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A-M-A Equity Crowdfunding AMA

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Eskil

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For the past few months, I have been working hard on preparing an equity crowdfunding campaign for my business. I have learned an enormous amount of stuff I didn’t know before and I feel now is a good time to share what I have learned here so others may also consider this as a viable funding option for their business.

First the basics
What is equity crowdfunding, and how is it different from crowdfunding like Kickstarter / IndieGoGo?
Traditional crowdfunding has been around for several years now and as most of you know – it’s where anyone anywhere can support a project by donating, or “pledging” money. Usually it can be anywhere from $1 and up - and people can do it out of sheer good will or in hopes of receiving a product from your first production run.

Equity crowdfunding share the similar “by the people for the people” concept (the crowd), but instead sells actual equity or debt in your business. So instead of being backers and fans, people supporting you legally become your investors

Before summer 2016, this was not possible. The ‘Jumpstart Our Business Startups Act’ was proposed in 2012 and finally passed by congress into law in 2016. So, equity crowdfunding for “the common guy” is still fairly new territory. Before, this was only for accredited investors and VC firms. Now anyone and their grandpa can do it. It is formally referred to as “Title III Regulation Crowdfunding” and every business that goes through it must pass due diligence and approval by the SEC.

Who is it for?
Equity crowdfunding isn’t for everyone, but can be a great way to raise capital if:
  • You are at a point where you could use some serious growth capital to take things to the next level, and perhaps you have either exhausted or can’t accept other forms of funding
  • You are willing to give up some equity in your business in order to accomplish a larger goal (but it’s entirely up to you how much of a percentage, and what your valuation is)
  • Your business/product can show a good track record and/or can prove big potential and projections that will convince investors that they can get a good return
I would not recommend this to someone just starting out, doesn't have a strong brand, or someone with a business that heavily relies on a third party for majority of sales such as Amazon.

Some general key points and benefits to equity crowdfunding
  • You set your own company valuation, number of shares you want to sell, and the price
  • You can raise as much as $107,000 without having to hire a CPA
  • You can raise up to $1M per year if you also hire a CPA to review and “vouch for” your financial statements
  • Raising money this way can bring awareness to your brand to larger companies and players
  • It's entirely up to you if you want investors to have a say or control in your business (you can structure the deal however you like, including things like paying dividends or not)
Some downsides
  • The process of setting everything up, filling in all the paperwork, waiting for due diligence and approvals can be quite tedious. I started my process in August and just now had my campaign go live on November 1st. So expect 3-4 months before launch time.
  • Since you are not just giving away stickers or a free t-shirt like on Kickstarter, and this is serious business – that means every word and detail in your offering MUST be correct and worded just so. You have to be careful with any claims or promises that could seem misleading (even if they are true and you are being honest). This means more back and forth with editing and approvals. Luckily, platform support staff have people with legal knowledge who will help you along with this process.
  • If raising more than $500k, detailed annual reporting to investors is required by law.
Why I chose StartEngine
As of this writing, StartEngine is one of the top equity crowdfunding platforms available, and the second most active platform (similar to how IndieGoGo is the second largest after Kickstarter). They claim to have the largest total investments (in dollars) compared to other platforms. I did a lot of reading and comparisons between the different platforms before I chose this one.

Other notable platforms are;
SeedInvest.com
Fundable.com
WeFunder.com
Republic.co

Other benefits of StartEngine
  • They have 23.000+ active and registered investors already on board. Every time they announce a newly launched campaign – yours will be sent out as a newsletter to all those investors
  • People can buy equity in your business for as little as $100
  • They only charge 6% of the invested total (some other platforms take 7-8% or more)
  • There are no upfront fees and costs (some platforms charge $1000-$6000 to set you up)
  • You can add in pixels for things like Facebook, Google Adwords, and Gleam – allowing you to effectively retarget and remarket to people who have been interested in your page
  • You can set your minimum goal raise as low as $10k, and begin immediately withdrawing funds once you hit that number (as long as 21 days have passed).
  • You can withdraw funds as often as you want during the whole raise period
  • You can run the raise for 3 months AND if you want to / need, amend to have an additional 3 months time to raise. Essentially giving you 6 months all in all to make sure you get maximum exposure and investments
  • Their online campaign editor is really nice and makes it easy to design an appealing story page with all the right visuals (mobile responsive too of course).
But I will leave at this for now... Go ahead, ask me anything! :)
 

AgainstAllOdds

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Eskil - thanks for making this thread.

