Crowdfunding in California: What You Need to Know to Raise Capital

The room was full of entrepreneurs, small business owners, and people involved in all aspects of the startup space at yesterday’s seminar on crowdfunding. Biotech entrepreneur Howard Leonhardt kicked off the event by explaining that, “Crowdfuding is human will expressed in pure form. A person’s vision becomes a dream funded on a mission.”

In the past, government regulations only allowed entrepreneurs and budding business owners to raise equity funds from accredited investors with over $1,000,000 in assets. Furthermore, advertising was prohibited and you had to have a “substantial existing relationship” with the investor. This made it extremely hard to get the funding necessary to bring a product to market – it was nearly impossible for an average person to raise capital.

The November 2011 JOBS Act includes a provision that legalizes equity crowdfunding, reversing these outdates laws. But the SEC has yet to instate these crowdfunding regulations. Of course, you can always participate in contribution crowdfunding through sites like Kickstarter.com but until the SEC regulations are released, there’s a loophole for equity crowdfunding you should know about.

  • You can raise capital through legal equity crowdfunding today – up to $5 million.
  • You can use general advertising
  • You don’t have to have audited financials
  • Your investors don’t have to be existing friends – you can draw in potential investors from your Facebook and LinkedIn networks
  • Your investors only have to have over $75,000 in assets (excluding their home and vehicles) and should have a net worth of at least $150,000
  • All investors must be CA residents
  • The company must be a legal CA entity (and not an LLC) with at least 80% of its assets, revenues and expenditures in/from CA

Crowdfunding is more important today than ever before. Last year, the number of accredited Angel Investors dropped 12% to under 125,000. Of that, less than 50% say they plan on actively investing in the next year – and those remaining investments will almost always go to a friend of the investor.

This lost investor money can be regained through crowdfunding. According to Leonhardt, 74% of people making over $75,000 will invest an average of $2,300 in companies through crowdfunding this year. And getting initial funds through crowdfunding is a great way to validate your business concept before you seek Series funding.

Want to learn more or get started crowdfunding your business? Check out the resources below, and don’t forget to sign up for future events at Real Office Centers.

Crowdfunding for-profit businesses: crowdfunder.com

Crowdfunding for non-profits and social enterprise companies: www.KooDooZ.com and www.WhenYouWish.com

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