Will Crowdfunding Hurt My Company Later On?

With bona fide JOBS Act Crowdfunding about to launch, many entrepreneurs wonder whether raising money through Crowdfunding will hurt their company in the future.

The simple answer: not if you do it the right way.

A company raises money for its current needs, naturally. But no matter where the money is coming from, Crowdfunding or otherwise, the company must have one eye on the future to ensure that nothing it does today will keep it from raising more money tomorrow.

Here are a few tips to avoid problems in the future:

  • The Crowdfunding investors should not have the right to veto later rounds of financing.
  • The Crowdfunding investors should not be able to control the company’s Board of Directors.
  • The Crowdfunding investors should have very limited liquidity rights, if any.
  • The company should be able to grant later investors economic and management rights – for example, a preferred return on sale – that are superior to the rights of the Crowdfunding investors.

These things and much more can be accomplished with the right legal structure for the company and the Crowdfunded investment. In fact, if Crowdfunding is done correctly, it should not interfere with subsequent rounds of investment at all.

Questions? Contact Mark Roderick at Flaster/Greenberg PC.

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