Let's talk about crowdfunding. Crowdfunding is the practice of raising money in small amounts from many investors, rather than in large amounts from just a few investors. It's a relatively new financing option for startup companies, and there are fundamentally two types. I'm going to talk first about rewards-based crowdfunding, and after that we'll discuss equity crowdfunding. As you're probably aware, there are many sites online that specialize in rewards-based crowdfunding. The most prominent of these our Kickstarter and Indiegogo, but there are many others. I'm going to focus just on Kickstarter and Indiegogo because they're far and away the most common options for startups. Kickstarter was launched in 2009 and it's designed to raise capital for projects that have a specific goal; that's usually the development of a specific product. Kickstarter campaigns are all or nothing. The entrepreneur sets a fundraising target, the amount he or she needs to raise in order to achieve the objective. If they're not successful in raising that full amount of money, then the money is returned to the donors and the company receives nothing. Kickstarter charges a fee based on the amount that is raised, but if the funding goal is not met, there's no fee. Indiegogo was launched in 2008, and it was originally designed for raising capital for independent films. On Indiegogo, you can now run campaigns to raise funds for almost anything. There's no minimum threshold. Whatever capital you're able to raise in the campaign is yours. It's available to you even if you're overall funding goals are not met. Indiegogo charges a four percent fee if the goal is met, but if the goal isn't met they charge a higher fee. Rewards-based crowdfunding can work really well for consumer products, not so well for most other kinds of startups. That's because consumer products companies are able to use the products themselves as the rewards they offer to donors. That's why Kickstarter and Indiegogo campaigns are often used more as a way to test market a new product than to finance the startup company. They give the entrepreneur a way to see how the market will respond to a specific value proposition or pricing strategy. If your campaign is successful, you've confirmed that there are customers who were willing to pay the price you've set to purchase your product. This can be a powerful way to confirm that you have a real product market fit. So, even a moderately successful campaign can give you the credibility you may need to attract traditional angels or venture capital investors. There's a lot of competition on Kickstarter and Indiegogo. To be successful, you have to have a well-designed campaign with an attractive reward. Campaigns that use T-shirts, or discount coupons, or other types of rewards are much less likely to be successful than campaigns that deliver the product itself as a reward. You have to have a high-quality and engaging video. Some campaigns spend a lot of money on this. Set your campaign goal properly. Your target amount should be enough for you to truly achieve your goal, whether that's finalizing the product or approving the product market fit. You will ultimately have to deliver the awards to your donors. They can be pretty patient, but you'll have to come through for them before too long. Use social media to drive traffic to your campaign. Visibility is everything. You may have friends and family or other investors who are already willing to support you. Think about having them donate to your Kickstarter campaign on day one so that you can show early traction. The fee you'll have to pay to the site is going to be worth it. Let's switch gears now and talk about equity crowdfunding. This is an even newer phenomenon. Equity crowdfunding was made legal under the Jobs Act in 2012, and the final rules were released by the Securities and Exchange Commission in 2015. The Jobs Act allows businesses, for the first time, to make public solicitations for investment capital. It allows businesses to raise capital by selling securities to many different accredited and, for the first time, non-accredited investors. What exactly is a security? A security is any financial contract: shares of stock, loans, options, any contract that you might use to raise money from investors. The first rule of equity crowdfunding is that businesses are allowed to sell no more than one million dollars on authorized equity crowdfunding platforms per year. For most startup companies, that's probably plenty. For others, it may not be nearly enough. The other important rules are focused on what types of investors that small businesses can solicit on these platforms. Let's start with accredited investors. Accredited investors are either company insiders, directors or officers of the company who presumably know what's going on, or they're wealthy individuals who can easily afford to make high-risk investments if that's what they choose to do with their money. We're talking about high net worth individuals. To be an accredited investor, an individual has to have over 200,000 in annual income, 300,000 with a spouse, and they have to have a net worth of over a million dollars, not including the value of their primary home. Accredited investors can invest as much as they want to invest on equity crowdfunding sites. It used to be that startup companies could get in trouble by selling securities to non-accredited investors. Those rules have been relaxed under the Jobs Act, but there are still limitations. Non-accredited investors, who have income or net worth of under 100,000, are only allowed to invest the greater of $2,000 or five percent of their income or net worth, whichever is less. That's not much money. Investors who have income or net worth that is more than a $100,000, but still less than the threshold for them to be qualified as accredited investors are allowed to invest up to 10 percent of the lesser of their income or net worth. So, that means that someone who has $200,000 in annual income, but their net worth is not high enough for them to qualify as an accredited investor, is only allowed to invest up to $20,000. These investment caps are annual, and they include all crowdfunding offerings. So, the investor we just spoke about could only invest $10,000 per company if they wanted to make two investments in the same year. Because of these limitations, many of the larger equity crowdfunding sites restrict their offerings to accredited investors only. Here are some of the best-known equity crowdfunding sites. AngelList has been in business since 2010, even before the Jobs Act. AngelList offers investment syndicates to enable credited investors to invest in startups together with prominent lead investors. The platform has not been made available to non-accredited investors yet. 243 different startups raised a little over $100 million through AngelList in 2014. That's a little more than a third of what was funded through the entire equity crowdfunding industry in that year. It's still a fairly small industry. Several of these other crowdfunding platforms offer both equity and rewards-based crowdfunding. The keys to success for equity crowdfunding are really not that different from the keys to success for raising other types of capital. The investors that are active on most equity crowdfunding platforms are sophisticated investors. Pick the right platform for the type of venture that you're launching and make sure that you have a great presentation. Investors will be focused on the quality of your team and your market traction. You have to be able to convince them that you have what it takes to make your business a success. Having one or more lead investors on-board early is critical. It's always easier to get people to join you when you already have a credible investor on-board. Some equity crowdfunding platforms require that startups to be sponsored by one of their investor members before they will allow them to access the whole group. Do as much outreach and marketing as you can to drive traffic to your campaign. To be successful, your campaign needs to be highly visible. Finally, it's worth mentioning that several states have set up their own intra-state crowdfunding rules. This might make sense for you if you're building a smaller business with a limited geographic focus and you're trying to raise money locally. It won't work for you if you're building something bigger than that because Federal Securities Laws trumps state securities laws when you're raising money across state lines.