Crowdfunding is one of the hottest topics these day among entrepreneurs, with new platforms launching nearly every day. One can fund their current or new business venture with help from friends, family, colleagues, and complete strangers, thanks to a myriad of funding platforms such as Kickstarter, Rockethub, and others (see http://www.crowdsourcing.org/directory for a good list). Individuals in the “crowd” are important influencers of the outcome of the product, acting as promoters and early adopters.
According to an Entrepreneur.com article by Sally Outlaw, there are three primary types of funding sites:
- Debt – sites may facilitate loans from friends and family; accredited investors; and bank loans
- Equity – sites are for accredited investors only and not typical “crowdfunding” sites but do allow smaller investments by accredited investors through the pooling method
- Reward – this is the most typical “crowdfunding site and is open to crowds of “contributors” who are interested in supporting a product, project, or cause. Funders may pre-purchase the new products or receive rewards or perks but not ownership in the Company.
People are funding not only businesses but other causes they are passionate about as well. In fact, Indiegogo, a top funding platform, is running a campaign to raise cash to help Greece raise $1.6 billion for its debt payment! Other types of funding address real estate, charitable giving, and local sports teams.
Many states in the US have enacted or are in the process of enacting statutes to support and regulate crowdfunding:
In 2012, President Obama signed a law that he called a “potential game changer” for entrepreneurs seeking financing to start or expand a business: Small companies looking for financial backers could advertise their offerings online, and average people — not just wealthy accredited investors — would be allowed to buy stakes in businesses they found promising.
More than three years later, entrepreneurs are still waiting for federal regulators to finish drafting the long-overdue rules that would let that part of the law take effect. Now, state agencies and lawmakers, tired of waiting, are taking action, passing crowdfunding laws and regulations to let local businesses raise money from local residents. Read more…
A local company in Park City, UT, Recoil Manufacturing, Inc. (http://www.recoilwinders.com/), had a successful capital raise of over $100,000 with Kickstarter in 2012 and is now launching a second campaign to raise capital for the launch of a new product line.
A couple of thing to think about when considering raising capital via crowdfunding:
- Plan your sales pitch
- Establish your funding needs and goals and establish benchmarks
- Set a realistic time frame to raise the funds
- Identify perks to be available for contributors
- Develop a budget for sales & marketing expenses
- Find sponsors & partners
- Utilize social media
- Keep contributors updated; be transparent
- Know your state’s laws governing use of crowdfunding – an offer of ownership or other type of “security” is strictly regulated by Federal and state securities laws
- Know the terms & conditions of the Funding platform
May your fundraising campaign be successful!
Photo Credit InvestmentZen Images