Crowdfunding Squeezes Into The Business Funding Arena

By Michael  Mink, FOR  INVESTOR’S BUSINESS DAILY

 Posted 12/02/2013 01:32 PM ET

A problem for many small businesses is lack of access to capital.  Crowdfunding is an attractive alternative means of funding a business, instead  of going through banks or professional investors.

That avenue is expected to grow from $2.7 billion in 2012 to $5.1 billion in  2013, according to research firm Massolutions’ report.

Conducted online via sites such as Kickstarter, Indiegogo and TubeStart,  crowdfunding lets an entrepreneur or business owner secure money from a crowd of  individuals. Rather than raising $100,000 from one or two sources, crowdfunding  can generate $100,000 from 1,000 contributors. Tips:

Know what you want.Choose the path for your business and fundraising  goals, says Judd Hollas, CEO of EquityNet, a crowdfunding platform.  “Look for ones that specialize in your targeted type of capital and use the most  mature platform in that area,” he told IBD.

Rewards-based crowdfunding provides investors with some sort of goods or  service. Lending-based crowdfunding pays investors back over time with interest.  Equity crowdfunding gives investors a stake in your company or project.

Run the numbers. Ask yourself how much money you need to get your  business where you want it to go. “Be prepared with all the details from the  start in the form of your business plan,” said Bob Carbone, CEO of CrowdBouncer, a crowdfunding platform.  Include projections. Will your business need more capital down the road?

Add it up. Hollas offers these ideas: If you want to sell equity in  your startup, what percent are you comfortable with shareholders owning? If  you’re looking for a loan, what interest rate works?

Suppose you’re a software company utilizing a rewards-based platform; will  your stakeholders receive a free trial? If you’re a recording artist, will they  receive a digital copy of your album? What will you provide your investors if  you’re a nonprofit seeking capital?

Choose right. Carbone noted that “all accredited crowdfunding firms  have participated in the Crowdfunding Accreditation Platform Standards program  and will display that seal on their website.”

Also, consult an attorney. You can’t just take equity-crowdfunding money from  anyone. Make sure all equity investors are accredited.

Persuade. Hollas says you can enter crowdfunding from three angles:  a one-line pitch to entice a potential investor, a 60-second one that  encapsulates your goals, a 10-minute talk that explains in detail how you plan  to achieve them.

Build a strong network. Once you’ve refined your crowdfunding  presentation, drive people to the platform to invest and to spread the word.

Start with those you know, said Carbone: “Your friends and family will  passionately explain your venture to others because they believe in you and want  you to succeed; they are your biggest supporters.

“If all of your friends and family share your story with the same enthusiasm,  your network will grow exponentially.”

In addition, use social media websites like Facebook (FB), Twitter and LinkedIn (LNKD) to get the word out about your  new business project so that connections there can become investors.

Develop relationships. Maintain communication with potential  investors.

“Thank them,” said Hollas, “for taking the time to look at what you’re doing  and keep them posted on the newest developments with your project.

“If an investor can see that you’re making consistent progress toward your  goal, he or she will be that much more likely to invest.”

Read More At Investor’s Business Daily

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