Successful equity crowdfunding isn’t free

Yesterday I met with a owner of a web site design business who told a story about a person who came to him recently asking for services at no up-front cost simply because he had a good business idea that he felt was sure to be successful. I get some of this same attitude coming from those who plan to enter the small business equity crowdfunding arena.

Entrepreneur Magazine recently wrote “Naïve entrepreneurs believe crowdfunding is essentially free. They forget about the platform fee  — typically 5 percent — taxes on pledges, preparation and social media commitment to prepare and execute the campaign, and the give-back required if you don’t meet your goal”.

Successful small business crowdfunding takes more than just a good idea. It will cost some money to convince others to invest in your business. The average cost is reportedly about $5,000 per successful offering. Much of this will be spent on professional marketing services. The online portals, if you choose to use them, also have fees. There are also accounting costs. The minimum requirement is a well-prepared business tax return. Offerings over $100,000 require an accountant’s statement. Other requirements are listed here.

If you plan to use equity crowdfunding then my advice is to start early and give yourself plenty of time to plan the most efficient and effective strategy. I also encourage consideration of the many financing alternatives to equity crowdfunding. I am pleased to schedule a consultation to explore the best approach to develop your business idea.

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