In the last couple of weeks, I talk several equity crowdfunding portals.
1. I mate one person. He introduces me to a funding portal. He has a good connection with them. I am asking for 500K raise but he is very much excited and says why not 1M. Then may raise more, 4-5M from series a+. It looks like he tries to make it a business. You know, our current product and current size we need only 500K. If we get succeed then we may need more. We are not capable to observe this huge money and you know it makes our reputation bad if we can not make proper use of it. So why he tries to do it. Is he trying to do anything bad with us? what do you think?
2. He makes our executive summary so lucrative for our investors. Some of them we do but we do not do all of them because it makes our summery looks best but it's not good for business purpose. Should we take those extra lines with us or should we remove it?
What I put in an executive summary should I have to follow it or I can do a little bit of difference in my real project? Is their any lawsuit waiting for me for that?
3. Suppose we can not make our business successful. Then what happens? Do I have to face a lawsuit or Do I have to pay back by selling my personal property? It's an LLC corporate.
I do not live in the US. So I know very little about their law. So, please help me.
The first rule is to know how much money you need, not how much money you can get. It always sounds like a good thing to raise more money than you need, but with more money come more strings. Even using a funding platform, you should be prepared to do 100% of the work in attracting and engaging potential investors.
Above all, you must be honest about your business and your plan. If you are unable to support the claims in the description with facts or research, take them out. It will only cause you problems in the future. It sounds like the person offering to make your proposal sexy is working for a commission on the amount raised. That's the wrong kind of motivation. There's a difference between someone coaching you on your ideas (have you thought of things this way?) and someone who is putting lipstick on your idea.
You have to fully believe in your business plan. Investors will see through illusions quickly and any fluff can sour your potential relationship.
This is confusing for people who do live here, so you should relax.
Crowdfunding portals, for the most part, get paid for having you engage them, not for you getting your capital raised. What they do not tell you is the types of businesses that are usually successful or price and terms.
I think I understand that the person "selling you" on the raise is trying to have you say things about your business that you are not comfortable with. Do not accept them without some discussion. This is your company, not that other person's, so you have to be ready to execute. Not always does a founder understand how valuable or important their businesses can be, but there are many times the company offers and promises what they cannot deliver.
Yes, you can be sued for "material representation" of your business. That, however, is very vague. If you rationally scope the project, the market, and the opportunity and are wrong does not mean you mislead them. You may have been too optimistic, or misunderstood elements of the company's success, but it does not mean you have defrauded anyone. But if you tell people you have something (like a contract, technology, other funding commitments) that are total lies, yes you can be sued.
In the USA, if you "fail", and have not committed fraud, you do not owe the money back IF your legal structure is right. This is why investors take such a big part of your company for the funding - we know that, if you fail, our money is gone.
Happy to have this conversation with you. You can reach me at Dane@DaneMadsen.com.
Paul, I agree with you most of the point. He still not say any percentages. Whatever it complicated. He added some extra. which may be our feature extension. I am not sure about it as I can not able to explore those sector yeats. The question is am going to face any lawsuits if I don't exactly go this way. As you know, doing business you learn something new every day from the market. So it can not be constant to do exactly that. That is what I ask.