Interested in raising money for your small business through equity crowdfunding?
The Pennsylvania Department of Banking and Securities has some advice for you.
The department has just issued a two-page primer (PDF) on the new fundraising method, which became legal nationwide this spring.
Equity crowdfunding allows ordinary people to buy shares in startup firms, with the prospect of earning returns if the company succeeds. Previously, only well-to-do "qualified investors" could do so.
It's distinct from ordinary crowdfunding, in which people donate to a cause or project, sometimes in return for a gift or a product.
The department's document advises small businesses considering equity crowdfunding to seek professional legal assistance, to choose a broker or funding portal carefully and to be wary of unscrupulous offers.
It notes that having hundreds of shareholders may prove to be a distraction for company management and may deter investments from venture capital and private equity firms.
The Department of Banking and Securities doesn't regulate equity crowdfunding — that's handled by federal agencies — but it is "a good entry point" for people who have questions, spokesman Ed Novak said this spring.
Equity crowdfunding advocates say it levels the economic playing field and gives ordinary investors new opportunities, including the ability to support economic development in their local communities. Critics caution that early-stage investing is highly risky and poorly suited to most ordinary investors' investment goals.