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CROWDFUNDING

Advertising for Investors? Duck the Celebs and Crowds

Well, that was quick: The fundraising ads are already flying around now that it's legal under SEC regulations. But watch yourself--this is new territory.
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Want investors? Earlier this week marked the first day that you can officially start advertising for them. Something not possible before under SEC regulations now is because of the JOBS Act, which loosened many regulations around companies going public when they make less than $1 billion a year.

If you're planning to raise capital, you might be excited about the possibility. Prepare to come down to earth. A combination of ads from high-profile celebrities and brands, other heavy competition, and the significant regulations that still remain will leave the marketing process a challenge.

Here Come the Ads

The general solicitation permission just kicked in and already the requests for money are starting to fly. Tim Ferriss, author of "The 4-Hour Workweek" and "The 4-Hour Chef," posted on his blog that people can now invest in his deals. Basically, he will build syndicates to raise money for companies in which he already has some kind of interest.

He announced the first deal for a company called Shyp--a package-shipping business--on Monday, September 23. Ferriss looked to raise a total of $250,000 with a minimum per-person investment of $2,500. Within an hour--according to pitch tweets that Shyp co-founder Jack Smith sent to many journalists, including to Inc.'s editor-in-chief Eric Schurenberg--the entire $250,000 had been raised. That's a really fast turnaround possible because of the 1.4 million blog readers Ferriss claims to have. It shows not only how celebrity can drive solicitation, but how its success can breed secondary attention-seeking.

Major names can certainly drown out smaller ones, as has begun to happen on Kickstarter. But that's not the only source of solicitation ad noise that could eventually make people begin to plug their virtual ears.

There will be many other companies looking for investments. For example, a company called Babelverse, which is trying to become a social network for translation services, sent out emails to direct potential investors to its AngelList page.

Some of the solicitations may be reasonable and sent by solid companies. Others will undoubtedly be sent by fly-by-night operations. And that's the problem. The more people find themselves bombarded with overuse or even misuse, the more they will turn a deaf ear to the increasing requests for money, just as they do with charitable solicitations and commercial marketing.

In addition, even while some of the requirements have loosened, many remain in place. You can talk only to only so-called accredited investors with sufficient net worth to meet federal guidelines. You must be careful about the marketing claims you make.

In short, while general solicitation is now available and may make sense for some companies, you could easily find yourself frozen out.

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Last updated: Sep 27, 2013

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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