3D Printing equity crowdfunding is a really good topic for everybody who is considering starting a business in the 3D printing industry, and needs to raise money. Defining what that means, how to use it to your advantage and if Kickstarter is the way to go. Breaking down the steps to funding your seed capital with the new regulations that have been put into effect since May 2016.
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How 3D Printing Equity Crowdfunding Can Grow the Industry
3D Printing equity crowdfunding is a really good topic for everybody who is considering starting a business in the 3D printing industry, and needs to raise money. It applies to all businesses. There are a lot of issues going around about whether or not crowd funding is the way to go. We are going to define 3D print crowd funding by calling it 3D printing equity crowdfunding when you sell a share of your company. We are going to explain some of the 3D printing equity crowdfunding examples. Crowdfunding with Kickstarter is really a donation based funding. It is just like open source community donation for a project. There are promises that you are supposed to get something, but you are not getting a piece of the company. There is no expectation of ownership.
People who donate through Kickstarter expect to get a reward down the road, but they know that they are taking a risk. There are two different kinds, and we are really mostly going to focus on the equity side of things. It is so hard to kick start a company with Kickstarter. It does not work like that. You can kick start a product, just not necessarily a company that way. This is coming up because in a week, I will be going to Capital Class. It is a part of the CEO Space organization, and it is one of the only places where you can understand and learn the compliance rules that surrounds equity crowd funding, which will help us understand 3D printing equity crowdfunding beetter. There are some serious compliance rules. It is complicated and you have to go out there and seek 3D print equity crowdfunding in a very specific way.
You have to have all of your I’s dotted and T’s cross and triple check to make sure you are in compliance when it comes to 3D printing equity crowdfunding. If not, you put your entire business in jeopardy. This topic of 3D printing equity crowdfunding is coming up because of that. There has just been confusion with this because people see this more on Kickstarter and not more on equity crowdfunding. I wonder if that was intentional that the government made all of these new ICC rules around equity crowdfunding and 3D printing equity crowdfunding. If they really realize the terminology that they are using that it would be misunderstood by people. I don’t think that that is the case. This comes out of the JOBS act, aka the Jump Start Our Business Act. It means to jump start our business start ups.
The JOBs Act wanted to have this equity crowdfunding to be in place sooner, but it took so long for all the regulations and the ICC. It took so many years to get this accomplished and through. These sites started up with the intention that they would be equity crowd funding, and yet, they have to figure out how to make money now. They were trying to get ahead of the curve. Many of them wanted to eventually add in equity crowd funding to do both. They just took on the term and made it an industry term, and made it common place for us. Now we are confused because the new rules thatare in place now.
They are compliance sites out there. There is a site that is running and that is already approved by the SCC. They have to be approved. One of the major things that I am going to Capital Class to learn is not just the compliance but what the other sites offer. Sprowtt is one of them. They also have been in operations for the other type of equity funding like 3D printing equity crowdfunding. They have come off of doing a heavy compliance for those that are raising capital. They already know what they are doing from that standpoint. They have a whole legal system in the process. It is really managing and tracking who is investing in you; Are they approved? Do they meet the SCC requirements?
It depends on what type of crowd funding or equity funding you are going into, is it 3D printing equity crowdfunding or not? There are different rules for that. These two sites sprowtt.com and sproutcf.com track those differently. The interesting thing that I have found really intriguing is something called Side by Sides. Crowd funding allows you to get a bunch of investors, and the number does not matter. They have to be qualified but they can only put little amounts of money. It depends on their actual financial qualifications. It is around $1,500. You have to get a bunch of people in to do that. You can only rise up to $1,000,000.
You can do that in that process, and get your seed capital going. Do some proved things and get some of these interested parties going through. If you are filing or doing just that, you do not have to file all of the heavy SCC paper works that you would file if you were making a public offering. I could not say that one company is raising funds. Go there and invest in them. I could not say that, and they could not say that, unless you filed both paper works to go for the full and larger amount equity funding.
If you are going to start a company today, you want to raise seed capital up to a million dollars. The government allows you to do that in a certain type of crowd funding of people that pays a certain amount of money. Investors have to be qualified, to be able to afford to invest with what they are going to invest. This smaller amount of money is less restrictive on that. You do not have to do the full and have the specific ratio between how much money you make and how much assets you have. They do not have to look at those things. They just look at your income or total net worth. They look at that and say that you are qualified enough.
They do not want people investing too much money who really can’t afford it. There should be a proportion. There is a whole bunch of nuances to it that are technical and financial things that I am not going to get into because I am not a lawyer or a financial expert. They are there and the way that these sites work is that they require the investors. If you are out there, and you say that you want to start a real serious 3D design business. You need to have a certain level of compliance documents filled out. I am not going to go with the full equity raise right now. I will in the future, but I am not going to do that right now.
Now you have to seek investors privately. You have to go out there and have meetings with them. You can’t even show them the capital documents. You have to send them into this website to go look at them. You can do your basic pitch, but just don’t show them the financial backup and all those technical and legal documents.
The SCC gets more restrictive if you are going to invest larger sums of money and raise larger sums of money, they are more qualifications that you have to qualify as an investor. You have to prove your net worth and you have to show your income. You have to track how you got that investor and how you met them, that you did not show them the offering and sent them into the site. There is a whole bunch of things. If it has a certain percentage, a complete vetting has to go on. You don’t want investors in your company who are not legitimate, who are going to harm your company, and who can’t afford it.
