Investment Crowdfunding Is a New Source of Funding for Startups and Other Private Businesses In North Carolina
North Carolina businesses can get needed funding by offering both equity and debt securities to accredited and non-accredited investors now that the Federal JOBS Act and the NC PACES Act investment crowdfunding laws are in effect. CrowdfundNC provides the education, partner resources and advisory to help make your company investable. We’ve partnered with the experienced broker/dealer securities company Localstake to provide the LocalstakeNC investment crowdfunding platform to facilitate the capital raise process.
What is Investment Crowdfunding?
It is a new way to raise capital from your community, customers, professional investors, and other supporters of your business. Investment Crowdfunding uses any securities exemption strategy to your business (allowing accredited or non-accredited investors), marketing strategies, and technology combined with your business’s compelling story to facilitate the raise process in a way that is efficient and effective for both your business and the investors.
Investment crowdfunding has been used by thousands of entrepreneurs to raise over $2.5B of investment capital since 2012. Over $200M has been raised from mostly non-accredited investors leveraging Regulation Crowdfunding (Reg CF) since 2016.
Aside from the billions raised via Syndication and other accredited rounds, here are some fascinating Reg CF Stats:
- May 2016 – Dec 2018: $107.9M raised
- 2019: $121.3M, a 62% increase over 2018 ($75.8M)
This is just for businesses who want to raise from non-professional investors, right?
Actually, it’s for your business to raise funding from any type of investor. Your business can perform a private ‘traditional’ raise to ‘strategic investors’ or a known group of accredited investors. Your business can also perform a public raise allowing anyone to participate. Webinar on Investment Campaign Marketing Do’s and Don’ts. Your business can even perform a side-by-side (aka “Concurrent”) offering where you can strategically group accredited and non-accredited investors into separate exemptions, allowing you to potentially raise more funding.
Why is Investment Crowdfunding a strategic way to raise capital?
Unlike the offline raise process, Investment Crowdfunding provides your business the ability to make your raise strategy match your business strategy, not the other way around. You get to choose which investor base you’re making an offering to and what your terms will be to each investor base. You can create equity and/or debt offerings, and you work with your advisors to determine the terms of the offering. Our advisory services and partnership with Localstake helps guide your business through this decision process.
How is my business able to raise capital from anyone, accredited or non-accredited?
Our partner platform is a registered Broker Dealer. As a Broker Dealer, they allow your business to sell any type of exemption available which means you can pick exemptions which best meet your business’s strategy. A variety of traditional and new offering exemptions can be used by your business.
- 504 – Private Accredited and Non-Accredited
- 506(b) – Private Accredited
506(c) – Public Accredited
- Regulation Crowdfunding (aka Reg CF) – Public for anyone to participate
- NC PACES – NC Businesses only and public for any NC resident to participate
- Reg A+ aka Online Public Offering (OPO) – Public for anyone to participate
CrowdfundNC advisors, Localstake NC, and your attorney can help you understand the requirements of each.
Another option is to make a website yourself if you prefer to use a smaller offering type called a Local Public Offering (LPO). But if you make your own, your website has to be compliant with the PACES law and the rules on the NC Secretary of State website, so you should get familiar with those too. Read the FAQs first, then the PACES Act rules to get a good idea how this all works.
How much can be raised using Investment Crowdfunding?
Based on results across the industry, typical raises are $100K minimum, $250K on average and can go into the millions based on the exemption chosen.
Exemption fundraising limits are as follows
- 504 – usually up to $5M per year
- 506(b) – no cap
- 506(c) – no cap
- Reg CF – up to $1.07M per year – Potentially Raise More with a Concurrent Offering
- NC PACES – up to $2M per year
- Reg A+ – up to $50M
Equity or Debt Offering Types can be used
How do I raise money with Investment Crowdfunding?
Both established businesses and new startups or small businesses can leverage investment crowdfunding. Again, there are multiple exemptions and offering types businesses can use in order for their raise strategy to match their business strategy.
If your business is just getting started, first, just as you would with any other source of funding, create a viable business model and plan, and build traction points.
- Successful traction points could include:
- Successful Minimally Viable Products (MVPs) or Proof of Concepts (PoC)
- Strategic partnerships established
- Purchase Orders or Letters of Intent secured
- Revenue generation
All of these and more will be evaluated by your potential investors. You don’t have to be profitable yet, but you do need to show traction and that there is demand for your product or service. If you are too early stage, you may want to consider a donation and rewards campaign as an option to get bootstrapped.
Next, educate yourself by studying the educational materials that the crowdfunding sites provide to understand how this works and what you will need to do to have a successful fundraising campaign. For North Carolina businesses, CrowdfundNC.com and LocalstakeNC are great places to learn.
Next, study the campaigns of other companies that are similar to yours to see what they have done right (and wrong). Then pick a good legal advisor to work with as you create your offering and prepare to fundraise. Our team helps make your business investible, but get ready to work hard to accelerate your traction points, promote your offering and find new investors. Nothing will happen automatically, so be prepared to put in plenty of time to make it happen.
And CREATE YOUR CROWD!
Successful companies will often have a mix of angel and retail investors as they grow. Keep networking, online and offline. Get out to the many educational events and networking events you can find, and make the contacts that you can refer to your crowdfunding offerings once they go live. Build your social network of customers, business partners, friends, supporters and community who want to see you become a success. Then invite them to join you on the journey of creating a successful business. With investment crowdfunding, making that decision will be faster, easier, and more transparent for them (and you) than ever before.
How do businesses get funded on Localstake NC?
Step One: Build a compelling story and offering
On the company profile webpage on Localstake NC, the business will make the case for the funding they need, and explain the investment offering they are making
The investment crowdfunding mission of a startup or small business is to create a great company profile and offering on Localstake NC that explains:
- The company vision
- The problem to be solved
- The product or service solution
- Identification of the target market and how to reach it
- A business plan and model that works
- The team that that can make the business a success
- The traction the company as achieved
- The milestones and metrics the company anticipates
- Use of funds to achieve those milestones
- An analysis of the competition
- The existing financial condition of the company
- A reasonable financial projection going forward
- The terms and disclosures of the investment offering
Step Two: Create and run an effective campaign
The next step is to run an investment crowdfunding campaign to raise the needed funding. The goal is to find investors in the community and around North Carolina that share your enthusiasm for your business and will help fund it. Localstake NC also provides the broker/dealer investment accounts and the tools to enable investors to invest, and to manage the required disclosures and reporting to investors by the company.
How do I put a profile and offering together?
The first step in putting together a good profile and offering is to do your research on how others have done it. Localstake.com has many good examples of how this works, including companies with products and services in categories such as Software/Technology, Retail/Wholesale, Food/Beverage, Business Services, Healthcare/Biotech, Manufacturing, and more. You can also research some of the many thousands of investment crowdfunding offerings on other platforms. Find the best successful examples of similar companies and market segments, and clone what they have done.
For additional services and resources to help you with your crowdfunding campaign click on the tabs above.