Crowdfunding Your Small Business - What You Need to Know

Crowdfunding Your Small Business - What You Need to Know.jpg

Is Crowdfunding a Good Idea to Seed Your Small Business?

Do you have a great idea for a new business? Have you developed a product you know will be a success? If so, you may be on your way to opening your small business. However, funding can be a significant hurdle for many entrepreneurs to overcome. Fortunately, the Jumpstart Our Business Startups Act (JOBS Act) signed by President Obama in 2012 paved the way for crowdfunding by easing many of the security regulations that prevented entrepreneurs from raising the funding they need to open their small business.

Crowdfunding has become a popular way to raise money for a new product or business idea. Investors see crowdfunding as a way to support small businesses while earning money on their investment. However, there are rules and regulations that entrepreneurs and investors should know before participating in crowdfunding. A Maryland business attorney can help you ensure that you comply with the JOBS Act and the subsequent Regulation Crowdfunding adopted by the SEC.

Crowdfunding has become a popular way to raise money for a new product or business idea. Investors see crowdfunding as a way to support small businesses while earning money on their investment.

Advantages vs. Disadvantages of Crowdfunding

A Maryland business attorney guides you through the legal aspects of crowdfunding. However, it is also important to understand the benefits and risks associated with a crowdfunding campaign.

·      Easy, Cheap Way to Raise Money vs. Low Success Rate

Even though crowdfunding may be an inexpensive and easy way to raise money for your business, very few campaigns raise sufficient funds to cover all costs. Therefore, what should have been an easy, cheap way of raising money becomes a considerable fundraising effort for a small return. 

·      Fewer Guidelines vs. Public Knowledge

When you apply for a loan from a bank or other lender, you face strict lending guidelines. If your business idea or product is “unusual” or “experimental,” you may not qualify for a loan to fund a small business venture. However, a crowdfunding campaign does not have the strict lending rules and regulations of a bank. 

Anyone reviewing your crowdfunding campaign can steal your idea if you have not taken legal steps to protect your invention.

Unfortunately, crowdfunding makes your idea public knowledge. Anyone reviewing your crowdfunding campaign can steal your idea if you have not taken legal steps to protect your invention. Therefore, you may need to pay for a trademark or patent even before you raise money for your start-up or risk your idea being stolen.

·      Rewards-Based Crowdfunding vs. Equity Crowdfunding

Before beginning your crowdfunding campaign, you need to decide between rewards-based or equity crowdfunding. Both methods have unique pro and cons that could make one method better for your situation. A Maryland business attorney can review your situation to determine the pros and cons applicable in your case.

Rewards-based crowdfunding is a way to raise money through donations. Donors receive rewards or incentives for donating to your campaign. On the other hand, equity crowdfunding involves offering an interest in your business in exchange for working capital from investors. 

Do You Need a Maryland Business Attorney for Crowdfunding Advice?

While you do not have to consult with a Maryland business attorney before organizing a crowdfunding campaign, a seasoned business attorney can help you understand the crowdfunding process and avoid costly mistakes. Whether you are an entrepreneur or an investor, it makes sense to learn everything you can about crowdfunding to ensure you make wise choices that decrease your risk and increase your chance of success. Contact Thienel Law, LLC today to get the legal counsel you need and peace of mind when dealing with business matters. Maryland business attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.