Category Archives: Crowdfunding

Writing a Persuasive Investment Proposal

When you’re thinking of starting a business, the first question that comes to mind is how you’ll fund the project. No small business can run off pure passion and excitement, and thus finding that money becomes one of your first tasks. If you’re uninterested in applying for small business loans, another option is to ask for money from investors, and when you do that you have to write an investment proposal.

Contrary to how it may sound, this task is not quite as easy as laying out the facts. Sometimes, persuading business people to invest in you is about that little extra. Rishi Anand, the Founder of Venture Giant says in an article, “I have seen seemingly weak value propositions receive 9 – 10 angel investor contacts on the day of dispatch only because the investment proposal had been well written and well thought out!” There are 4 key facts to consider here.

Addictive Title

Right out of the gate, you want your investors asking for more. You want them addicted to your business and sure of their investment. Creating a well-written, compelling and enticing title will be integral to getting them to move on to the important stuff like your business model and potential ROI. Consider these points as you write your title.

  • Keep it short and to the point – they should know what it is right away.
  • Make it sound successful. Think: Car Dealership to Auto Retailer. Simple changes can make the difference.

Get Started Right Away

Your intro is the first information they get on your proposed business, and so you should provide the vital information immediately. Avoid the run on sentences and excessive language. Rather, you want to get right to the main points of finances and business terms. In here, you want to discuss:

  • What is your business?
  • How much do you need?
  • How will it be used?

The Best Facts

You’ll want the main portion of your text to make you sound undeniable. While you may be just starting a business, at this point you should have an idea of the money you can make, the money your competitors are making, etc. These facts need to be enticing, as often this is the only aspect of your proposal the investors are interested in. However, there is one important metric here.

  • Anticipated ROI: This should not only say how much your investors can get back, but what they will need to put in as well. You’ll also explain expected wait time for the initial investment to be made back and then profits from there. Give your greatest numbers, but be sure to remain realistic.

Your Unique Spot

Finally, before your final summary, you want to explain to the investors why you are unique in this industry. In such a competitive market, it’s likely your business is not original. In this section, you want to place yourself within the industry and make some compelling comparisons.

  • How does your business model set you aside?
  • How will you combat any current economic deterrents?
  • What do you do that your competitor doesn’t?
  • How will you grow with the industry you’re in?

As Anand says, it doesn’t take a spectacular proposal to win over investors, but one that is done so well that it’s compelling. By taking the basics of your proposal and making them work in your favor, you can persuade any investor to become a part of your dream business.

Guest Contributor Bio: Jessica Sanders is an avid small business writer. As the marketing copy-editor of Resource Nation, she touches on a range of topics such as business phone systems and small business checking.

“SEC uses JOBS Act to set up new roadblocks to crowdfunding”

A recent article by Jason Best and Sherwood Neiss of CFIRA discusses the SEC’s recent proposed rules which would establish various different classes of investors.  SoMoLend feels the need to clarify that this would primarily affect Reg D accredited investors.  While the article is accurate, this will not affect most crowdfunding platforms including SoMo which is considered a portal. However, the rules would strongly impact broker dealers.  To  read the full article by Best and Neiss, please see below.

“Disappointing news came out of the SEC meeting yesterday designed to open the way for crowdfunding in the U.S. Rather than lifting the ban on general solicitation (we’ll explain that in a minute) in order to make it possible for more people to invest in American startups, the SEC proposed rules that would establish various different classes of investors, each perhaps with its own regulations. Needless to say, this move could make it more rather than less complicated for people to invest in startups, erecting new roadblocks rather than clearing away old ones.”    Click here to read more

Crowdfunding: One Size Doesn’t Fit All

In this interesting article, Forbes asks the question ‘Is the
Crowdfunding Bubble About to Burst?’ At SoMoLend, we certainly think
so!

We love that Forbes is recognizing the power of crowdfunding and the
impact it will have on small businesses nationwide. The article
references Kickstarter, a crowdfunding pioneer, as an example.
However, it’s important to note that Kickstarter only represents one
model of crowdfunding, reward-based, and it’s not the right model for every
entrepreneur seeking funding.

We’d like to take a moment to elaborate and provide some clarification
about the different types of crowdfunding: 1) donation based
crowdfunding; 2) reward-based crowdfunding; 3) equity-based
crowdfunding and 4) lending-based crowdfunding.

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Donation-Based Crowdfunding
How it works: Crowds fund a project by donating money with no reward or financial return. As of May 2012, the average donation-based crowdfunding project raised $4,076. Donation-based crowdfunding is ideal for social or political projects seeking less than $5,000.

