Shared by our Crowdfunding Expert, Dara Albright, Founder of NowStreet. You can follow Dara on twitter @NowStreet

Since the passage of the overwhelmingly bipartisan Jumpstart Our Business Startups Act (the “JOBS Act”) on April 5, 2012, the curiosity of a revolutionary small business financing mechanism called, Crowdfunding (also referred to as Title III of the JOBS Act, “Crowdfund Investing” or “CrowdInvesting”), has intensified.

For those out-of-the-know, “Crowdfunding”  is a process of raising capital, usually via the Internet, to fund a private venture by pooling small amounts of monies from multiple funders who share similar passions and ideologies. Crowdfunding is currently being utilized to finance charities, the arts, political campaigns and even startup businesses. However, laws dating back to 1933 have made it illegal for funders to receive securities in exchange for their investment. The S.E.C.’s implementation of Title III of the JOBS Act will ultimately legalize “CrowdFund Investing”, thereby allowing today’s investors, who are starving for yield, the opportunity to invest in the smaller private companies that are willing to provide it.

Because conventional financings are no longer viable options for small businesses, many have been desperately seeking alternative methods for accessing capital. “Crowdfund Investing” is rapidly emerging as a promising solution. Although most industry experts don’t foresee “Crowdfund Investing” legally employable until at least 2014, companies interested in ultimately employing the “Crowdfund exemption” should begin making preparations now in order to help ensure a successful offering.

NowStreet, a company on the forefront of financial innovation, has released the following guideline to help businesses properly prepare for the forthcoming CrowdInvesting Revolution.

1. Get your financial house in order. Issuers raising between $100,000 to $500,000 will need to have its financial statements reviewed by an independent auditor. Crowdfund Offerings greater than $500,000 will require a full financial audit. Because reviews and audits can be time consuming (weeks to months), it makes sense to begin the process now. It is important for companies to hire an accounting firm that not only adheres to generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS), but one that also possesses extensive knowledge of the JOBS Act. For this reason, we recommend CohnReznick, an accounting, tax and business advisory firm with deep expertise in servicing smaller private companies.

2. Learn the law. Like Spicoli was advised in Fast Times at Ridgemont High, “Learn it. Know it. Live it.” Or at least retain a law firm that does. We recommend engaging a legal team that possesses a dedicated crowdfund practice such as Ellenoff Grossman & Schole LLP. Partner, Doug Ellenoff, not only continues to play an active role in DC working with regulators; he eats, breathes and sleeps Title III.
 
3. Complete your business plan. The crowd won’t give you capital without a viable business plan – no matter how friendly orgood looking you are. If you need assistance, we suggest The Funding Roadmap, a leading resource engine for entrepreneurs that enables them to convert their vision into a crowdfund-compliant company.

4. Make Friends. Join new social networks and expand your existing ones. Find online communities possessing similar business interests.    If you are in the toy business, make sure you become a member of all toy-related LinkedIn groups. Find the leading bloggers in your field and follow them on Twitter. Tweet often and make sure to mention @key influencers in your tweets!

5. Keep Friends: Unlike public stock issuers who treat its shareholders as strangers, crowdfund issuers need to regard its stakeholders as friends. Like you would with your friends, you need to keep the lines of communications open with your shareholders. Being exempt from public reporting is not a license to withhold information from shareholders. Like friends, crowdfund investors provide ongoing support. Their objective is to grow with your company, not trade it for a new ticker. Treat them right and they will see you through subsequent rounds. Hide from them and they will turn against you on a dime. They will understand pivots; they will loathe silence. It’s really quite simple: if you have no interest in communicating regularly with shareholders, then you shouldn’t be accepting capital from anyone, including your friends!

Most importantly, always crowdfund respectably and honorably.  Being investigated for unscrupulous behavior by the SEC pales in comparison to being hunted down by an angry mob of wronged crowdfund investors and having your name smeared on the Internet for all eternity!

Most people don’t realize that crowdfund Investing is guided by the very same principles that transformed America from a vast farmland into the greatest economic engine that the world had ever encountered. Enacted with the proper blend of decorum and incentives, crowdfunding has the ability to inspire a similar economic revolution.  But, imagine the possibilities of one that fosters social consciousness in addition to prosperity. Imagine.

Dara Albright is the founder of NowStreet, a financial media and advisory company on the forefront of financial innovation. She is a thought provoker and frequent speaker on topics relating to market structure, private-share markets and crowdfunding. She is the author of the NowStreet Journal, a primary provider of analysis and insight into the private company marketplace (PCM) and the legislation and innovation fueling its growth. Based on her original hypothesis that directly correlates advancements in mass communications with stock market growth, NowStreet highlights the dynamic economic impact of a reputable new small-cap growth marketplace rising during the most ground-breaking period of mass media and regulatory reform.