Strength In Numbers

Raising money for an emerging or expanding small business is usually a necessity and “bootstrapping” (pulling yourself up from your personal resources only) is often not possible after the initial launch stage. Finding money has typically meant visiting banks, knocking on every friendly door you can think of, and asking your family for help.

In a recent post I mentioned some local funding resources and a couple of online tools for raising capital. These days, using internet tools to solicit funds from the community or find potential investors is a popular (and often quite successful) alternative to the traditional means of raising small business capital. New business owners can now secure start-up or expansion capital with a little bit of support from a lot of people. “Crowdfunding” is really a strength in numbers strategy.

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There are many online crowdfunding platforms to choose from and sites like Kickstarter and Indiegogo are just the tip of the iceberg. Each one is different and some may only be a good fit if you meet certain criteria.

Many of these platforms can’t be used to solicit loans or offer financial returns or equity to supporters. They are essentially tools to get “grants” from friends, family and your wider community. You can offer small thank you gifts or perks in exchange for their financial support (such as a t-shirt branded with your company logo or an invite to a “members-only” event related to your business). These little offerings can inspire people to give, even in small amounts.

With the Jumpstart Our Business Startups Act (JOBS Act), which President Obama signed into law last year, there may soon be changes to the crowd-funding landscape. The Securities and Exchange Commission is in the process of finalizing and implementing rules on a provision of the Act that could make it possible for people to use crowd-funding platforms to raise investment capital from “Main Street” investors.

In the meantime, there are a number of online sites that can be used to target accredited investors or to secure a loan. Fundable is geared toward small business start-ups who can choose to offer rewards to their backers or equity to accredited investors in exchange for funding. CircleUp is an equity-based crowd-funding platform that focuses on angel investments in consumer product and retail companies. EquityNet, which calls itself “the original crowd-funding platform,” is specifically designed for entrepreneurs seeking equity capital or who are looking for loans, grants and access to a network of business supporters. Prosper and more recently, Kiva Zip, make it possible for entrepreneurs and small business owners to secure peer-to-peer loans.

Pay-in-advance is another strategy for raising a little capital from a lot of people. Similar to the CSA concept where eaters pay a farmer in the spring for a season of vegetables, Slow Money has created a service called Credibles, specifically designed for small, sustainable food-related businesses, which enables supporters to pre-pay for goods and services.

With all of the crowdfunding sites out there (according to industry estimates there are currently over 500 active crowdfunding platforms!), how do you figure out the right option for you?  To start, Inc Magazine has a great flow chart to help you find the best fit among 22 crowdfunding platforms and this Forbes.com blog post gives a quick break-down on the pros and cons of the top six crowdfunding sites.

A crowd-funding campaign is not only about getting the money you need for a small business start-up or expansion, it’s about the opportunity to grow your customer or client base. Through the crowd-funding process you are developing a community of ambassadors for your business—people who like your business or business idea, who support your campaign, and who will spread the word to their friends.  The crowd-funding approach can strengthen your business in more ways than just your bottom line.

photo credit: Arkansas Community Foundation (http://www.arcf.org)

Show Me the Money

funding

How do emerging and expanding business owners find the funding they need to start and expand?  It’s not easy and it takes time to prepare the “requests”, shop them to traditional sources and wait for approvals. For most people, it means using personal savings or credit cards. Others develop a simple promissory agreement and borrow funds from family and friends. As a new business or an emerging business without adequate capital, personal assets or a longer-term track record, it can be quite difficult to qualify for a traditional business loan.

In the SF Bay Area, there are a few non-profit organizations that can help small businesses and microenterprises. Working Solutions provides micro loans for small businesses from $5,000 to $50,000 and provides 5 years of post-loan support and advice. Opportunity Fund is a non-profit social enterprise that provides micro-loans for small businesses. They have a strong focus on supporting minority-owned small businesses. MEDA (Mission Economic Development Agency) is focused on the Mission and Excelsior Districts of San Francisco and works hard to make small loans more accessible to local businesses. The Mission Asset Fund is a non-profit based in SF that uses a Lending Circle Model to facilitate loans to members at little or no cost.

The City of San Francisco has also recently launched the Emerging Business Loan Fund. Eligible entrepreneurs can borrow up to $1,000,000 for a variety of needs, including equipment, working capital, physical improvements, real estate and expansion opportunities.

It is becoming more and more common for small businesses to use online tools to find and secure capital from their friends and the wider community. Kickstarter, the most well known, is a platform for funding creative projects, Indiegogo can be used to raise money for all types of campaigns, and there are a whole host of other crowdfunding platforms out there that entrepreneurs can use when looking for funds. For more information on the organizations and companies listed here (and many more), check out the Resources page of my website.

And don’t forget… for any business seeking capital, a business plan will be critical!  Paul Terry & Associates can help review funder proposals and business model assumptions, and can also help you develop an action plan—an essential step in securing the funding you’ll need.

Tasty crowd-sourcing

It used to be that finding capital to start or expand your business meant asking your family and friends for funds, applying for a small business loan, or saving your money for months or years. These days many people are turning to crowd-sourcing technology like Kickstarter and Indiegogo to convince a wider community to contribute to their business idea or project. For instance, Paul Terry & Associates client, Blue Chair Fruit Company, used a Kickstarter campaign this year to raise money to buy a jam jar filling machine in order to expand their business.

crowd sourcing

jam from Blue Chair Fruit Company

There is now a new crowd-sourcing platform in development specifically for food ventures called yumspring. It is being billed as a place where chefs, bakers, brewers, canners and all other sorts of anti-hunger innovators can connect with people who have an appetite to support new, local, adventurous food entrepreneurs. Check out this 5-minute pitch from yumspring’s founder on food and tech connect, a new blog about the growing food and information technology movement.