4 Things Young Entrepreneurs Need to Know About the JOBS Act

BY
FROM Young Entrepreneur|
March 13, 2013

For many young entrepreneurs, landing startup funding is
next to impossible. Banks won’t generally look at you unless you have
two years of financials, and investors want to see serious traction
before they’ll sign on. So what’s a young trep to do?

Enter, crowdfunding. Traditionally, donation based platforms like
Kickstarter allow entrepreneurs to appeal to people at large for the
capital necessary to start a project or product. In return, funders
often receive tangible rewards like a T-shirt, product sample or VIP
status.
That model is set to change, however. Last year, the Jumpstart Our Business Startups Act, or JOBS Act,
became the law of the land. One of the most anticipated measures in the
law gives entrepreneurs the ability to sell a financial stake in their
companies to anyone, regardless of whether they’re accredited investors.
Though the law hasn’t yet kicked in, to the chagrin of many in the crowdfunding community, getting familiar with the JOBS Act now is something all entrepreneurs should do. Here are four things to know:

1. A good story will remain paramount. Though
many of the law’s details are still unknown, entrepreneurs will be able
to publicly post information about their business on “funding portals”

and accept actual investments from people across the country. This won’t
amount to a guaranteed funding source, however. Fundraising success
will still depend on the entrepreneur’s ability to engage potential
investors in a compelling way.

Posting a fundraising campaign is only the first step in the process.
You have to engage your networks to rally around your business. You
need to drive them to spread the word for your campaign. You need to
tell a story that connects with potential funders in a way that compels
them to want to get involved. It may feel laborious, but the success of
any fundraising campaign — whether you’re raising capital for your
business or your favorite charity — is a direct result of the effort
you put into it.

2. Appeal to local investors. Say you own a coffee
shop and you want to expand operations with a new industrial oven so you
can offer food. Crowdfunding with local investors could be a great
approach. Think about it: If you can get 20 locals to crowdfund your
expansion, you’ve created a pool of customers who don’t just like you’re
shop but are invested in its success. Surely they’ll pass up the chain
stores for your shop any day. They want to earn a financial return as
your business grows.

3. Get the full picture. Despite the upsides,
publicly soliciting investments isn’t a fit for all businesses. Consider
what you’ll likely have to share: business financials, personal
information, projections. Some entrepreneurs are thoroughly comfortable
sharing that sort of information with their networks and beyond. Others
aren’t so sharing. The main thing to remember is that committing to
crowdfunding means you’ll have to open yourself and your business up for
evaluation — and, one day, possibly fork over equity.

4. Consider ancillary benefits. Sure, the crux of
crowdfunding is, well, funding. But it’s also something more. We’ve seen
lots of young businesses tap the networks of the crowd. An investor
leads to an introduction to an advisor or a new hire. Media relevant to
your business takes an interest in your crowdfunding experience and
winds up doing a story about you. Someone always knows someone who knows
someone that can help you out somehow. The “secondary” effects of
crowdfunding are worth considering, as you pursue funding.