Sustainable Profits
The challenges of a waste-recycling business.
I have taken a real interest in equity crowdfunding and its potential impact on social entrepreneurs. One reason: I would have loved to have been able to take advantage of it when I was doing my initial financing of TerraCycle. Had crowdfunding existed then, I would have been able to raise money faster, on better terms, and from a wider range of investors — all good things when it comes to financing a small business.
Here’s a quick update on where things stand (I have written about crowdfunding previously). Broadly speaking, a federal equity crowdfunding law that passed in April as part of the JOBS Act will allow an American company to use an online crowdfunding platform to raise up to $1 million from the general public without these shareholders counting toward the company’s private shareholder cap. I see this as a big opportunity because now entrepreneurs will be able to gain capital and momentum with an early shareholder base that is invested in the company’s success.
Although the law was passed in April, many of its specific provisions require further consideration and official rule-making by the Securities and Exchange Commission and the Financial Industry Regulatory Authority. The S.E.C. has until the end of 2012 to complete its rules. From what I’ve heard, the agency is working hard to hit this goal but it could spill over into 2013. After this, Finra has to write the rules that govern how the online intermediaries get registered and set up. Then these rules have to be reviewed and approved. Unfortunately, this could run into the second half of 2013.
But there are things entrepreneurs can do now to lay the groundwork for successful crowdfunding later. Here are three ideas:
1) Start crowdfunding now. You can use the current crowdfunding model, which is sometimes called “perks-based” crowdfunding or “donation” crowdfunding. In other words, you can pre-sell your product or give it as a perk to people who donate money to get your business off the ground. You can do this now on sites like Launcht.org, which focuses on social entrepreneurs and socially responsible projects, or on ThreeRevolutions, which focuses on sustainable agriculture and food projects. (Another site, the William James Foundation, expects to introduce a crowdfunding platform by early September as part of a business plan competition.)
I think sites like these offer a great way to start building a following and to assess whether anyone cares about your product or service. If you do this, you may have a crowd in place when equity crowdfunding comes along while others will still be looking for theirs.
2) If you are successful with the current model, you can use the money you raise to prove your concept, earn revenue and let your customers guide you. Then use public relations to expose your success, as I discussed in an earlier post.
3) Meanwhile, pay attention as the rule-making proceeds. Take this time to prepare for a crowdfunding offering around the middle of 2013. You will need to be ready to issue shares of your company to a potentially large number of shareholders. You will need to prepare financial statements for review and you will have to be ready to offer a valuation of your company. There will be other considerations, but if you’re ready with these pieces, you’ll be in good shape to move quickly.
Tom Szaky is the chief executive of TerraCycle, which is based in Trenton.
Article source: http://boss.blogs.nytimes.com/2012/08/21/its-not-too-soon-to-think-about-crowdfunding/?partner=rss&emc=rss
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