Crowdfunding to Provide Alternative Capital Source to Early-Stage Companies

Crowdfunding is gaining new life as a technique for companies to raise capital. On October 23, 2013, the SEC proposed rules governing equity-based crowdfunding. Key highlights of the proposed crowdfunding rules include:

• Companies are permitted to raise up to $1 million every twelve months through crowdfunding.
• Companies must use federally regulated portals for crowdfunding campaigns.
• All companies must file two years’ worth of financial statements.
• If a company intends to raise more than $500,000, it must file audited financial statements.
• Only accredited investors may participate in this type of capital raise.
• Certain types of firms, such as public and non-U.S. companies, are prohibited from using crowdfunding.

Although originally designed to provide funding for book publications and band tours, crowdfunding may turn into a viable source of capital for small businesses and start-ups seeking funding for specific events or new product lines. The goal of the new rules is to allow companies to take advantage of new equity markets already functioning internationally. According to an article in The Economist, in the United Kingdom alone, over £15 million has been raised by start-up companies since 2011.

Equity crowdfunding offers new opportunities for both companies and investors. Mercer Capital has extensive experience in the valuation of early stage companies, as well as illiquid minority interests in private businesses across a variety of industries.

Related Links

• The Economist: Cream of Devon (November 2, 2013)
• CFO Magazine: SEC Proposes Crowdfunding Rules (October 23, 2013)