What Crowdfunding Means to Small Businesses

May 8, 2014

The JOBS Acts which stands for Jumpstart Our Business Startups Act, which has been a game changer for small businesses, legalized crowdfunding in April 2012. It is significant to small businesses because it has disrupted the traditional way of funding small business startup and expansion activities. It is a legitimate alternative to high interest loans, merchant card advances, and even SBA & Community Micro lending programs.

 

This is important to small businesses in two ways; first it puts the power to finance your business squarely in your hands versus traditional financing channels; second it focuses less on business metrics and more on the people, processes, and story behind your business. You know, the stuff that makes your business uniquely yours. Funders in a crowdfunding campaign care more about you and how you got where you are than your bank or other finance company. Instead of looking at collateral, capacity, or month over month growth, your funders who are also fans of what you are doing, will be looking for your local and social impact in addition to your product or service.

 

This means that you are able to draw attention to your mission and vision from like-minded community members and others with shared vision making the reason they support you emotional instead of metrics driven. Now let me say that just because the metrics are less important doesn’t mean they don’t need to be considered and that you shouldn’t know them like that back of your hand. Every business owner needs to know their business and financial metrics. I am merely saying that they are not the make or break information for financing using this medium.

 

With more than 90% of all US businesses classified as small, the economic impact of crowdfunding gets pretty large quickly. Early Shares estimates that 2 million jobs could be created through equity crowdfunding. They also point out that 98% of all VC and Angel funding pitches do not result in funding activity.

 

That makes campaigns like Elevation Dock which was the first individual campaign that raised over $1 million in 2012 and Pebble Technology which was the second campaign to do so in just 28 hours a compelling reason to look at this as an option for your business. The Pebble Technology campaign ultimately raised over $10 million in financing which could have been much more difficult to do elsewhere. .

 

It’s fun, creative, and unconventional; crowdfunding could be exactly what you are looking for to raise the capital necessary to take your business to the next level. As you ponder your own campaign think about building your team. You will need a chief storyteller, probably you and a few key team members to help you get it off the ground and stick with you for about 45-60 days to see it through. Next week we will look at planning your own campaign and discuss your team members in detail.

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