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From Our Founder: New Legislation Makes Equity Crowdfunding the Go-To Source for Startup Funding Posted: 13 Apr 2021 02:05 AM PDT Venture capital funding, while essential to the startup growth ecosystem, is a funding source that makes its way into only a small percentage of companies seeking critical startup and growth funding. The companies that get venture capital fill a narrow band that meet certain strict criteria, leaving many other highly meritorious and worthy companies out in the cold. Venture capital funds are managed by fund managers entrusted to ensure that the tightest standards are applied to ensure adherence to the criteria checklist. Participation in the funds is limited only to the most wealthy individuals and cash rich institutions, contributing to the elitist image associated with these funds. Certainly, venture capital is not a realistic funding source for the nation's traditional mainstream businesses that simply don't get enough boxes checked to qualify as a fast-growth, high-tech enterprise that will be acquired in three to five years. Likewise, nor does venture capital provide a democratic opportunity for participation by those who wish to invest directly into fast growth, high-flying tech companies that lead to the biggest possible return on investment. This venture capital structure and the regulations that govern participation in them works well because it averages the winners and losers and nets a return to investors who can stomach the ups and downs and afford to be patient to get their money out, let alone a return. However, this structure also inherently creates barriers for many startups that need the money, as well as for individual investors who want to participate but simply don't qualify. Until recently, the first shot an average individual investor has to participate in fast-growth companies is to invest in an initial public offering (IPO) of a given company, but by the time this occurs, while much upside still exists, the significant exponential returns are enjoyed by earlier investors, such as the venture capital funds. But now, equity crowdfunding, which got its start in 2016, is changing that dynamic and opening up a new, more democratically driven funding source to the startups that need the funding, and is provided by the individual investors directly based on their own evaluation and desire to participate. StartupNation exclusive discounts and savings on Dell products and accessories: Learn more here For the first time, investors could conduct their own analysis and direct investment into startup companies at the very earliest stage of evolution, with a chance to go along for the ride and swing for the fences, as long as both sides met the criteria associated with "Regulation A" offerings. It’s working! Since its introduction, equity crowdfunding has played a key role in providing many nascent companies with much needed early seed funding in aggregate amounts up to a total of $1.07 million. Pitchbook indicates that the average seed round investment was $2.2 million in 2020, and since January 2020, approximately $4 billion has been raised globally across more than 6,500 deals that included capital from crowdfunding campaigns. Now, as confidence has risen in the ability for equity crowdfunding to work, both as it relates to the raising of capital by startups from individual investors, as well as the ability to prevent fraud and other risks to investors and startups alike, the SEC is opening up equity crowdfunding in ways that will have a hand in truly democratizing startup investing. Related: From Our Founder: Creating Opportunity During Times of Crisis As of March 15, 2021, startups seeking growth capital in much larger rounds can now look to equity crowdfunding direct investments as a viable alternative or supplement to venture capital funding. Startups can source equity crowdfunding as seed or growth capital, and much like angel funding, this type of capital is more patient. The recent changes that went into effect by the SEC more than quadrupled the amount startups can raise via equity crowdfunding in a given year, from $1.07 million to $5 million. These changes are advantageous to both startups seeking capital and individual investors looking to expand their investment portfolios. With the ability to raise more money through equity crowdfunding, startups now have the ability to raise capital when they might otherwise fit the venture capital model. Even for those startups that do qualify, equity crowdfunding might represent an attractive alternative in that startups are no longer forced to be subject to VC fund requirements that can put pressure on young startups to focus on early exits in order to satisfy VC fund managers' requirements. As for individual investors, they can pick and choose which companies to support, providing a sense of "psychic return" in addition to the possibility of significant financial return, similar to how angel investors have been able to invest. While the risk is greatest at the earliest stages of investment, individual investors can invest small percentages of their overall investing portfolio, specifically to take a shot at the upside these early stage investments offer. Sign Up: Receive the StartupNation newsletter! How do you tap the equity crowdfunding opportunity for your business? Begin by choosing a platform on which to create and distribute your offering. The most popular sites to consider are: SeedInvest StartEngine Wefunder EquityNet Fundable MicroVentures Then, create your pitch! You'll want to include all relevant business documentation, including financials and your business plan as part of a due diligence package. Then, investors who are looking for opportunities on equity crowdfunding platforms can review your opportunity and make an investment by following the process outlined by each specific platform to close. Equity crowdfunding: Key takeaways The recent regulatory changes to equity crowdfunding will provide both startups and investors with more possibilities for growth; and given that the U.S. Census Bureau indicates that new businesses are forming at the highest rate in 13 years, the timing for this alternative form of direct funding couldn't be better. The post From Our Founder: New Legislation Makes Equity Crowdfunding the Go-To Source for Startup Funding appeared first on StartupNation.

