Growth Companies Benefit From Final Crowdfunding Rules

December 8th, 2015 | Posted by Sarah Jones in Guest Blogs - (Comments Off)

This week on NVTC’s blog, Alex Castelli of NVTC member CohnReznick shares how the SEC’s adoption of new crowdfunding rules could be a game changer for growth-focused businesses and investors.


The SEC’s adoption of new crowdfunding rules could be a game changer for growth-focused businesses and investors

On Oct. 30, 2015, the SEC approved final rules that permit companies to offer and sell securities through crowdfunding. The new rules provide another capital raising option for growth-oriented companies and offer additional options for investors who want to get in on the ground floor of in what could be a very successful business.

Benefits to Companies and Investors

Some of the key benefits of the SEC’s rules permitting crowdfunding or, simply put, the ability of companies to raise capital from the general public through the Internet are listed below.

  • Early-stage and growth companies that may be unable or unwilling to raise capital from institutional or private investors have access to another source of capital.
  • By offering and selling equity in their company through the Internet, companies gain a wider and more efficient distribution of the offering to a larger audience when compared to traditional sources.
  • Using the Internet to offer and sell securities should decrease the cost of capital
  • Non-accredited individual investors, previously excluded from equity crowdfunding investments, are now invited to become investors with certain limitations.
  • Investors have a level of protection since companies raising capital through crowdfunding will be required to utilize funding portals or registered broker dealers and will have certain disclosure requirements to investors. Additionally, funding portals that wish to participate in the crowdfunding process as an intermediary will be required to register with the SEC and become a member of FINRA.

Launching Your Crowdfunding Campaign

Even if you are a tremendously successful owner or executive, a successful crowdfunding effort will require expert marketing surrounding your efforts to raise funds. You and the members of your management team will assume the responsibility of formulating a marketing campaign to create interest in your offering. You’ll need a good story to tell investors complete with business plans, financial statements and projections.

In the crowd, you’ll be competing for investment dollars with other companies so you need to engage in strategies to elevate your offering over all others. Earning the trust and confidence of investors can lead to a successful offering. Consider activities that could strengthen your relationships with clients, customers, and even vendors. These relationships may help to support a successful crowdfunding campaign and could represent your future investors.

To launch your crowdfunding campaign, you’ll be using the services of an SEC registered broker/dealer or SEC registered crowdfunding platform or funding portal. Each will probably offer different services and fee structures. Once your customers, clients, and vendors have invested in your business, you may want to reach out to a broader base of potential investors. Getting your offer in front of the right investors will be critical to achieving your capital raising goals.

As a private company, you may not be accustomed to sharing operational and financial information publically. A successful crowdfunding campaign may require additional transparency if you are to build trust and confidence in prospective investors. If you are not comfortable sharing company information with the world, you may want to explore a more proprietary method of raising capital.

Once you have executed a successful crowdfunding campaign, you will need to have a plan on how you will continue to communicate to your new investors. How much information are you willing to share? Which rights to information will investors have? Consider creating an investor-only section on your company’s website where you can post periodic information about your company’s progress, financial results, etc. Transparency is the key if you want to keep your investors informed and hungry to make additional investment in the future.

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This week on NVTC’s blog, Kathy Stershic of member company Dialog Research and Communications introduces the first in her 8 part series of principles for responsible data stewardship to help guide behavioral change that will preserve customer good will and trust.


Following up to the introduction of 8 Principles for Responsible Data Stewardship That Won’t Kill Your Customer Relationships, here’s the first principle.

I know right off the bat that espousing customer control of coveted data collected at great effort and expense is marketing heresy. But it’s what they want. Sensed loss of control (psychological or otherwise) was the predominant finding in Dialog’s recent research.

Control extends to multiple domains. Perhaps most contentious is who ‘owns’ someone’s data. People believe they own their own data; the businesses who collect it feel they do, and in reality, they do legally own what’s collected in the course of transacting business. Customer data is a critical asset. But what happens with that data beyond the original intent (a la “I know I bought a thing from you but not them”) is unclear and uncomfortable. Some respondents want access to their data to see what’s been collected. Some feel that they should be paid for the use of it. Most want the option to decide whether or not their data gets shared, with whom, for what purpose and in what circumstance. This is far from today’s practices.

The letter of the law may permit sharing or selling of data to 3rd parties. Long, complex privacy policies in 3 point font may direct customers to some limited opt-out actions. Those policies are seldom read and even less seldom understood. But perception is what really matters. When customers feel loss of control over how their data is used and abused, offending brands will pay the price. One respondent told me she could tell exactly which nonprofit entity had been repeatedly selling her data by the volumes of spam received; she stopped supporting that nonprofit all together.

Control over the digital experience is another concern. If the internet is about freedom, then people should be free to direct their online experience, and not have a search engine or a business decide what they see. People passionately hate pop-ups, and don’t form favorable opinions of the unwanted brands that pop up. Turning them off imposes a burden on the user, and blocking all pop-ups may interfere with desired experiences on other sites. Much preferable would be inviting users to allow some dynamic messaging when they are open to receiving it.

In that same vein, customers want to choose the frequency of interaction. A positive purchase experience can easily sour by excessive promotional emailing. One respondent told me she regularly unsubscribes from chosen brands who spam her, and those brands fall off her consideration list. I myself have done this. Another respondent expressed anger over being “tricked” by a brand who slipped in a subtle clause on an e-commerce site that then obligated her to buy something she didn’t realize and didn’t want. In her words, this should have been opt-in, not opt-out. But she also told me she really appreciated that when receiving promotional material from a company she had not previously bought from, it clearly stated that she was receiving it because she had purchased from XYZ. That transparency was enough to make her feel positive about the old and the new brands.

The marketing practices mentioned here are common. Industries are built on them. But as more data is collected from more connected ‘stuff’, these issues stand to exponentially multiply. It’s not about what’s legally allowed; it’s about customer perception and experience. The more an organization empowers a customer to truly have choice and control in the data relationship, stronger loyalty and brand reputation will be the reward.

Please share your thoughts and perspectives!

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