What is Crowdfunding? How does it help small business owners?
Crowdfunding is a relatively new and extremely popular alternative to traditional funding methods such as bank loans, grants, VC funds or angel investment.
A LITTLE HISTORY
Crowdfunding originally gained popularity when Barack Obama used it as a technique for fundraising in the last US presidential election. It was a huge success as he obtained more funds that any other president in campaign history, by far. Today it has become a mainstream strategy for all the major candidates. The New York Times recently reported that Obama has raised $151 million so far for the 2012 campaign. Mitt Romney has raised $63 million through the use of crowdfunding via the internet and smartphones. After his great campaign success, the Obama administration saw the benefits of changing the law to make it easier for small and innovative companies to crowd source their start-up capital through signing the JOBS Act.
THE JOBS ACT
On April 5, 2012, the House of Representatives voted to pass the Jumpstart Our Business Startups (JOBS Act). This bill’s goal is to make it easier for startup businesses to raise capital, partially via online crowdfunding. The JOBS Act would create a new class of businesses known as “emerging growth companies,” a category including most start-ups. These companies would be allowed to attract investors online through crowdfunding. Investors will be able to sell up to $50 million in shares before having to register with the Securities and Exchange Commission, as well as have up to 1,000 shareholders which is double the maximum currently allowed.
HOW THIS AFFECTS SMALL BUSINESS OWNERS
Boardwalk Advisors is extremely excited, not only by what this could mean for kick-starting our sluggish economy, but also about what this bill means with regards to opportunity for our clients. As Suw Charman-Anderson stated in his article, ‘Crowdfunding Raised $1.5bn in 2011, Set To Double In 2012’ published on Forbes.com in May of 2012,
THE CROWDFUNDING INDUSTRY REPORT FROM RESEARCHERS MASSOLUTION REVEALS THAT CROWDFUNDING PLATFORMS RAISED ALMOST $1.5 BILLION, FUNDING OVER ONE MILLION PROJECTS IN 2011. THEY ALSO SAY THAT, WITH CURRENT TRENDS, THE ALREADY GROWING MARKET IS SET TO DOUBLE IN 2012.
One of the great benefits of crowd funding is that it allows for a wider pool of smaller investors with fewer restrictions. Crowdfunding can replace the need for specialized grant applications or other more formal and traditional fundraising techniques or it can be used in conjunction with more traditional methods. This means more money from more sources for small businesses. A variety of crowdfunding platforms has emerged to coordinate and facilitate donations from ordinary web users who wish to support specific business ventures or philanthropic projects.
Social Networking and Crowdfunding
Crowdfunding is very closely tied to online communities and social networks which often serve as the audience for funding requests. The crowd can already exist as a community on Facebook or other social networking sites, but they can also suddenly form in order to support a cause or a business venture. One of the exciting facets of this concept is that through the world wide web, a start-up’s potential investors is no longer limited to a small group of high net-worth individuals or banking institutions. Globally, anyone who happens to share an interest in funding a person, project, event, campaign etc., becomes a potential investor! It’s time to get that Facebook page, blog and Twitter account up and running!
How Do I Get Started with Crowdfunding?
Tanya Prive, founder of Rock the Post, a social networking platform for entrepreneurs to fund and swap resources, suggests following these steps to prepare your business to become a hiring organization as a result of this bill:
• Get your documents in order – business plan, corporate documents, financial forecasts and management team resumes.
• Do market research – Get all statistics and hard facts that support your business model to help explain why people should fund your project.
• Make a list of all your contacts and connections and start asking for more contacts. The concept of crowdfunding involves leverage your own networks and the networks of others.
• Work on your video and prepare your pitch. You’ll want to explain to investors in just a few minutes about your business venture and why you’ll be successful.
We at Boardwalk Advisors, LLC would like to add:
• Call us today! We’re here to help get the ball rolling and are excited to launch your business with you…