Should You Use the New Regulation Crowdfunding to Fund Your Business?
I’m very excited for today’s guest post by David Willis. David is currently using regulation crowdfunding to find investors (of which I am one) for a Christmas comedy film called “I’ll Be Next Door for Christmas“. In this article he goes into detail about what it takes to prepare a project for regulation crowdfunding.
If you’re thinking about crowdfunding for your own project, read on. Meanwhile, if you’re interested in investing in the film industry, check out his project.
And now, on to David…
I’m a writer for television, but I wanted to make an independent film — a family Christmas comedy that’s witty and modern, but still provides that holiday feeling. Here in Hollywood they don’t make many movies like that. They make comic book movies, sequels, prequels, and remakes.
So where will I get the money to make my film? I didn’t want to use Kickstarter because I want investors to make money if and when the film made money. After looking around for a while, I found that I should use a new method that a lot of businesses are using to get startup money: it’s the new Regulation Crowdfunding as made possible by the JOBS Act. This bill was passed with overwhelming bipartisan support and went into effect in 2016.
SO WHAT’S THE BIG DEAL?
It used to be that only high net worth individuals could invest in startups due to SEC regulations. If you wanted money to get a business going, you couldn’t sell a piece to just anybody. Less than 90% of the population in the U.S. qualified to get in on new companies from the start. Sure, you could incorporate and issue stock that anyone can buy, but it costs around $100,000 to do that.
But now, with Investment Crowdfunding, you can raise money for less than $5,000 in costs. I know, because I’m doing it right now (as of April, 2017). For our movie, “I’ll Be Next Door For Christmas,” I’ve raised 60% of what I raised talking to rich people for a year in less than two weeks! And believe me, this is a lot easier. Now I just have to convince the crowd, not some mercurial rich guy sitting in a wingback chair by his private lake (yes, that happened). Our filmmaking team has an Oscar® and 4 Emmys®, so it’s not our first day on the job, but it’s still a struggle to explain movies to random rich people so they get the economics of it. Now I just have to explain it to the crowd, and they get it.
SMALL INVESTORS LIKE EQUITY CROWDFUNDING
Why do small investors like it? Because unlike Kickstarter, instead of getting a t-shirt for donating money to a project, the public gets a chance to make money if the company is successful. Of course, if it’s a startup, it could be the next Facebook or it could be a miserable failure. There’s risk involved, and investors should read all the disclaimers carefully. And if you do your own offering, you’re going to have to list those disclaimers so investors are well-informed.
If you have a business you want to fund, definitely consider Regulation Crowdfunding. I’ve seen every kind of business — restaurants, bars, microbreweries, iPhone apps, sports drinks, board games, kids’ activities, jet packs, wedding planners, new age condoms, tampon-of-the month clubs — the list goes on. And the timing is right. It’s so new that a lot of companies haven’t taken advantage of it yet, so you can stand out. But it’s not so new that it hasn’t been proven. It has been proven – it works.
YOU HAVE TO USE APPROVED INVESTMENT PORTALS
You can’t do this on Kickstarter. There are registered portals that host these offering, and you have to go through one of those. The official list is here: https://www.finra.org/about/funding-portals-we-regulate Some of them are not fully operational yet, but several have hosted millions and millions of dollars in fundraising. We used StartEngine.com because they were very friendly to us non-MBA types and walked us through the process.
A LOT OF PAPERWORK & GOVERNMENT OVERSIGHT
Like anything worthwhile, there’s some work involved. There are many legal and financial paperwork requirements you must meet. You can hire people to do it, but that will drive your costs up. I spent very little in legal and financial costs because I attended a one-day workshop held by StartEngine and they had legal and financial experts on hand to guide us through the tricky parts. And my team and I designed the campaign ourselves (which took six weeks), including making a video. If you look at our campaign, please know that we agonized over every word, every punctuation mark, every picture, the layout, etc. Because it matters.
You can also hire experts to create your campaign, do your marketing, write your ads, do your PR, etc. If you go that route, it will cost you upfront, but it will leave you free to spend more time on other aspects of your business. It is a wise person who knows themselves, and if you know you’re not good at writing ad copy or pestering journalists to write about you, then hire someone. The best place to find these professionals is to look at successful campaigns and contact the people they used. And whichever portal you use will certainly have recommendations — they want you to succeed because they don’t make their fee unless you successfully raise your money.
YOU MUST LEARN TO PITCH YOUR IDEA WELL
Ever watch Shark Tank? Well, putting your fundraising campaign online is like that times a hundred. It’s going to live online forever, and everyone will see your success. Or failure. So before you do your campaign, do your research. Watch as many Regulation Crowdfunding fundraising videos as you can and discover what works. You can hire professionals to do your video, and you certainly should if making videos is not your thing. The video is hugely important. You personally don’t have to appear in it (one company had Bill Nye as their spokesman), but if you’re a good advocate for your business, then you really should appear, and here’s why:
THE NUMBER ONE EQUITY FUNDRAISING SECRET
Most of your investors will not be buying based on the numbers, they will be buying based on your story. That’s right, they’re buying into YOU. I contacted the CEOs of many companies that had successfully done Equity Crowdfunding, and they all told me the same thing: very, very few investors drilled down into the financials and the numbers, most investors just wanted to get a sense of the character of the people running the company. Now, I’m in show business, so we’re all about the story! But these other companies were tech companies, agriculture companies, breweries, etc., and story was what drove their success.
So if you decide you want to raise money to get your dream business going, or find capital to expand your existing business, you should really look at Regulation Crowdfunding.
And one of the best parts about all this — you can do it remotely. My team members (both of them) work a lot from home or cafes or restaurants (one is on the beach in Hawaii this week getting in some work while on vacation). I only had to go to one meeting in Los Angeles about 15 minutes from where I live. And I didn’t even have to do that, except that I wanted to meet the people at StartEngine and take advantage of the free legal and financial advice.
If you’d like to follow our own Investment Crowdfunding campaign for our Christmas family comedy, you can right here: startengine.com/startup/thatchristmasmovie It’s free to register at these portals so you can follow us, or just bookmark and check back in. Our own page is ThatChristmasMovie.com if you want to get on our mailing list and follow along on the journey with this exciting new fundraising method.
As of now, I consider these the top three funding portals.
They each charge different rates and different fees, and have different advantages and disadvantages. We went with StartEngine. Do your research and see who’s a good fit for you.
We’ve gotten people investing in our movie who couldn’t have done it before the JOBS act went into effect. That’s new and exciting. We like to think of it as a Christmas miracle… in April.
About Author David Willis
David Willis is a writer, producer, and director. He's currently using regulation crowdfunding to find investors for a new film, "I'll Be Next Door For Christmas".