JOBS Act – What entrepreneurs need to know

Last week President Obama signed the JOBS Act.  What entrepreneurs need to know about crowd funding?  Listen Below:

The JOBS Act is a legislative package designed to jumpstart our economy and restore opportunities for Americas primary job creators – small businesses, start-ups and entrepreneurs. The act allows small companies to solicit investors over the web and participate in crowd-funding.

The power of the Internet makes it much easier for small companies to tell their story and raise capital. This act is very positive for small business, but we may also be embarking on the wild wild west for start-up funding over the coming years.

Positives:

  1. The Internet provides a highly efficient way to communicate your story and manage an investment offering. You can use videos, offer product demonstrations and customer testimonials.
  2. Crowd Funding opens up your doors to millions of potential investors that you typically could not access.
  3. Crowd funding provides opportunities to promote your brand and acquire customers.

Challenges:

  1. You will likely have a much higher number of investors to manage with Crowd Funding. There are limits on how much one can invest set at 10% of the investors income or $10,000 maximum.  Do you want to manage hundreds of investors – this can take up alot of your time?
  2. You should develop a Communications and Investor Management plan.  You probably want to delegate some of these duties to your marketing manager.
  3. You need to hire a lawyer and prepare an offering document and legal structure for the deal.
  4. You can still be liable for errors and omissions so make sure you have appropriate risk management insurance.

What about sites such as Kick Starter used for funding projects and not selling equity?

I like sites such as Kickstarter because you get customers, funding and you don’t give up equity.  This is the best of both worlds.  Here are some tips for success on crowd funding sites.

  1. You must have a really compelling offer.
  2. You must perfect your Pitch – Awesome Video is a must.
  3. Its an all or nothing raise – so if your goal is $50,000 and you raise $25,000, then you get nothing.
  4. Set realistic funding goals.
  5. Set realistic time lines.

Crowd Funding has great opportunities, but investors must realize the high risk.

  1. Most small businesses fail and the odds are you will lose your money in these deals.
  2. Be on the watch for Internet crowd funding scams.  Deals that seem too good to be true – always are.
This legislation likely will not be effective until early 2013, but be prepared for a huge trend towards crowd funding.

Thanks for listening to John Martin SBR – the entrepreneurs source to learn, grow and succeed.

John Martin – Host of SBR

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