{"id":9945,"date":"2018-09-16T18:00:10","date_gmt":"2018-09-17T00:00:10","guid":{"rendered":"https:\/\/financenewmexico.org\/?p=9945"},"modified":"2018-09-09T18:17:12","modified_gmt":"2018-09-10T00:17:12","slug":"sec-rules-allow-small-business-crowdfunding","status":"publish","type":"post","link":"https:\/\/financenewmexico.org\/sandbox\/articles\/obtaining-equity-investment\/sec-rules-allow-small-business-crowdfunding\/","title":{"rendered":"SEC rules allow everyone to invest in small businesses"},"content":{"rendered":"
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By Karl Dakin, Owner, Dakin Capital Guild LLC<\/p><\/div>\n

Owners of startups and early-stage businesses can now look beyond traditional financing and equity sources when searching for growth capital. Changes in federal and state laws make it possible for everyone \u2014 not just the top three percent of income earners known as accredited investors \u2014 to invest in small businesses.<\/p>\n

Crowdfunding is the activity of raising money from everyone. Organizations have used it since the late 1990s to obtain a large number of small donations for art and philanthropic projects. Rules adopted by the U.S. Securities and Exchange Commission (SEC) in 2015 allow the general public to participate in securities-based crowdfunding. Instead of receiving a tee shirt or other gift of appreciation for a donation, crowdfunding investors get equity in the company they help fund.<\/p>\n

Raising money is a regulated activity \u2014 a sale of a security.\u00a0 To raise money in New Mexico, permission must be obtained from the Securities Division of the New Mexico Regulation and Licensing Department.\u00a0 An application must be submitted that provides information about who is raising money, how the money will be used, the character of the management team and the promises made to investors \u2014 including copies of the documents and materials used to attract them.<\/p>\n

Companies are limited to raising $2,500,000 through crowdfunding from New Mexico residents, and different rules and restrictions apply if an organization wants to raise money from people outside of the state.<\/p>\n

Partnering with the masses<\/strong><\/p>\n

Crowdfunding is not cheap, quick or easy, but it has advantages over angel or venture capital funding. Company owners don\u2019t need to sell the business to create the \u2018cash exit\u2019 angels and institutional investors seek, and low- or no-profit margins may be acceptable to crowdfunding investors while the business is being built.<\/p>\n

Crowdfunded money can be leveraged if it is part of a \u2018capital stack\u2019 \u2014 a combination of money from grants, equipment leasing, and debt financing.\u00a0 Like a cash deposit on a car or house that gives a borrower a lower interest rate and better loan terms, crowdfunded money is an asset that can help the company acquire at lower cost the largest portion of the money it needs.<\/p>\n

Crowdfunding must be conducted on the internet, and many platforms claim to have a list of investors ready to make an investment.\u00a0 However, statistics indicate few people on investor lists actually invest and even fewer make a second investment.\u00a0 This means that companies seeking crowdfunding money must develop relationships with a large number of people: crowd-building.\u00a0 No crowd, no funding.<\/p>\n

Investor due-diligence<\/strong><\/p>\n

Any investment can be risky, and investors should scrutinize a business before committing money to it. A scoring system that reflects the investor\u2019s values and preferences can help him determine the best place for his money. Companies that are cash-flow positive or whose owners are known by the investor might be a good fit. When the investor is familiar with the company\u2019s products and services, she can research market trends and conduct her own investigation.<\/p>\n

As rules of the capital industry democratize the making and receipt of investments and increase funding of local companies that represent the core of our neighborhoods \u2014 Main Street businesses \u2014 it may be helpful to share resources in order to identify, qualify and engage people to become investors.<\/p>\n

For more information, visit https:\/\/www.investor.gov\/<\/a> or read the blog posts at https:\/\/www.linkedin.com\/in\/karldakin<\/a>.<\/p>\n

Finance New Mexico article 572<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Owners of startups and early-stage businesses can now look beyond traditional financing and equity sources when searching for growth capital. Changes in federal and state laws make it possible for everyone \u2014 not just the top three percent of income … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[9,7],"tags":[358,82,19,362,361,359,360,13],"_links":{"self":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/9945"}],"collection":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/comments?post=9945"}],"version-history":[{"count":3,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/9945\/revisions"}],"predecessor-version":[{"id":9949,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/9945\/revisions\/9949"}],"wp:attachment":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/media?parent=9945"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/categories?post=9945"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/tags?post=9945"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}