Why New Crowdfunding Laws Could be An Opportunity for Your Small Business

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Raising finance for your entrepreneurial dreams, just like much else in entrepreneurial-land, has likely been harder than you thought it would be. You need ‘x’ amount of money but the bank is only willing to give you ‘y’. I’m sure you have thought in the past, if only there was an easier way to get the funds you need to start or grow your business.

Well good news! The government is now prepared to relax the stringent equity crowdfunding rules that are currently in place. What does this mean for you? More opportunity for you to get the cash you need!

What is Crowd-Funding?

Crowdfunding essentially involves millions of investors contributing small amounts of money to your product idea. It’s a great option because;

  1. it’s easy to set up
  2. only requires a small sum of money from individual investors and
  3. it’s a great way to market test a product/service prior to release (ie: if you get funds potential customers are likely to fund it and you can also split test positioning at the same time).

However, until recently crowdfunding has hasn’t been a viable option for small businesses in Australia. Australia’s current investor protection laws are quite outdated, and haven’t been designed for new financing methods such as crowdfunding. The current laws involve tedious compliance and disclosure requirements, which made crowdfunding unfeasible.

However the government is now considering new financial market laws, which could make crowdfunding a more feasible option for small businesses. Here’s a breakdown of what the laws will entail:

  • The government is considering limiting capital raising to $2 million a year per company
  • Anyone (over the age of 18) is able to invest
  • But they can only contribute a max of $2,500 a year to a single start up, for a total of $10,000 total a year.

So What Does Crowd-Funding Mean for Your Business?

First of all it means easier access to capital. You have the potential to attract millions of investors who are willing to give you some money. Yes their investment would be limited to a max of $2500, but imagine if you received funds from 4 people from crowdfunding, you could get up to $10,000 from them alone.

It also means less risk for you. Crowdfunding allows you to gain market validation and allows you to avoid giving up your all your equity to secure finances.

Not only is it less risky, there’s less red tape too! Applying for traditional bank loans is a pain we all know that. Thankfully, crowdfunding is a much simpler process.  Basically all you need to do is:

Step 1: choose your crowdfunding platform (e.g. VentureCrowd, OurCrowd)

Step 2: Share your message, make a video, and explain your concept

Step 3: Create a funding goal and close date

Step 4: You’re done! Now all that’s left to do is wait patiently and see if you reach your goal

Crowdfunding Can Also Be Sneaky Marketing for Your Business

Once you set up your financing campaign you’ll be able to grow your audience once you get your vision out into the world. Many crowdfunding platforms incorporate social media tools, making it easy for people to find your website and social media accounts. The more people that are aware of your business the better of course! You may gain some traction, with more people interested in your business and its products; you could see an increased customer base.

So there you have it, crowdfunding could become a possibility for your small business giving you the opportunity to reap its rewards! So if you want to continue growing your business crowdfunding could be a great avenue for you. If you need more help growing your business we  may be able to assist you. We’d love to help your business out by answering your phone, doing you admin work or even organising your next meeting. So give us a call on 9994 8000 or drop us a note.

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Article by Buck Samrai

August 1, 2014