Introduction to Investment Crowdfunding — for HBCUs

For as long as entrepreneurs have started businesses they have also needed capital to grow and scale those businesses. To that end, this article explores how HBCUs can leverage Investment Crowdfunding to help their students, teachers and alumni raise capital for their businesses, while providing HBCU community members the opportunity to be more than just customers of businesses but also equity owners in the businesses they make successful.

Investment crowdfunding is when businesses and entrepreneurs engage the general public to become investors into their businesses. Title III of the Jump Start Our Businesses & Startups Act (also known as the JOBS Act), was signed into law by President Obama on May 16, 2016. With this historic Act, it finally enabled Main Street Businesses to raise investment capital from retail investors (also known as Customers), along with accredited and institutional investors — the "Sharks", "Angels" and "VCs."

Some key data points:

• Since 2016, $585M has been raised via Investment Crowdfunding.
• In 2020 alone, this new capital formation tool resulted in $214M in small business funding, an increase of 105% over 2019.
• 88,000 jobs have been created since the launch of Title III.
• Economic impact of firms that have raised via Investment Crowdfunding to date is $3.2B spread across 1,000+ communities.
• On March 15, 2021, the amount startups can raise under RegCF and RegA+ was raised to $5M and $75M respectively.

The Opportunity of Investment Crowdfunding & HBCUs

HBCUs = Historically Black Colleges & Universities. Mindful that many reading this may be unfamiliar with Regulated Investment Crowdfunding (RegCF) and the nomenclature of capital formation, we also want to be mindful that many may not be familiar with the history of the 107 Historically Black Colleges and Universities. As such, we spell out acronyms and define concepts that may otherwise be familiar only to certain groups.

What Is Investment Crowdfunding

The premise of crowdfunding is straightforward. The majority of Americans have engaged in some type of crowdfunding — mostly donation-based. If you've ever been to church and donated money when the plate was passed, you've been an active participant in donation-based crowdfunding. In Investment Crowdfunding, individuals are not making donations. Founders solicit investments from thousands of investors in their community, fraternities, customer base, affinity groups, and social networks — primarily over the internet and social media. Participants invest as investors, with expectations of financial return.

Think of it like Shark Tank — but instead of just a few Sharks reviewing your business, everyone over 18 who is interested and able can be an investor for as low as $100.

The ability for customers to be early investors into the businesses that customers will eventually make profitable is at the root of creating generational wealth, while building sustainable businesses and resilient communities.

Investment Crowdfunding's Potential Impact on HBCUs

1. Under SEC rules, your student and alumni members can raise up to $5M via RegCF and $75M under RegA+ from retail and accredited investors alike.
2. Investment Crowdfunding is a way for large affinity groups to pool resources, de-risk investments, and engage in hyperlocal investment strategies while building the next generation of student and alumni-led businesses.
3. Crowdfunding is one of the lowest cost-of-funds ways for any business to raise investment capital — with fees running from 5% to 14% of funds raised.
4. When a university leverages the power of their community through investments, it builds deeper relationships with students and alumni.
5. Your community has more money than Venture Capital because your community are the Customers that make business profitable. Don't just encourage your community to be consumers — enable them to be owners.

3 Steps to Investment Crowdfunding

Step 1 — Getting Your Business Ready: A Founder needs a bona fide business to legally raise money. If you've been in business for years, you're 95% there. If you have an idea or are part of a university incubator, you're closer than most.

Step 2 — Platform Ready: Every business must use a FINRA-registered platform. There are about 70+ funding portals. Each requires disclosures (your offering's Form C document) and your business pitch. Remember — you're pitching to current, future, and potential customers, not just Sharks in a tank.

Step 3 — Investor Ready: Once you're Business Ready and Platform Ready, explore if you are Investor Ready. Only the potential investors can tell you that. And only believe the ones who speak with their dollars.

What's in It for HBCUs?

Why would HBCUs want to deploy the mechanism that enables their students, teachers and alumni to be equity investors in the next Fortune 500 business from the ground floor? Why would your school's accelerators, incubators and business schools not just teach about business and entrepreneurship but also set up the ecosystem to keep them as part of your school's community?

At MilkyWayEconomy we help you answer these questions. We provide the technical assistance to help schools, affinity groups, communities and entrepreneurs understand JOBS Act Investment Crowdfunding securities regulations in order to raise capital for their businesses.