Crowdfunding is, basically, a form of community funding that occurs via the online space. There has been an explosion of this method in recent years, in which a business establishes an online fund to attract interested parties, who will then donate to the fund with the expectation that the money is used solely for the stated project.
There are, of course, some legal restrictions – for example, every eligible company must be accredited, and then approved by the Securities and Exchange Commission (SEC). This can have stringent requirements that are difficult for small businesses to meet; this stifles competition in a free-market system by giving pre-existing large companies an advantage.
Enumerating A Few Issues with Crowdfunding
Although this investment technique has worked wonders for large companies looking to fund a new extension of their business, crowdfunding has some difficulties associated with it. Remember: an established company already has a legion of consumers, which makes it much less costly to corral funds from them.
• If you’re a small business and just beginning, it may be hard to garner interest from venture capitalists; similarly, you may not have the capital for promoting crowdfunding to the average investor – although sites do exist to help with the latter.
• If you do manage to corral an angel investor or group of individual investors, then they may want a vote in how your company proceeds – somewhat similar to a stock. Inevitably, this means you’ll also need to provide information updates on company performance, and even hold yearly meetings with the highest shareholders. Keep in mind that resources are scarce for small businesses.
• Regulation by the SEC may stifle your efforts before you even get off the ground with crowdfunding. Among many other things, investors could lobby a claim of misrepresentation against your business if they don’t see enough movement on the product or service. Litigation is expensive even if you win, frankly.
A Few Other, More Technical Issues
You’re not out of the water yet when it comes to crowdfunding. Even if you’ve managed to target the right crowd, you could also face issues with patents, copyright and trademarks. You must make sure that every image, video and piece of content you use is licensed to you for use in your campaign. Ultimately, there’s a lot to cover, and you would do better with help from the experts at Lionheart Commercial Capital to see the project through. Once done, there are plenty of crowdfunding options that are available to SMBs.
