Equity Crowdfunding

There are kinds of money that are appropriate at certain stages of business and not at others, and there are certain types of money that are only appropriate for certain uses. This matching sources and uses of capital is one of the most complicated but necessary parts of the financing process.

The term crowdfunding includes donation or rewards-based crowdfunding (like Kickstarter, but a stake in the business is not being exchanged. However, the amounts raised, while sometimes a great source of initial seed capital, are not large amounts and often can’t be used as equity, which is often necessary to secure other forms of financing like loans.

There is also equity-based crowdfunding. This is a new industry and it may not be worth pursuing as a source of capital for such small amounts of money from so many investors who now have an ownership stake in the business. There are securities laws in the U.S. that are meant to protect investors and require disclosures to those investors, and those disclosures, whether in an offering memorandum or prospectus, should be crafted with the help of a securities lawyer. In addition, securities laws often limit who you can raise capital from to accredited investors.