Tips for Crowdfunding for Your Business

Rachael, Direct Incorporation Staff

Mark J. Kohler, M.Pr.A., C.P.A., J.D., is writer for with a very active YouTube channel directed at entrepreneurs. In a recent video, he discusses some crowdfunding strategies for your business. According to Kohler, there are three “rules” for crowdfunding that anyone should keep in mind in order to have a successful experience.

Rule #1: You have to work with a portal

“You can’t just go out and do this on your own,” he explains. This one is pretty self-explanatory. If you’re just asking for money on Facebook, you probably won’t get very far. You have to sign up to do your crowdfunding through a licensed, approved portal through the SEC. Kohler also adds that you should make sure the portal you’re using is legitimate! Some good examples include Kickstarter, Indiegogo, RocketHub, and GoFundMe.

Rule #2: Prepare your formation documents and disclosures

Kohler breaks this rule into five steps. First, you need to have all your formation documents done, whether you’re forming an LLC or a corporation. Next, “make sure you disclose the price, terms, and be very clear on what the person gets,” Kohler explains. “You don’t want to be wishy-washy on this.” Third, you need to have good accounting records that are either reviewed or audited. This adds to the credibility and trustworthiness of your business.

The fourth piece is that you need to have a detailed description of your company. “You’ve gotta really describe what your business is about: the product, the service…and it’s gotta be more detailed than ‘Hey, I’ve got this great idea, check me out!’ and a little YouTube video for two minutes,” Kohler presses. He continues on to say it should be “kind of like a business plan” for your potential investors to see. And finally, the fifth step in this process is that you must disclose all information about the owners and officers. This again adds credibility, and reassures investors that they are putting their money into something legitimate instead of someone who doesn’t really know what they’re doing (or someone who is trying to scam them).

Rule #3: Ongoing compliance

This is not only important for the process of crowdfunding, but for the success of your business in general. Make sure you file tax returns, keep good accounting records, and file annual reports to the SEC. “Make sure you budget these out and have a relationship with a firm that can help you provide those annual fees [if necessary],” adds Kohler.

“Under the crowdfunding rules you can raise up to one million from individuals, and anywhere from $2,000 to $100,000 from any one individual [this depends on the financial status of that individual].” If someone makes less than $100,000 a year (or their net worth is less than $100,000), then they can give up to $2,000, or up to 5% of their income or net worth. If someone makes more than $100,000 and has a higher net worth than $100,000, they can give up to $100,000 or 10% of their net income or net worth).

Crowdfunding can take your business to the next level, so keep these rules in mind in order to create the most successful crowdfunding campaign you can!


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