Small Business Finance News

How Small Businesses Are Preparing For Crowdfunding

Written by Tim Morral
Published: 5/3/2012

Small companies are beginning to lay the groundwork for crowdfunding initiatives created by the JOBS Act.

Last month, President Obama signed the JOBS (Jumpstart Our Business Startups) Act, a piece of legislation that will make it possible for small companies to raise capital from small investors by registering on an Internet-based crowdfunding platform.

Business Crowdfunding New SEC Rules

The SEC has nine months from the date of enactment to prepare guidelines for the investment vehicle. But according to PR firm, Ugly Dog Media, small businesses need to start preparing now, long before crowdfunding goes live later this year.

"Although the crowdfunding sites will not go live until near the end of this year, there is still a lot a small business can do, and needs to do to get ready right now," says Dan Blacharski, president of international PR firm Ugly Dog Media. "Although you will have an opportunity to describe your business on your crowdfunding listing, most investors aren't going to make a decision based solely on a 300-word pitch. You need more, and savvy entrepreneurs are already getting their ducks in a row to make sure they have everything in place."

As with any type of investment opportunity, crowdfunding will require entrepreneurs to compile specific types of marketing documents, including a brief prospectus, private placement memorandum, brochures, single-page elevator pitches and web sites.

Entrepreneurs can also begin meeting with potential investors to secure "pre-commitments". By taking the time to solicit investment commitments in advance, business owners and startup entrepreneurs can generate significant investment activity on the first day crowdfunding platforms go live -- creating momentum and giving them an edge over other businesses in their competitive set.

"On the first day the crowdfunding sites go live, there will be a rush, both on the part of businesses seeking funds, and the investors that have it," says Blacharski. "Those that have everything ready to go immediately, including informative and fully detailed investment-oriented marketing documents and an initial group of investors that have already expressed interest, will have an opportunity to take advantage of that initial crowdfunding buzz and get in on the first wave of funding to come out of it."

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