What You Need to Know Before You Start Crowdfunding

It seems so easy. Jump online, make a video, and drum up seed capital for your new small business.

But crowdfunding can come with some real pitfalls.

Seek legal and accounting advice before jumping on Kickstarter.

Concerns that you should be discussing include whether or not your business is truly a good fit for this approach, what you can legally offer in return for a backer’s money, and what kinds of SEC filing and accounting responsibilities you may impose upon your new business if you raise too much money.

It’s also important to know what you’re losing by adopting this approach. The scrappy start-up may well lose out on much bigger sources of funding by pursuing the support of the crowd. The JD Supra Business Adviser blog, for example, notes that venture capitalists and angel investments can get a bit nervous about investing in such businesses.

Ask yourself if you have enough marketing support to pursue crowdfunding.

Are you a good enough marketer on your own to pursue crowdfunding, or will you need help with the project? Your Kickstarter is likely to fail if you don’t have enough marketing prowess to promote it and sell it outside of your immediate circle of friends and family.

It’s important to understand that crowdfunding is not “easy money.” In the end, you may put in just as much work and face just as much uncertainty as you would have by going after the bigger VC payday. On the other hand, you’ll retain much more control over your own company.

Obviously crowdfunding will be right for some companies. We’re not here to knock it.

We just want to make sure that you’re looking at the problem from every angle before you dive into the process.

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