Wellness crowdfunding looks better than ever. Here’s the scoop:
We told you about companies like Prosper years ago. They invented the online peer-to-peer lending model, where you post your project and private individuals make you loans on payback terms that you both agree to.
Crowdfunding takes this model to the next level. (And by the way – it’s already legit in the UK, where CrowdCube‘s the leading intermediary.)
Here’s the scoop:
The new JOBS (“Jumpstart Our Business Startups”) Act passed in April 2012 makes it legal for startups to “crowdfund” their businesses by simply publicly announcing that they want to raise cash – up to $1M/year.
You can announce it anywhere you want – your newspaper, Twitter, Facebook, flyers in your local laundromat. Individuals can invest between 5% and 10% of their income, depending on their net worth, in your company without having to meet predetermined regulatory criteria (for example, they don’t have to be “qualified” or “accredited” investors), and the paperwork requirement is extremely minimal.
Matter of fact, if you want to raise less than $100K your CEO, president or owner (yes, even a sole proprietor as far as we can tell), simply needs to certify that the financial statements presented as part of the funding round are correct. The statements don’t need to be reviewed by a CPA unless you want to raise between $100K and $500k. They’ll need to be audited for more than $500K.
(Before this change, companies couldn’t raise money from the public at large until they had filed stacks of expensive and time-consuming paperwork and received layers of regulatory approval.)
You’re required to sell these securities through an registered intermediary. Several exist already, so start doing your homework now. Note: they’re all in beta mode at the moment, awaiting final rules for how this law will be implemented. They’re therefore likely to open their doors for business sometime in 2013.
More legal details here, and you can start researching here:
StartSomeGood (projects for the public good)
AppsFunder (mobile apps only)
Quirky (inventors only)
Cofolio (targets local investors for small businesses)
Kickstarter.com (innovative – investors get paid with unique rewards)
AngelList (matchmaker for startups/VCs)