Crowd Funding May Help Health Club Owners Access Capital

In April 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law announcing a new method to raise capital called “crowd funding.” That September, I attended a seminar at Nova University, FL, titled “Crowd Funding: Has funding your start up just gotten easier?” As I sat through the seminar, I realized that crowd funding may be perfect for our industry for two reasons:

1. The fitness industry focuses on selling memberships, and members who use our facilities on a regular basis develop a natural affinity for their club.

2. A crowd funding offer by a business is limited to $1 million per year by law. That amount is sufficient to finance the build-out and working capital requirements of most health clubs. (I believe that fitness equipment purchasing is better financed using an equipment lease or a loan since its useful life is five years or less.) 

After the seminar, I met with the keynote speaker, Maurice Lopes, founder of EarlyShares, who agreed that crowd funding is indeed perfect for the fitness industry.

Later, I attended the 2nd Annual Crowd Investing Innovation Forum in August in Orlando where I heard several speakers talk about how crowd funding has raised capital in England and Australia for years.

“Equity crowd funding is big,” Lopes recently told me. “It will change the way businesses think about capital.”

Lopes said that crowd funding is a great opportunity for an independent gym to expand without getting into a lot of long-term debt. Several small yoga studios recently raised small amounts of money by pre-selling memberships and classes, he added. Some examples of these can be seen on LUCKYANT.com, a platform focused on small businesses.

By the middle of 2014, Title 3 of the JOBS Act should be in effect, allowing people to become investors with as little as $100.

The gym industry is a perfect industry to do equity-plus crowd funding, which is where an issuer (the gym) offers a perk in addition to ownership for the money contributed. 

Since the JOBS Act was signed into law, a series of articles focused on crowd funding has appeared in the Wall Street Journal, including a May 21, 2012, article, “Doing Equity Crowd funding Right.” The subtitle of this article said it all: “Small businesses are getting a powerful new financing tool. There are plenty of pitfalls.”

Another article in the Wall Street Journal, “Join the Crowd. Sell Some Stock,” offered tips for attracting equity investors. The article stated: “Offer perks to your backers for one thing. Make videos that sell your idea, network with potential investors and keep pushing for media attention.” 

The article also pointed out that choosing the right platform is important since crowd funding takes place on a website that was designed for that purpose.

Since the initial articles were published, we have been waiting for the Securities & Exchange Commission (SEC) to write the crowd funding regulations, which still are not completed. In September, the SEC lifted the general solicitation advertising ban making it easier to raise capital to grow.

“Entrepreneurs can now openly solicit investors using such direct approaches as tweets and postings on LinkedIn, or even traditional ads….. The new measure opens up the possibility of advertising to your best customers,” according to a Sept. 14, 2013, Wall Street Journal article “Fundraising Rules Murky despite JOBS Act.” The one hurdle that still exists is that companies must take reasonable steps to ensure that investors are accredited investors, which means that they have a minimum of $1 million in liquid assets or have reported at least $200,000 in annual income.

An Oct. 24, 2013, WSJ article, “Roar of the Crowd,” states, “The Securities & Exchange Commission, in a 5-0 vote, outlined a plan aimed at helping startup companies sell shares online, allowing them to pool together small amounts of capital from ordinary investors… Under the proposal, investors could visit an online ‘portal’ to review the business plans of small companies and purchase equity… Crowd funding firms already are operating, but can only work with wealthy investors or accept donations when financing other companies.”

Consequently, we must continue to wait for the SEC to finish writing the regulations to take advantage of the main benefit of crowd funding, which is to raise equity capital to non-accredited investors.

BIO

Paul Bosley is the executive vice president for First Financial with a primary focus to market leasing and finance programs to national vendors in the health club, golf and dental industries. Bosley is a volunteer financial counselor for the Fort Lauderdale Chapter of SCORE, a non-profit funded by the Small Business Administration (SBA). He is attending Florida Atlantic University working on his second degree in accounting. Prior to joining First Financial, Bosley was the vice president of public relations of Q The Sports Clubs. He can be reached at [email protected].