So Auntie Madge has a bit of money. You have a brilliant idea that needs funding. Madge is not so savvy about startups but she loves your story, your enthusiasm (and you) and hands over her $10,000. supposedly for equity.
Other than hope … what does she get in return.
And how do you feel?
Over the past few years as companies have approached ASSOB to raise equity capital I’ve noticed that many barely have a register or recording of equity transactions that involved people like Madge who are friends and family. These transactions are usually put in the “I’ll sort it out one day pigeon hole”.
But how fair is that on Madge? Her hard earned cash has been entrusted with you and all you and she have of it are memories.
Thats where Equity Crowdfunding can assist.
In the U.S. entrepreneurs raise around $60 Billion from friends and family. Most of it with limited record keeping. Often it is only when the company does a “proper” capital raise or similar that time has to be wound back to record equity transactions that happened in another context.
The legitimisation of earlier transactions and the recording of them in a proper share structure is something that is easily achieved with equity crowdfunding. Before a new raise can occur the company’s capital structure has to be finalised, share certificates or holding statements issued to all share holders, and, records updated with the Companies Office.
This process can remove lots of bad thoughts and pent up emotions. Relationships are easily strained when there is uncertainty about financial transactions between parties.
Transparency is often the issue as the actual situation with the funding has been unclear from the beginning. We have seen some “rediscovered” investors really happy that they now have a proper shareholding … and often they invest more!
Win-win all around.
Future funding is then a breeze. A well structured, transparent, compliant equity crowdfunding raise can be mentioned in passing at a family gathering then followed up with a link in a promised email. No need to go for the cheque over desert.
ASSOB‘s experience shows that nearly two thirds of each equity crowdfunding raise comes from friends, fans, family and followers. So it is going to be fairly certain that if you take the equity crowdfunding route you will need to approach family and friends for the initial investment. Social networking that includes your family and friends will be the start of any viral communication and social media build-up. Social Proof begins at home!