By Michael Mink, FOR INVESTOR’S BUSINESS DAILY
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.”
• 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.”
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