I remembered our past episode with the seven factors that investors care about learning about you and your business before deciding to invest. The last one was the amount of money to spend. A real investor is not going to invest money that they cannot afford to lose. They want to know everything else about your plan, and are not as worried about what the return is for either way, or how risky it is. They look at that, but that is one of the lower things on the list. Having the option of being able to do that full regulation paper work and do that whole thing for a full raise, and being able to get in front of angel investors for that money and having the opportunity to bring in a million dollars now through smaller investments is what happens here. It helps get you going.
That is the idea of how it should work. Not every company has side by side, and that is something to note and make sure that you find one to do. The great part on doing that is that if we were to do this, if we decide to go raise capital and go for the full raise with VCs and angel investors, but we are also going to do the $1,000,000 side by side. Now we are not restricted to have private interviews. We can announce on the air if we wanted to. We could put out a commercial saying, “If you are interested in having a tiny piece of our future, come on in.” It is really good for those companies that have a product and raving fans. It will get the company going.
If you are starting a business and you have small investors, they can put money in to your business and the SCC does not regulate that or control that. That is fewer individuals. But if you are going to raise money from more than that people, as a business, you have to comply with those laws. I want people to understand why these websites now exist. There are a lot of government regulations about who can invest, but as much as these laws are there to protect the investor, they are also there to protect the business. I want people to understand why it is.
If you are going to raise capital and have all of these investors, what has happened in recent years and decades is that some investor has investors’ remorse or they got divorced. Their spouse was not really completely up to speed on the investment. They have investors come back and use the legal system to come get the investment money back out of the company they are investing in, claiming that, “They did not disclose all the information to me. I was not aware of the risk of the investment.” These sites handle all the compliance. Documentation can really store evidence that they have worked the system there where they have downloaded the documents, the pitch.
It holds legal water now, so you can’t say that you did not get it. The way these systems are done, the website protects you as the company raises money. They can’t come back later and say that they did not communicate. What they call an SCC regulated broker dealer or portal. It might be either one. You must make sure that you check that they have a broker’s license. The other thing about it is that there is some controversy about it. Because of the SCC rules, there is a privacy issue problem. All of your documents and information is on there. A competitor can pose as an investor and go into it and review everything. It is a problem if you are really worried about the security and privacy. But honestly, you are obviously ahead of them. You have already funded the document filings and everything. You are already on the way and you are already making presentations with investors. You are already far ahead in comparison to where they are.
There are some disclosure components to all of this. The good part is, you can absolutely see. If you were to eventually get into some kind of law suit with them over them infringing, there is an absolute tracking of all the information of the person who came in. There is a digital footprint to identify who is there. So many businesses that start in the 3D print industry think of how to start the company with the money. Make sure you know what you don’t know of what you are allowed and not allowed to do. You should hire an attorney that specializes in funding of new business and ventures and in 3D printing equity crowdfunding. They can help you with preparing to launch a 3D printing equity crowd funding program on one of these sites. I would use one of these sites to stand compliance.
There is nothing worse with dealing with legal problems when it comes to 3D printing equity crowdfunding. That is a distraction you don’t need. It is my understanding that they have a legal process going through it. It got so many documents, and many lawyers don’t handle this 3D printing crowdfunding, because it’s usually smaller. They take a piece of the raise. They are not that interested when your raise is only a million dollars. Some of these site developed a whole stream like system where most of the work is done by the site electronically as the forms are filled out. You can’t hire your uncle attorney. You have to hire a securities attorney. You can’t use a normal attorney. They have to be securities licensed in order to prepare the document and file them with the SCC. They are typically expensive.
I think there is a lot of 3D printing business out there who started with a great product. Maybe they kick started them and that is wonderful, but now they are starting to have problems in growing their business. This is the time where they need to go and think about equity and raising capital. Thinking back to what happened with Pinshape, they got a lot of VC money but the VC expectations were a whole lot higher. With the equity crowd funding model for 3D printing equity crowdfunding and a million dollars, they don’t have a right to demand you to change the direction of your business.
There is a lot of critical things and I am working on a series of articles on Inc, which I am happy to share to everyone when they publish later this month. If this is something you want to do, how this work and where you do go, as well as question yourself on where you want to go. This is a pretty serious stuff and it is not as easy as how business would want Kickstarter to be. There is a whole bunch of things that should be in compliance. There is a whole bunch of information and this is something that you can do in a month. It would take longer than that. You need to put your pitch together. Pitching in a short period of time in really getting that crosses, is not an easy thing.
I listened to this in one of the conferences I was visiting at, and one was talking about how the brands interact. If you can keep it on the emotional level, all of those intellectual things that people talk out of stuff, goes away. If you do your pitch properly, then you are getting them excited about the idea, but you are not talking about your “what”. You are talking about the “why”.
I think that is really valuable information on 3D printing equity crowdfunding. For a lot of people who are just interested in 3D printing, you may learn that starting a business is not their cup of tea. However, I think it is valuable information for people who are really serious in going to business. When you send them into some of the sites, they get to go in a general pool. They try and scoop your investor because you are bringing in your investor, but it is not yours. You are competing with a lot of companies out there.
If investors do not find what they are looking for, they go find something else. They have various things that they are interested in. You are not just competing with another 3D printing company; you may be competing with everything that is in technology. When you are choosing a site, which is the most important thing, there may be better sites for the investor, and there may be better sites for those who are seeking in investments. If you are starting in business, you want to have a site that works for your best interest.
They have to do things right for the investors as well. You can’t just support the company at the expense of the investor, but you want to make sure that you are working with the site that helps you and not hurts you. Even if you raised money 10 years ago for a business, you don’t know how it needs to be done today, because the times have changed.
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