I noticed that your StartEngine page is down. Is that because you decided to not raise through StartEngine? If so, is there something wrong with their service?
 

Eskil

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The page is only down temporarily and in a "cooling off" period set by StartEngine. I posted about what happened in my Insider's thread here:
https://www.thefastlaneforum.com/co...-prototype-to-sales.50951/page-19#post-652283

It should go live again on December 8th.

For those who can't read the Insider section;

Now, the not so good news about the equity crowdfunding campaign: The morning that I flew out to Dallas - I had sent out a big launch email announcement to our newsletter in the morning. On my layover in Denver, I get a call from StartEngine saying that my launch email was supposedly "non compliant" in language and that they needed to talk to me.

Confused, I called back from the airport and asked what this was all about, since clearly I had spent a lot of time very carefully crafting the wording in that email - knowing that there are very strict guidelines as to what you can and cannot say when it comes to investments (the SEC is very strict on this sort of stuff to protect investors, prevent insider trading, unfair knowledge, etc. - rightfully so!).

But yeah apparently, they (StartEngine's legal team) thought my email was non-compliant because my email header stated that the SEC has authorized / approved my company to sell investments. Of course - that is the truth. Through the due dilligence process, an application goes out to the SEC (from StartEngine), and they (SEC) then approve that submission. Simple as that.

But - in the opinion of the StartEngine legal team - they claim the words 'approved' and 'authorized' is the same as saying the SEC is "endorsing" and "recommending", which is obviously far from what I was claiming or even insinuating! A big WTF if you ask me.

I pointed out to them that even their own comprehensive marketing guidelines document mention no such thing, and never says you can't use those two words. I have also seen other companies use the term 'Approved by the SEC' before in equity crowdfunding advertising, and to me - that simply informs people that we have been accepted (not "recommended/endorsed") to sell investments. Those are two totally different things to say.

Well, because of all this - their legal counsel advised them to temporarily close down my campaign page for THIRTY days(!) as a "cooling off" period! So yeah I was NOT happy about all that since I think people seeing the page down already looks really bad, but I am still having a dialogue with them via email to get them to reconsider.

So that's my long answer to your short question, lol :) Essentially nothing wrong with my offer or StartEngine as a platform - other than that they have an overly zealous legal team and incomplete guidelines.

Lesson learned: Have any marketing language (down to EVERY WORD) of your campaign approved by either the crowdfunding platform's team or your own attorney before using it. ;)
 

BD64

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@Eskil Perfect timing for this thread. I've actually just recently started working with a startup and we've launched a SE campaign a week ago. Has been a nightmare so far to say the least.

The campaigning and planning was started only 2 weeks ahead of the SE launch and stuff like social media/website all had to be done from scratch in that timeframe. SE also didn't let us know (atleast from what i was told) when exactly the thing would kickoff, they just said "sometime this week" lol.

Anyway, I'm curious to hear what you've done in preparation for your launch. And will that 1 month delay cut into your total campaign time? I'd hope not.
 

Eskil

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SE also didn't let us know (atleast from what i was told) when exactly the thing would kickoff, they just said "sometime this week" lol.
Lol wow, yeah that was one thing I thought was weird too. There was no notice ahead of time of the launch date/time (other than vague messages from them saying "soon"), so I thought they would display a "Launch" button on the back end that I could manually trigger myself when I was ready (just like they do on Kickstarter). But nope.. I randomly found out one morning that they had suddenly just launched it, lol.

As for preparations, yeah I still have a big list of things I am going to do to get the word out. But I am holding off until they have sent out the campaign to all of their investors first. I'm gonna talk to them about the campaign time since it would not make sense that the 1 month would be taken off of that.
 

BrandonS85

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What's your SEC compliance cost so far? How has it compared to something like 506 compliance (That is if you've looked)?
 

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