Press Release (ePRNews.com) - Shanghai, China - May 16, 2017 - Mason Baxter: Crowdfunding has come into its own as a viable way of sourcing capital for new or existing ventures and it’s easy to see why; entrepreneurs can pitch large groups of individuals for funds by posting a description of their prospective or existing business venture on an online platform. Individual investors can then choose to make contributions to the venture by pledging money towards it. It’s refreshingly simple and effective and, indeed, thousands of innovative start-ups have successfully tapped this method to either get started or to raise additional funding for expansion.
Crowdfunding was the evolutionary response to tight credit markets following the great recession of 2008/09 that saw many banks restrict lending to new businesses while they struggled to rebuild balance sheets battered by sub-prime mortgage write downs.
It’s worth remembering that issuing equity through crowdfunding involves giving tiny stakes in your business to mostly highly inexperienced investors that many venture capitalists won’t be keen to invest alongside if your company should grow quickly.
The concept stuck and has gone on to spawn dozens of platforms vying for the attention of today’s innovators but Shanghai, China-based investment house, Mason Baxter believes that many businesses would be better served by more traditional methods of obtaining finance.
A senior fund analyst at Mason Baxter says he sees several drawbacks that businesses should be aware of when considering crowdfunding.
First of these, he says, is the detrimental impact the presence of crowdfunding shareholders can have on future financing. “It’s worth remembering that issuing equity through crowdfunding involves giving tiny stakes in your business to mostly highly inexperienced investors that many venture capitalists won’t be keen to invest alongside if your company should grow quickly,” explains the Mason Baxter fund analyst.
Another negative is the fact that an entrepreneur raising $1 million or more via crowdfunding cannot seek further funding for 12 months without complying with the requirements of SEC (Securities & Exchange Commission) rules on registration of equity. This could be a major problem if a business grows rapidly and needs more capital to expand.
Furthermore, business owners requiring large sums of money in a short space of time may simply not be able to wait for their idea to gain traction or build a “buzz” on a crowdfunding platform. In instances like this, a bank loan or extension of a credit line would be far more effective.
Mason Baxter certainly recognizes the important role crowdfunding plays for small-scale start-ups in trendy or creative areas where conventional funding may not be as flexible or as readily available, for larger businesses or those in less “hip” fields, traditional small business loans or lines of credit can be much quicker and far easier to obtain.
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