Equity crowdfunding in Florida is almost here. Entrepreneurs have waited years for a national equity crowdfunding regime to be finalized by the Securities and Exchange Commission, only to watch it repeatedly stall. Florida recently stepped in and created a new equity crowdfunding option for Florida businesses. If signed by Gov. Rick Scott, this new option will go into effect on Oct. 1, and will allow Florida businesses to raise up to $1 million per year from Florida residents.
Equity crowdfunding can revolutionize how your business raises money from investors.
For years, federal and state laws have made it difficult for small companies to raise investor money from anyone other than friends and family, high net worth individuals and professional investors. Equity crowdfunding can shatter those barriers by permitting your business to use the Internet to raise money from the general public and significantly increase your access to potential investors.
Raising investor money using Florida’s new equity crowdfunding option will require careful consideration and planning. Here are four things you should know:
• Be realistic: Equity crowdfunding won’t be for everyone. A successful crowdfunding campaign will require a strong public following and a commitment from the public (the “crowd”). If you don’t have a strong following for your business, particularly on social media, it could be difficult for you to achieve the exposure you need for your crowdfunding campaign to reach its goals. You will not be able to accept money from anyone who is not a Florida resident, so your presence must also be strong locally.
• Plan for the costs: Equity crowdfunding will require you to prepare legal documents and, in most cases, financial statements prepared by an accountant. This means you will need to do your crowdfunding campaign under the supervision of a capital markets attorney and an accountant. You also will need to use a bank to accept and hold investor money until your campaign is completed. These services will require you to incur fees, so your crowdfunding campaign should be planned for a time when you have the strongest likelihood of success to raise the largest amount possible.
• Be prepared to spend time: Access to a larger group of potential investors comes with a cost — you will create a large shareholder base that will take a lot of your time to manage. Managing a shareholder base is a time-consuming and delicate task, and you should not raise money from the general public unless you are willing to embrace these responsibilities.
• Be mindful of the consequences: Equity crowdfunding can take you down a different path for your future capital raises than the traditional fundraising route. Many venture capitalists and other professional investors will be weary of making investments in a crowdfunded company with a large shareholder base. If you want to keep the traditional options open, you should consider using the traditional fundraising methods and taking a pass on equity crowdfunding.