If you are a small business or entrepreneur thinking about raising money from investors, one of the hardest parts is knowing how much your ownership is worth. Fortunately, changes that the SEC put into effect on March 15th, 2021 should help small businesses and entrepreneurs know how much a share of their ownership is worth if they plan to raise money through Regulation crowdfunding. You can now do this through Common Owner, a website that facilitates investments in private businesses and real estate development projects through online crowdfunding.

Most businesses are anxious about giving up too much for too little investment. Alternatively, not offering enough can make it very challenging to attract investors. These valuation challenges are particularly difficult for “start-up” businesses (including breweries, cafes and restaurants) whose anticipated performance is inherently based on significant assumptions.

These concerns lead many entrepreneurs to avoid capital raising altogether. After all, why offer ownership interests if you don’t know how much they are worth? Instead, many business owners seek out small business association loans, home equity loans, or bank loans to generate capital for their business.

Fortunately, the SEC has recognized this challenge. One of several significant rule changes put into effect allows business owners to “Test the Waters.” Testing the Waters entails putting out a proposed offering online to get feedback from potential investors without the commitment to move forward and sell interests in their company. When a large company like ACV Auctions “goes public” it solicits feedback from institutional investors and market makers to inform the proper valuation. This new crowdfunding rule change gives much smaller businesses the opportunity to receive similar feedback prior to moving forward with a crowdfunding offering.

Common Owner will help businesses list their own “Testing the Waters” offering to gauge investment interest and inform valuations. If you have considered raising money for your business, but have been reluctant due to the complexity or unknown investor interest, contact us today at [email protected] or click here to get started. Our team is happy to guide you through the process.

This post is part of a series on the SEC’s changes to the Exempt Offering Framework, particularly Regulation Crowdfunding. If you are interested in the other ways these rule changes can help you raise money for your business, subscribe here.