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Contingency Fee Crowdfunding
If I Don’t Help You Raise Money, I Don’t Get Paid
Equity crowdfunding means using the fairly new Crowdfunding Laws to sell stock in your company to the public. Although small stock sale regulations of $1,000,000 or less have been around for quite awhile, the problem always was that they were limited to single states…meaning that your offering could only be sold to residents of a single state unless a lot of money and time were expended to register in several states. These earlier regulations, referred to as a SCOR Offering (Small Corporate Offering Registration), were for all practical purposes limited to a specific State.
Then the new Crowdfunding securities regulations came out a few years ago which permitted new businesses, small businesses, and start-ups to sell to anyone.
So, What is Contingency Fee Crowdfunding?
It means if I don’t help you raise any money, I don’t get paid. The payment of my fees is based solely on the level of success of the project and are payable out of the proceeds of the offering. It means you don’t have to put out big bucks for the “chance” to see if any funds will be collected.
Why it is important to consider Contingency Crowdfunding. As you will come to learn in your investigation into how you might raise money for your new business or start-up, many “experts” will tell you that you need a marketing budget, an advertising budget, funds for attorneys and accountants to organize your new business, and most importantly, that you need a Crowdfunding Manager to manage your campaign. Most of not all “managers” require that you have a substantial budget for advertising and marketing or they will not want to work with you. And of course there is the matter of the manager’s fee as well. What most people come to realize, after being subjected to the crowdfunding gristmill, is that they probably cannot afford to launch a crowdfunding campaign and they give up. Hey people, crowdfunding was intended for the start-ups that have no money to start-up!!!!! Too bad it has been taken over by all the “experts” who, after charging an arm and a leg for their services, still have no better success record and can offer no better success rate than the average Joe just launching by himself. The failure rate for all these so-called experts with big marketing and ad budgets is the same!
I am happy to manage your campaign with your help, and you will not need ANY marketing, advertising, or management budget!!! I will take my chances with you and rely on my skill to be paid from the proceeds of your offering. [Some initial attorney fees for incorporation and other organizational papers are required. And you need to pay some filing fees to the government, but these both are nominal and in the range of $2500-$3000, but that is it!!]
For launching and managing your campaign, including preparation of the necessary Form C or other paperwork required for closing, the fee is based on the success of the offering. Which means too, that not every project presented to me is accepted. After all I need to work with people and projects that I feel I can be successful with, since that is what my fee depends on.
How To Raise Money for Your New Business…
You can use Crowdfunding to Raise Money via
1. Offering Perks and Benefits Only- the typical Kickstarter campaign
2. Equity Raise- In which you raise money by a sale of shares in your company.
3. Debt Offering- In which you raise money by offering an interest bearing Notes
4. Revenue Sharing- In which you raise money by offering to share revenue with your backers
SCOR vs Crowdfunding
Although a SCOR offering (Small Company Offering Registration) is much easier and cheaper to execute, the main disadvantage for most start-ups is that you are limited to sales of stock in just one State. The exception to float a multi-state regional offering is too expensive. The main advantage of the SCOR offering is that you can sell your shares directly to the public form your own website, and the shares become more easily registered on the OTC markets, whether Pink Sheets or otherwise. Such registration is essentially mandatory for Insiders and Public Investors to be able to get their money out through an eventual sale of their stock.
With Crowdfunding, also a highly regulated securities offering that is made through an approved platform like Wefunders or Flashfunders, you can choose whether to offer Shares of Stock, Debt, or Revenue Sharing securities. Historically, a typical Kickstarter campaign, in which perks or company benefits are offered, is most likely not going to yield you that much starting capital, and you can figure $10,000-$50,000 max in most every case. Your backers do not get much and have no chance whatsoever to recoup any investment.
The best chance for investors to recoup their investment and hopefully a profit is by you using Crowdfunding to promote a Debt Offering or Revenue Sharing Offering. While I will help you with any format, these are the two I favor the most because you can sell your investors on the idea that you owe them back their investment.
With a Debt Offering, the security you are selling is a “Bond”, that is a promise to pay back the “loan” that the investor is making. Interest and the payback period is specified. Your investors thereby hold debt in your company. This type of offering is only workable if your idea is for example to acquire a franchise or real estate income property that will yield an income stream in a relatively short period so as to allow you to repay the debt.
With a Revenue Sharing Offering, the investors receive a promise to share revenue in a new business. The revenue sharing may be structured to be permanent (i.e. a certain % of revenue forever) or may be structured to provide that revenue is shared until a certain multiplier of the initial investment is paid out, say 1.5x initial investment, or 2x initial investment. You have less pressure to make a payout than with a Debt Offering, and only need to pay out if there is revenue. This is the most favored for investors and easiest to sell, because the investor can feel pretty comfortable of receiving something if the company has operating revenue, rather than wait an hope long term that a Company will “go public” in the long term and become listed on the OTC market so as to be able to cash out of their investment.
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