Twenty five years ago, when the word “bulletin board” was used instead of a website and the word crowdfunding did not exist, Australian regulators passed legislation that allowed small businesses to raise capital from friends, family, fans and followers without the expense of preparing and lodging disclosure documents like a prospectus or offer information statement.
Looking back this legislation was innovative and in reality is as close to “crowdfunding” as any existing legislation anywhere in the world. A small business or startup can market it’s offering to all its personal contacts and the personal contacts of the “bulletin board” owner provided a few simple rules are followed.
In this interview I outline the major parts of the capital raising process and some of the lessons those positioning themselves to take advantage of the Jobs Act can learn.
One of the main points I make is the difference between pledge crowdfunding and equity crowdfunding from an operational point of view. With “pledge crowdfunding” the contributor is expecting a reward. A graitification. Probably instant gratification. Meaning if they contribute $100 for a watch they are pretty sure they will get the watch within a few months.
However with “equity or investor crowdfunding” there is uncertainty and hope. The investor hopes that when they invest they will get their money back or better but it is uncertain as to when this will happen. Meaning if they contribute $20,000 they trust that the founders of the company will be good custodians of the money and will deliver on the promises they have made or the picture they have painted. Hope also must endure. From the time of the crowdfunding investment until its return, or not, communications need to be maintained with investors because they are still living on hope.
They hope that they will at least get their money back and it should not be a surprise after three years if they dont.
Ongoing communication is essential.
NB: Jonny Sandlund of the Crowdcafe has written an update post here: Exploring ASSOB: A $130 Million Crowdfunding Model that Works