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Is it possible for a start-up to use crowd funding as a funding source before going public?

Jeff Andrews's Profile

Startup Crowd Funding Pros & ConsDo you know of any start-ups who have successfully used it? Or any who failed?

Answers

Topic Expert
Peter Freeman
Title: Chairperson - Clean Tech Committee
Company: Keiretsu Forum - Angel Investors
(Chairperson - Clean Tech Committee, Keiretsu Forum - Angel Investors) |

Not at this time. The necessary regulations for raising capital, issue securities, have not been issued by the SEC.

In addition, I hear from many sources that future fund-raises will be much more difficult for crowdfunded companies. VC's in particular are saying they won't want to deal with a lot of small, unsophisticated investors. For a one-off, it may be okay, but otherwise I strongly advise against it.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

On October 23rd, 2013, the SEC released their proposed rules, for a 90 day public comment period. If you wish to see their direction, check out their press release here - http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540017677

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

There is a great site that comes to mind which is specifically devoted to funding start-up projects, though I understand the question and responses are VC-oriented. The enthusiasm around it is high, and I personally enjoy looking at the projects that are funded.

https://www.kickstarter.com/

Jeremy Hofer
Title: Business Development Manager
Company: Fresno CDFI
(Business Development Manager, Fresno CDFI) |

We finances a startup that raised 20k via Kickstarter.com. this site doesn't provide for equity investments perse but it does essentially allow for pre sales through the exchamch of product/services for donations.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Jeremy makes an important distinction:
-Kickstarter (and its ilk) is crowdfunding, not crowd-investing, which is the new theoretical structure under the JOBS act.
-Once the JOBS act is rolled out (and there are people acting in front of it), there should be no technical distinction between "crowd-invested" and plain old friends / family / angel-funded companies.
The thing to always watch for is that if you've got whole bunch of minority shareholders, this is much more difficult to manage than having a few VCs/IBs involved. The pros know this, and their reaction to that, and potential discounting of your value, is something of which may have material import.

Note: I look at "crowdfunding" as Kickstarter (etal). With that definition, there is no impact at all as this has no equity component. My two cents is that we need to stop calling the new JOBS stuff "crowdfunding", as that already has a definition.

Cheers,

KP

Gary Honig
Title: President
Company: Creative Capital Associates Factoring Co..
LinkedIn Profile
(President, Creative Capital Associates Factoring Company) |

There are easily 20 or so niche crowd funding platforms out there that specialize in very niche oriented situations. With crowd funding the customers are not investing, they are essentially pre-buying whatever you are making and there is a sweetner in the form of a limited edition something.

Serious down line investors do not mind seeing a successful crowd funded campaign because it shows you actually have fans. If you try to raise $10K and get $50K, that's a good thing. Just remember, you must fulfill the obligations you set out when setting up the campaign. There is a lot of blow back regarding companies that raised money, spent it, and never delivered on their pre-bought product.

My sense of where crowd investing is going and will eventually end up is that these campaigns will get housed under an umbrella - Campaign No.1, and the rights will be relegated to the terms of that campaign. The terms will probably corral the group without giving it much leeway in terms of making noise, but allow for their participation on the upside.

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

Gary - my thoughts exactly. Crowd funding provides excellent proof of concept and I expect the VC crowd tunes in closely to the results achieved there.

camila parker
Title: Manager
Company: fourquadrant
(Manager, fourquadrant) |

To start-up to use crowdfunding as a funding source there is the requirement of 90 days public comment period. This is as per SEC proposed rules. If you want to make your image better before the public, you must follow the path of social media. By adopting this method, you will be able to make the public well aware of your product and this will inculcate their positive attitude towards your product and within those 90 days, you'll receive positive comments from them. http://crowdfund.co/real-estate/

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