CrowdClan | Michael Ibberson | Jan 6, 2014

Understanding Equity Crowdfunding in North America and Europe

Equity crowdfunding will continue to rise once the newest regulations have been ironed out and approved. In the meantime, a few start-ups have already launched campaigns for capital in North America, begging the question, “How does one set-up an equity crowdfunding campaign?”

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Now that businesses can advertise their want of investment, many of the components of a typical rewards-based campaign transfer over (i.e. social media, security, goal making, storytelling, etc). With this said, there are vast differences to consider if you are an entrepreneur in North America. Let’s take a look at a basic equity crowdfunding model. Keep in mind that these steps will change slightly portal-to-portal, so do additional research prior to launching your campaign:

Create a Profile and Submit Your Financials

Creating a business profile is step one. Doing this beforehand is a great idea to let investors know your future intentions. Every portal will require you to disclose certain information pertaining to your business’ financials. Once this application has been reviewed and approved, you are free to move on to the next step — the business plan.

Posting your business plan helps investors understand the value of your offered equity as well as the promises and risks inherent in your model. The business plan is a very important aspect of the campaign. Since there will be a standard of disclosure, the business plan is the main creative focus for start-ups to attract and intrigue investors.

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Before ever going live, you will also need to establish crowdfunding rounds. An example of this could be private networks versus public networks during the first two weeks. Before starting this phase, however, you should have already begun soliciting and conversing with potential investors in the industry. Like in the rewards-based model, pre-existing contacts is a huge asset.

Finding Investors

Investors registered on each individual website will be able to view your business’ profile and proposed plan. Investors cannot access your disclosed financials until the project creator has given the green light. For security purposes, many portals have measures in place that log investor activity to ensure proper behavior while reviewing such sensitive information. Remember that even if the investor shows interest in your start-up, they can still back-out before the deal closes. Similarly, if your campaign does not reach its goals, all pledged investments are returned in full (all-or-nothing models seem to be most popular so far).

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