had a few kind of scientific, more complicated businesses on the site and people just don’t understand them; if you don’t understand them, you’re probably not going to back them because you can’t feel confident in your investment.”

3.    Gem had planned what she would do with the crowd’s investment. 

Righteous intended to launch a TV and radio ad campaign with the crowd’s invested capital. The comapany’s clear vision made it easy to take quick, cost-effective action after the crowdfunding campaign was over. The advertising campaign made listeners want to try the product and helped Righteous break into more supermarket chains.

There was never any question around the destiny of the crowdfunded money. It wasn’t just for administration or odd projects around the office. Gem had a plan, and Righteous executed on the plan once their crowd funded it.

 

In summary: Righteous had a simple, easy-to-understand idea. They tested that idea in the market before pursuing expansion, and their crowd investment campaign was only part of their larger strategy.

The Righteous example offers some great lessons for designing your own crowd investing campaign; soon, business owners in the United States will be able to seek crowd investment just like Righteous did. Any startup or small business owner can go start preparing their pitch right now at one of many companies including earlyshares.com. Also, anyone, regardless of income, can sign up to invest so that when crowdfunding for equity is legal in the U.S., they are ready to get in on the ground floor of innovative new businesses.

How America Works: Crowdfunding for Equity (VIDEO)

By AnnMarie McIlwain, Founder and CEO, www.careerfuel.net

Tom Szaky is a 30-year-old successful entrepreneur with a high growth, $15 million business. He, like many, believes that crowdfunding for equity—a new vehicle for raising capital, expected to be available in 2013—will make it substantially easier for small businesses to get off the ground and/or take their business to the next level. Hear Tom describe how this new avenue for fundraising could have helped him when he started out 10 years ago and how crowdfunding for equity may democratize the investment upside of early-stage companies. For anyone who doesn’t understand what crowdfunding for equity is and why they should care, Tom will put you “in the know”!

Help us tell the Securities and Exchange Commission to make it happen- click here to sign a petition  telling the SEC that we need them to finish the regulations on time (by the end of this year!) so that we can start raising money for our businesses and create jobs.

AnnMarie McIlwain, Founder and CEO of CareerFuel, is a Board member of CFIRA, a leading advocacy group working with the Securities and Exchange Commission, the Financial Industry Regulatory Industry Regulatory Authority (FINRA) and other affected governmental entities to help establish industry standards and best practices for equity based crowdfunding.

Video Production by Mayer Dubinsky Videography

Infographic: Crowdfunding for Equity

By AnnMarie McIlwain, Founder and CEO, www.careerfuel.net

According to the U.S. Bureau of Labor Statistics, 4.6 million jobs were created in 2000 by establishments less than 1 year old. In 2011, this number declined to 2.5 million­—a loss of 2.1 million jobs.

The infographic below shows how crowdfunding-for-equity, a new fundraising tool created by the JOBS Act of April, 2012, has the potential to fill that shortfall in job creation. However, crowdfunding-for-equity can’t happen until the Securities and Exchange Commission (SEC) writes the regulations. The SEC missed their first deadline in meeting this enormous challenge in July.

Please join us in telling the SEC how important it is to meet the end-of-year deadline for this new set of regulatory laws. Click here and sign the petition.

Crowdfunding For Equity Infographic

Micro Investing to Fuel America

By AnnMarie McIlwain, Founder and CEO, www.careerfuel.net

We don’t normally do opinion pieces at CareerFuel, but in light of the legislation before Congress known as the JOBS Act and its potential impact to small business creation, we offer the following perspective.

We have 3.1 million jobs available today and 24 million people unemployed or underemployed. In the absence of a massive government job-creation program, this disparity will require a wave of entrepreneurial activity to create jobs. The single biggest challenge facing entrepreneurs, however, is capital. This is a problem driven in part by market inefficiencies: a highly fragmented landscape; extensive regulations; and a system that depends heavily on one’s network (ideally of successful and wealthy individuals) to navigate.  With the scale and efficiencies of the web, crowd funding for equity is an idea whose time has come.

Individuals can gamble or play the lottery with no restrictions. How is it that a limited purchase of stock in a startup is any different in risk? While I applaud our political leaders for working together to help small businesses with the JOBS Act, the current legislation before the Senate is misguided. If it follows The House Bill, it will limit investments to the lesser of $10,000 or 10% of net worth.  Not only does this allow for too much risk for all but the wealthy investor as fraud is inevitable, but I believe it misses the spirit of what crowd funding should accomplish.

