Crowdfunding for Businesses in the Midst of COVID-19.
In the midst of the corona virus pandemic, every business has been forced to restructure the way it conducts business and to some degree has lost valuable income. With a foreseeable extraordinary high demand in capital to not only keep the business afloat but to expand it, one of the most popular methods is crowdfunding.
Crowdfunding is available in practically every market but there are laws that one must abide by in order to conduct such a campaign and remain in compliance with regulators.
Crowdfunding in the US
Fortunately, on the heels of this pandemic, the United States has already increased the cap of capital raises to $5 million for crowdfunding and a sizeable $50 million for Reg A+ capital raises- all available to be raised within a 12-month period. Although there are nuances to the rules, it is very possible for a company that is already established outside the United States to enter the US market and create their own crowdfunding campaign or private placement to raise the needed capital.
Crowdfunding in the EU
Within the EU, there are also crowdfunding rules and the cap is determined by the individual Member States. Cyprus, for example, has recently enacted legislation allowing for a EUR 5 million crowdfunding campaign to be conducted in a 12 month period, so long as the company follows the laws and compliance regulations.
Benefits of Crowdfunding
The obvious benefit is that crowdfunding allows a company to raise much needed capital. It also allows the entrepreneur to gauge the public’s response to a product without having to first build- a kind of testing the waters.
However, arguably crowdfunding’s biggest benefit is that it creates a direct relationship with the investor so you can directly sell to them better products and services at a later time. The biggest benefit of crowdfunding is the community you attract and not necessarily the venture capital you obtain. It also allows you to advertise your product or service. To date, several different types of businesses have created crowdfunding campaigns and such businesses include beauty salons, toy companies, clothing companies, fintech companies, technology companies, online platforms, real estate companies, craft beer companies, e-commerce sites, and the list goes on!
With such benefits and different capital raising structures, there is a way for different businesses to tailor their approach to their own specific circumstances and avail itself to different markets.
Good crowdfunding plans require experienced legal advice for the compliance and the required regulatory filings, as well as tactical decision-making for future growth.
Our experienced lawyers have successfully advised many high net worth businesses on crowdfunding and private placements. For more information please contact us at Emily@eaglaw.co