What Startup Founders Should Know About NFTs and Intellectual Property Protection Posted: 13 Apr 2021 02:00 AM PDT As a startup founder, you might be wondering how you can take advantage of the recent craze surrounding non-fungible tokens (NFTs). Perhaps NFTs can be used to protect your startup's intellectual property without spending the time and money to secure more formal IP protection. After all, NFTs can be an effective way to enforce a copyright on software without the expenses of litigation or other enforcement actions. While tempting, startups should be cautious relying solely on NFTs for intellectual property protection. The law is slow to recognize new technologies and even slower to recognize new legal remedies. Therefore, startups that want to use NFTs as part of their intellectual property protection strategy should do so strategically. StartupNation exclusive discounts and savings on Dell products and accessories: Learn more here What is a non-fungible token (NFT)? At a high level, a non-fungible token is a unique, digital representation of a physical or digital item such as software, artwork, music and so on. NFTs are permanently recorded in a blockchain, which is a decentralized digital ledger. Once recorded, the NFT cannot be modified or deleted. Therefore, NFTs offer a secure and accurate historical record of transactions. The NFT itself isn't entirely valuable. It's just data. The value arises when the NFT is associated with an item, listed in an online marketplace and used to track or control the distribution or ownership of the item. An NFT can serve as proof of ownership, past and present, of the underlying work given the nature of blockchain transactions. But that's just the tip of the iceberg. NFTs can also be used to authenticate items or control how the item can be used by customers. Not only are NFTs subject to the terms of service of the online marketplace, each NFT transaction may require that the purchaser agree to a "smart contract" that defines the terms of purchase or other use of the underlying item. A tech startup, therefore, may employ a smart contract to license (rather than sell) software or other products to a customer. Related: How to Choose the Right Business Name for Your Startup How can startups use NFTs to attract investors and maximize exit value? Startup founders are often focused on three goals: attracting investors, increasing market share and maximizing exit value. NFTs might help you further one or more of those goals. If your tech startup develops software, you can use NFTs to limit and track the distribution of your software. By authenticating ownership of the software tied to the NFT, you can distinguish pirated software from licensed software, leading to increased sales, which both you and your investors will appreciate. NFTs can also allow tech startups to control use of their software in a more sophisticated way than traditional sales or license agreements. Specifically, NFTs with smart contracts give a tech startup the ability to define how their software is to be used by end customers, monitor compliance with the smart contract, limit the number of software users, and block or limit resale of the software by the customer. NFTs might also offer startups a way to provide value when raising money though crowdfunding campaigns or more traditional funding rounds. For example, NFTs could theoretically be used to represent ownership in a company as well as collateral for a loan. Just be cautious, because securities are highly regulated and the use of NFTs as such could create significant legal issues if not handled properly. In other words, talk with a securities lawyer before attempting to do anything like that. Sign Up: Receive the StartupNation newsletter! Can NFTs replace traditional intellectual property protection? Startups, particularly those selling software, may wish to consider leveraging NFTs as a temporary substitute for formal intellectual property protection. You might be aware that securing a patent, trademark or copyright takes time: registering a copyright or trademark takes months, while securing a patent takes years. NFTs can offer stopgap intellectual property protection while you wait for the government to grant you more formal protection. While it may be tempting, startup founders should not forego formal intellectual property protection in favor of NFTs, however. The law does not recognize NFTs as a form of intellectual property protection. Disputes over NFTs, therefore, must be challenged as contract or license disputes. While that may provide your startup with some relief should someone infringe your IP rights, you'll miss out on some of the advantages granted to patent, trademark and copyright owners. Another consideration relates to how NFTs will be treated outside the United States. Intellectual property rights are the subject of multiple treaties. NFTs do not — and may never — share that advantage. While the intellectual property laws in every country aren't completely aligned, the treaties provide enough unity to give startup founders confidence that their intellectual property will be respected in the primary countries in which they seek protection. Unless and until NFTs are subject to worldwide treaties, you may see significant disparity between how NFTs are treated in different parts of the world. Another important thing to recognize is that willfully infringing the intellectual property of another exposes the infringer to steep penalties in the United States. The law is designed that way to strongly discourage reckless or willful intellectual property infringement. Those remedies aren't available when someone infringes a contract or license agreement, which is how an NFT must be enforced. What comes next? The law surrounding NFTs will take some time to mature. Eventually, NFTs could very well become a meaningful way for startups to quickly protect intellectual property. But for now, startup founders should not forego traditional IP protection in favor of NFTs. The post What Startup Founders Should Know About NFTs and Intellectual Property Protection appeared first on StartupNation.

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