Thoughts on startups by investors that
fund them & entrepreneurs that run them

What should you know in order to start a crowdfunding startup in US?

Equity-based crowdfunding (that is, providing regular people with the opportunity to purchase stock in private companies) will not be legal in the US until the first quarter of 2013 at the earliest. At that time, any company planning to operate as a “funding portal” will have to comply with an extensive set of rules and regulations established by the U.S. Securities and Exchange Commission, which have not yet been released.

Project-based crowdfunding (that is, providing individuals or companies with the opportunity to accept donations from supporters, or pre-sell their products) is currently legal, and is exemplified by sites like Kickstarter.

In either case, the market is very, very competitive (there are probably 200 project-based platforms in the market today, with another 200-300 equity platforms coming next year.)  It is also incredibly difficult to be successful, and will likely be very challenging to finance.

With regard to international operations, the primary question is where the money is raised. If it is raised in the US, it is subject to US regulations, otherwise not (for the most part.)

Anyone seriously considering entering this market should start by doing a great deal of research on the subject, including checking out the many existing sites in operation, the testimony provided during congressional hearings on the subject, and the several web sites springing up that aim to provide information about the field. You should also engage an attorney familiar with early stage financing to advise you on the legality of your plans.

*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *

Written by David S. Rose

user David S. Rose Founder and CEO,
Gust

David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.

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