Kiran Lingam had a deflating post up at the SeedInvest blog recently.
Kiran and his firm are modeling what costs look like, for pursuing an offering claiming an exemption under the JOBS Act Title III investment crowdfunding rules (caution: these rules are not in effect; they have just been proposed, and I presume Kiran's model is based on the proposed rules).
It's not pretty.
"A successful $99,999 crowdfunding raise with no audited financials," Kiran writes, "will result in negative CASH FLOW to the company of about $38,000."
So that suggests the sweet spot for Title III fundraising will have to be higher, right? But little comfort there, Kiran says. "A successful $1M raise will actually only net $750,000 in capital, he writes. "This is an astronomical cost of capital."
My suggestion to investment crowdfunding advocates: turn attention away from the prospective federal exemption, and toward analysis of those state crowdfunding exemptions already on the books. Would, say, Wisconsin's investment crowdfunding exemption impose fewer costs?
Thanks to Joe Wallin for the heads up on Kiran's post.
Photo: Mark Jones / Flickr.