Crowdfunding via approved internet portals became available in May of this year. So far companies have been averaging about $800 per investor and may have hundreds of investors. That’s a lot of small investors to deal with. Many companies have listed $100 as the minimum investment amount, although at least one company has set a minimum investment of $2,000.
Presumably most of the companies are providing periodic reports and directing questions to their website rather than providing much in the way of individual contacts with investors. One hopes the offerors are including formulas where they can buy out these investors, as VC’s and other large investors who may invest later do not like large numbers of small investors.
If an offeror doesn’t meet its financial target by its chosen deadline, all the money has to be returned. For that reason, although up to $1 million can be raised, most offerors have been setting low total offering amounts, with a median of about $55,000 (though there are offers with targets of $200,000 to $500,000). Setting a low target amount is wise. Many of the offerors say they will accept over-subscriptions totaling amounts that are much larger, with some allowing total subscriptions of up to $1,000,000. Many of the companies hitting their targets so far have actually raised about four times as much money as their target amounts. Most offerors seem to be using a deadline for raising their target amount of 90 days to six months.
In order to minimize their potential liabilities, most crowdfunding portals seem to be requiring that offerors have their own securities-law attorney reviewing the offering and related documents. (We provide this sort of review.)
Portal commissions and terms vary widely and seem to change frequently. Companies looking for a portal should be sure to comparison shop several portals and determine their current fees. Some portals are associated with separate escrow companies that have their own fees, so this should be checked.
Lastly, the portals generally seem fairly overwhelmed – roughly four new companies a week are starting a portal crowdfunding offering – so companies that are interested in crowdfunding should start the process as soon as possible as it takes a number of weeks to be listed.
Bruce
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