Reward-Based Crowdfunding
How it works: Crowds fund a project in exchange for a pre-determined reward of
value, such as a t-shirt, recognition, or the finished product. Reward-based crowdfunding is great for creative artists and inventors seeking micro-loans ($35,000 or less).
Reward-Based Crowdfunding Platforms: Kickstarter, IndieGoGo, RocketHub, peerbackers

Equity-Based Crowdfunding
How it works: Crowds fund a company and then become shareholders in that company. As of May 2012, the average equity-based crowdfunding project raised $84,597. Equity-based crowdfunding is perfect for entrepreneurs seeking up to $1 million who are investor-ready. These companies should be prepared to have actively involved funders with voting rights and shares.
Equity-Based Crowdfunding Platforms: Grow VC, Circle Up, Launcht, crowdfunder

Lending-Based Crowdfunding
How it works: Crowds fund a business by making a loan and are repaid each month with pre-determined interest rate and term. Lending-based crowdfunding
(sometimes called debt-based crowdfunding) is best for entrepreneurs seeking micro-loans who are financially able to repay a loan each month.
Lending-Based Crowdfunding Platforms: SoMoLend

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Have questions about the Crowdfunding rule-making process?

CrowdCheck, Inc discusses the process the SEC has to follow in creating the rules for crowdfunding and how you can better prepare for the beginning of what will be a revolutionary new way to raise money for your business in their recent blog post.

Read on: What has to happen before crowdfunding goes legal or (how I quit worrying and learned to love the administrative process)

How Many New Jobs Will Come From Crowd Funding?

A recent report from the Kauffman Foundation stated that 65% of America’s jobs come from small business and that “A healthy crowdfunding marketplace will create a 10% increase in new businesses and 170,000 new jobs over the next five years.”

This Forbes article features an interview with RocketHub co-founder and CFO Alon Hilel-Tuch and discusses some very exciting market research. Read on to find out more: How Many New Jobs Will Come From Crowd Funding?

THE JOBS ACT: ECONOMIC BOON OR PERIL?

On February 18, entrepreneur William Pryor successfully raised a £30,000 funding round for his U.K.-based oriental rugs business, Oriental Rugs of Bath. In return for the money, Pryor offered the 36 individuals who invested in Oriental Rugs of Bath a share of the company’s equity, divvying out 10% of the enterprise’s stock in total. This entire transaction took place online through an equity-based crowdfunding platform called Crowdcube.

This type of investing is currently illegal in America — but not for long.

Read more: http://www.crowdsourcing.org/editorial/the-jobs-act-economic-boon-or-peril/13994

Invitation to chat with Crowdsourcing.org

On Monday 4/9 at 12pm EST, Crowdsourcing.org is hosting a live chat with their leadership group about establishing standard principals and regulatory framework in the crowdfunding industry.

Crowdsourcing.org sent the release below to SoMoLend and we would like to invite everyone interested to participate in this awesome opportunity!

Chat live with the leadership group behind the initiative to define a regulatory framework for the crowdfunding industry.

As President Obama signs the JOBS Act into law at 2pm EST on April 5, 2012, a leadership group consisting of equity and debt crowdfunding platforms and industry experts including legal, securities and SEC experts, have mobilized to explore the development of a self-regulatory framework for the crowdfunding industry. The JOBS Act requires that all equity and debt crowdfunding platforms be a member of a national securities association.  This leadership group will explore the various paths to meet that requirement in ways that protect investors and support a vibrant industry.

Chat live on Crowdsourcing.org with representatives from this group at 12pm EST/9am PST on Monday 9 April to ask questions and offer input regarding key elements of the framework including principals that will:

  • Establish strong protections for investors in the form of an Investor’s Bill of Rights, including tests to assess investors understanding of risk, criminal background checks on issuers, and adequate disclosures by issuers;
  • Ensure confidentiality of investors’ personal financial information;
  • Ensure that investors do not exceed statutory investment limits, by implementing standardized reporting and communication among platforms;
  • Establish standard communication processes for transparent flow of information between the issuer, the investor, the intermediary and the regulatory agency;
  • Develop a code of conduct for crowdfunding platforms, with enforcement mechanisms to punish bad actors;
  • Create a recognizable brand common to trustworthy intermediaries.

If you would like to participate, email Carl Esposti at carl.esposti@gmail.com with your name, company, and title so that they can include your information in the announcement.

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