2018-02-13 00:00:00 Funding and Financing English Find the most effective ways for a small business to mount a crowdfunding campaign to raise capital. https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/03/Woman-Making-Donation-Crowdfunding-Project.jpg https://quickbooks.intuit.com/ca/resources/funding-financing/dos-donts-crowdfunding-small-business-concept/ Crowdfunding a Small Business Concept: New Regulations and Do’s and Dont’s

Crowdfunding a Small Business Concept: New Regulations and Do’s and Dont’s

2 min read

There are do’s and don’ts for a small business to mount the most effective crowdfunding campaign, and a variety of platforms to accomplish the goal of raising capital. Regulation changes that began in 2015 have opened the door to a bigger pool of potential investors for Canadian startups and small business concepts. These regulations involve equity crowdfunding, an opportunity for seed funding or financing that enables companies to raise money online. Provinces across Canada, since 2015, have continued to develop new rules that enable everyday investors to get on board with new and promising small business ventures.

New Regulations and Equity Crowdfunding

Before July 2015, only accredited investors could take part in the private world of funding new companies. Though everyday investors are now able to participate, new regulations limit the amount they are permitted to invest. These regulations also limit the amount new ventures are permitted to collect.

Equity crowdfunding differs from traditional crowdfunding in which individuals can donate or gift cash to a project or cause. Equity crowdfunding enables investors to buy a stake in a small business concept, with the ultimate goal of seeing a good return on their investment. This is similar to the idea of an investor buying stock in a company that is already in operation. Changes made to regulations governing this type of funding involve a complex and intricate set of established and proposed rules that vary from one province to another, with each province having its own securities regulator.

Do’s for Effective Crowdfunding

Do keep the campaign on a short time leash. In general, a campaign lasting 30 to 45 days is more manageable and encourages investors to get on board promptly, and usually offers the best results in terms of dollar amounts raised.

Do communicate with investors and people following the campaign. Investors who initially donate a small amount in the early days of the campaign are more likely to invest again if they are sincerely thanked for their contribution and given regular updates about the campaign’s progress.

Do make a video for the campaign. Ventures with videos enable investors to visualize the small business and its goals or platform. In general, campaigns with videos are two or three times more successful. Videos should be kept short, probably no more than two or three minutes long.

Don’ts for Crowdfunding

Don’t think of crowdfunding as a tip jar. Assuming investors will drop money into the project simply because it has been launched often leads to failure. Without marketing and advertising, a campaign becomes uneventful and rarely encourages investor support.

Don’t create an opaque campaign. Remaining transparent is key to having a successful crowdfunding campaign. Investors, and potential investors, need to clearly understand what contributions are going towards and what they can expect in return for their investment.

Don’t release intellectual property without protection. The concept for a small business can’t be protected. The best option to resolve this is to create and release a book, script or article that can be copyrighted and thus protected. Unique ideas and concepts for the small business should be kept concealed.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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