Crowd funding, at its heart, should enable the average American to participate in a sector of our economy that has long been the purview of the rich. Currently, Americans do not have a chance to invest in companies such as Apple or Amazon until its value has been largely vetted and its public market price reflects it. Limiting such investment opportunities has been a contributing factor to the 1% wealth bifurcation of our society.

Every American should have the opportunity to purchase a minimal amount of ownership, in order to be there on the ground floor and enjoy the possible rewards. Kleiner Perkins and Sequoia Capital purchased an estimated 44M shares of Google in 1999 at 57 cents per share. Each share grew to $85 in the 2004 IPO offering and would be worth $633 today, if unsold. Net, the majority of the gains (149X the purchase price) were pre-IPO, while the IPO investors gained 6.5X on their money.  Assuming the same terms that grew Kleiner Perkins and Sequoia’s original investment of $25M to $28B today, a crowd funding investment of $250 would be worth $278,736 today.

An offering limited to small denominations does not require extensive knowledge or disclosures and it should not come with any rights to influence the company unless organized by a collective group controlling (let’s say) 20% or more of the crowd funded stock.  For in the absence of limiting involvement, the already stretched small business owner would not be able to build the business. This does not serve anyone’s needs in the end.

My company, CareerFuel, would love to offer Americans a chance to “Own a Piece of How America Works”. Our product—curated and original content designed to provide the “cliff notes” on how to find a job or start a business—is inherently designed to solve their economic needs. If the average American is good enough to make my business a success, as my customer, why shouldn’t they be entitled to participate in the financial upside as an investor?

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Study Shows Crowdfunding $$ Can Grow on Trees

By: AnnMarie McIlwain

EquityNet.com, a crowdfunding platform that enables entrepreneurs to raise money from accredited investors, just released findings from a six-year study of their transactions (1,000 completed deals) and the findings are very interesting. If you have considered raising money and wonder if your company is fundable and under what terms, read on.

*Consumer and business product/service companies are popular, accounting for over 40% of equity crowdfunding activity. These are industries previously underserved by traditional venture capital.

*More than half of the completed deals are businesses in the middle of the U.S., not the coasts. Net, you don’t have to be in the Alley (NY) or the Valley (CA) to get funded.

*The fundraising amounts aren’t that big. Around 50% of businesses that use equity crowdfunding seek less than $500,000 in investment capital.

*Valuations are low and vary widely in equity crowdfunding with approximately 40% of pre-money valuations under $1,000,000.

*Investors own 20-30% of the company in the majority of deals. The lowest raises (less than $100,000) led to the highest investor ownership, as one would expect, with a median of 33%. For investment amounts between $100,000 and $500,000, the median investor ownership was 20%.

*The deals were closed pretty fast. Two months was the median length of a fundraising round according to Judd Hollas, CEO of EquityNet.

*Most businesses (70%) do not have revenue, but 75% of those zero revenue businesses expect to generate revenue in their current fiscal year. This suggests that the majority of the businesses are early stage companies and at the revenue-inflection point.

*Few (15%) businesses are currently profitable, and 90% of the remainder predict that they will be profitable in three years or less.

*Only 1 in 10 businesses have patents or patent applications for proprietary technology indicating that businesses do not have to have intellectual property to be considered fundable.

*More than half of the businesses seeking funds are legally structured as LLCsreflecting the growing use of this cost-effective corporate structure.

This means that investors are funding early-stage companies of many kinds and they are not taking a ridiculous bite out of the founder’s equity. That is good news for those businesses seeking capital while the regulations are being written for the JOBS Act legislation, signed into law last year. Once done, entrepreneurs will be able to ask unaccredited investors (friends, neighbors, relatives) to help fund their business too, further increasing the likelihood of fundraising success. The maximum raise will be $1 million.

For raises higher than $1 million, entrepreneurs will have to continue to do a private placement (otherwise known as a Reg D offering) through platforms like EquityNet or others. Additional platforms will be launching in anticipation of the JOBS Act regulations.  Once complete, these platforms will, for the first time, be able to advertise investment opportunities to accredited investors, thus expanding the market of investors and fundraising potential.

For a primer on securities-based crowdfunding, this video features Tom Szaky, a 30-year-old successful entrepreneur with a high growth, $15 million business. He describes how this new avenue for fundraising could have helped him when he started out 10 years ago and how crowdfunding for equity may democratize the investment upside of early-stage companies.

Read the full story: http://careerfuel.net/?p=7899