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The Coleman Fung Institute for Engineering Leadership at UC Berkeley

A team of researchers have identified key elements to reaching a funding goal on equity-based crowdfunding platforms, using empirical evidence from the Australian Small Scale Offerings Board (ASSOB). Gerrit Ahlers, Douglas Cumming, Christina Günther and Denis Schweizer wrote the paper "Signaling in Equity Crowdfunding," identifying several critical success factors, which include:

  1. The number of board members;
  2. The level of education (measured by MBAs) of the board and management, and their network;
  3. Planned exit, whether it be an IPO, trade sale, leveraged buyout or reverse takeover;
  4. Financial projections, or a disclaimer — a written reason for not stating projections;
  5. Length of time in business;
  6. Personal wealth invested;
  7. Percent of company they are willing to give up or amount of equity offered.

An entrepreneur who successfully raised money on RockThePost, Shahab Kaviani, CEO of CoFoundersLab, shared tips in the Washington Post. Below are his points I feel are most important:

  1. Zero in on who you believe can be the lead investor;
  2. Be willing to travel to investors;
  3. Send updates on committed investments;
  4. Get feedback from investors;
  5. Exude confidence.

"Do you really want dumb money?" Barry Schuler, former CEO of America Online, was quoted posing this question in Forbes. There will be varying levels of commitment and intelligence in all sources of capital, but I argue that crowdfunding democratizes finance and brings together collective wisdom. That said, when considering the crowdfunding route, there are some issues to be aware of:

  1. Reporting burden;
  2. Time spent performing investor relations;
  3. Bad Actor requirements (CrowdCheck now offers a tool to ensure you comply)
  4. Future rounds of financing and venture capital models.

This innovation will help business creation and job growth, as well as disrupt financial markets. I hope these suggestions help those looking for resources to raise the necessary capital to build inspirational new companies.

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