Our Take on a Recent Forbes Equity Crowdfunding Article
Equity crowdfunding is starting to take over the U.S. state by state. Although it is not legal on a federal level, intrastate crowdfunding, like we have here in Texas, is either active or soon to be active in over half of the 50 states. More than half of our state governments see the potential of equity crowdfunding and are allowing businesses within state borders to raise capital from non-accredited investors within state borders in return of equity. Each state has their own guidelines and everyone seems to be happy for the most part.
Nevertheless, naysayers will always turn up. Intrastate crowdfunding is not perfect but each state has shaped the rules to how they see fit. Even with these watertight rules in place, naysayers will complain about people seeing your company’s private information or you’ll get too many investors. Some people even think it’s bad for your brand for people to see you raising money with online equity crowdfunding. We aren’t sure where people get some of these absurd notions, but we are sure of one thing – we can debunk this ridiculousness.
Earlier today we read an article regarding 6 Myths of Equity Crowdfunding and felt compelled to add our two cents to the conversation. You may notice we are only defending five of the myths, because in our eyes, two of them are very similar. You will see the paired question in our list.
Without further ado, here are five equity crowdfunding myths debunked once and for all!
“You’ll get too many investors in your cap table.”
First of all, the entrepreneur is in complete control of how much of the company is being offered in the campaign. For example, Joe’s Restaurant could be raising $300,000 to open a new location. In his campaign, Joe has to disclose that he is giving up 15% of his company for raising that money. Joe can also set the limit for a minimum bid so people can’t pledge $10. If everyone pledged $100, Joe would have 300 new investors. These 300 investors would share the 15% while Joe is in complete control of his company with 85%. Also, most equity crowdfunding shares will be non-voting shares. The type of share must be disclosed in the offering as well. So in the end, unless the entrepreneur is giving up 51% of his company will voting shares, this myth is holds no water.
“People will see all your company’s proprietary information.”
First off, you can’t apply a general term like “people” to this scenario. It’s not like any random person on the web can go to your crowdfunding campaign and read all of your company’s sensitive information. When you raise capital with truCrowd Texas, you have the power to approve the investors who can view your offering. Very similar to approving friends and connections on Facebook and LinkedIn. Investors will also have to ask your permission again to see the more sensitive documents of your company and must agree to a Non-Disclosure Agreement every time they do. We take pride in our security procedures so every issuer is confident their company data is safe with truCrowd Texas.
“People will see you are raising + it’s bad for your brand to be seeking funding online.”
There is absolutely no shame in raising capital via equity crowdfunding and intrastate crowdfunding. None. Just the notion of a company being shamed by “resorting to” equity crowdfunding is almost laughable in today’s world. It is the perfect funding model for so many businesses in so many industries. The fact that a wide variety of companies are reaching their funding goals is proof people don’t see raising money with intrastate crowdfunding as desperate. Why would people invest their hard-earned money to something they see as desperate? Crowdfunding is fast becoming a very promising and accepted way to raise capital – not the opposite.
“Only companies that can’t raise offline raise online.”
Again, a ridiculous attempt at shaming equity crowdfunding entrepreneurs. For those who stand behind this notion, answer this: can you reach more investors through a fundraiser at your local town hall or on the internet? Which route would reach more people and result in more eyes on your company? This statement may have come from 1999 because in 2015 raising money online is the most effective and successful way to achieve your goals. This may very well be a misplaced statement from the 20th century so we’ll move on to our last myth.
“I already have connections to investors, so I don’t need to use an online platform!”
It is true that handshake investors are important. No argument there. But if you need to raise $500,000, do you honestly have enough hands to shake? Raising money online is not distant or unfriendly whatsoever. Our truCrowd Texas platform offers a news feed as well as internal messaging through chat and email. Traditional phone calls are always encouraged, but the fact is investors can reach entrepreneurs in three different ways. Some people don’t like talking on the phone and prefer chats or emails. Others may want an initial phone call to gauge the entrepreneur’s aptitude and qualifications before investing then switch to chats and emails. Either way, you can be even more connected than you are by seeing your investors in person once a month, once every six months, etc.
We hope we were able to dispel some of the nasty myths about equity crowdfunding today. Do you have any additional myths we can put to bed? Please share them with us!
Thank you for reading and please leave your questions, comments and additional myths below!