Crains New York - August 12, 2013 - (Page 7)

SMALL BUSINESS Crowdfunding 101: Communicate with care BY ELAINE POFELDT W hen Jamie Rosen raised money through crowdfunding for DietBetter, a startup he runs in Manhattan,he was more prepared than many entrepreneurs to keep in close touch with his investors. He had raised money for other ventures. “People want to kick the tires,” said Mr. Rosen. He ultimately secured $308,000 from about a dozen private investors for DietBetter,which offers an online social game called DietBet, in which dieters wager that they will lose 4% of their body weight in four weeks and then share the pot of money if they do. Mr. Rosen says he has enough time to communicate regularly with those investors, using digital tools on SeedInvest, the New York-based crowdfunding platform he used, and in one-on-one conversations and meetings. The firm, launched in 2011, has revenue in the six figures. Mr.Rosen is ahead of the game on investor relations. With the Securities and Exchange Commission gradually loosening restrictions on crowdfunding as a financing alternative, more companies are expected to try raising money this way. But, experts warn, THINK MOBILE many startups Many investors need to focus use phones and more on their other devices to keep up with their communications investments. strategy with inMake sure your vestors, and look communications ahead to the long strategy term. addresses that, says investorCurrently, relations expert crowdfunders Jeff Corbin. are allowed to sell equity only to sophisticated accredited investors. However, the SEC in July lifted a ban on general solicitations in a decision that will allow fundraisers to spread the word using more venues, such as socialnetworking sites, which is likely to attract a wider pool of wealthy people with money to invest. Meanwhile, the SEC is consid- TIP ering opening crowdfunding investments to the average Joe, a move that some observers believe could lead to communication gaps, either accidental or intentional. Mr. Rosen, whose minimum investment was $20,000, raised his money on SeedInvest this past spring. Ryan Feit,a co-founder of SeedInvest and co-chair of the education and training committee for the Crowdfunding Professional Association, says entrepreneurs need to make it clear to anyone investing in a startup that the investments are very risky, need to be diversified and are illiquid. “If entrepreneurs are not forthright about it, it’s going to be a very big problem,” he said. Investor-relations firms are already touting their services to potential crowdfunders—and the market is growing rapidly. Crowdfunders raised $2.7 billion globally in 2012, up from $1.5 billion in 2011, according to research firm Massolution. Startups that can’t afford outside help will need to master the basics on their own. Jeff Corbin, chief executive of KCSA Strategic Communications in Manhattan and author of Investor CONSTANT CONTACT: DietBetter’s Jamie Rosen talks frequently with his firm’s backers. great content that adds color to the numbers— that helps me to make the case for where the company is going and whether it’s going to continue to grow and my investment is going to appreciate,” he said. Craig Sher, who raised close to $140,000 in bridge financing from investors on SeedInvest for his business StearClear—a designated-driver service that offers rides to people leaving hospitals on medication or who are otherwise impaired—found that putting together a simple PowerPoint presentation with 12 slides in SeedInvest’s “data room” helped address many common questions from investors who bought convertible notes in the offering. When he held two recent calls with them, he said,“they were mostly asking about exit strategy.” Ⅲ buck ennis Startups using new funding platforms must learn to talk to novice investors Relations: The Art of Communicating Value, says that entrepreneurs will have to spend time getting a correct valuation of their businesses so they can price shares appropriately and learn how to communicate a company’s value outside of a thick prospectus filled with legalese. “If I go to a company’s website and see tons of information about its customers, case studies, video— To sign up for Crain’s SMALL BUSINESS newsletter, go to www.crainsnewyork.com/smallbiz. August 12, 2013 | Crain’s New York Business | 7 http://www.crainsnewyork.com/smallbiz http://crainsnewyork.com/cpa http://crainsnewyork.com/cpa

Table of Contents for the Digital Edition of Crains New York - August 12, 2013

IN THE BOROUGHS
IN THE MARKETS
THE INSIDER
SMALL BUSINESS
BUSINESS PEOPLE
OPINION
STEVE HINDY
GREG DAVID
REAL ESTATE DEALS
REPORT: SPORTS BUSINESS
FOR THE RECORD
CLASSIFIEDS
NEW YORK, NEW YORK
SOURCE LUNCH
OUT AND ABOUT
SNAPS

Crains New York - August 12, 2013