A decade ago, independent-minded entrepreneurs might have scoffed at the idea of asking the public to fund their latest project. Today, more than ever companies are turning to crowdfunding sites like Kickstarter, Indiegogo and Fundable to help turn their start-up dreams into reality. These sites allow companies to connect with potential investors by making them part of the development process, whether they’re a tech start-up building a new product or a chef opening a restaurant.
There are plenty of benefits to crowdfunding, but it’s not necessarily the right choice for every company. Here are four questions you should ask yourself before embarking on a crowdfunding campaign.
1) Are you in it for the right reasons?
While the main goal of crowdfunding is to raise money for your project, don’t make it all about the money – it’s about more than just getting something for free. Benefits of a campaign include promoting your company and product, connecting with new customers and learning about their needs and wants. Savvy customers will sense whether you’re truly invested or just out to make a quick buck.
Photo credit: Silicon Valley Business Journal
Everyone has been talking about crowdfunding lately, but what about momfunding? Or friendfunding? Earlier this week, family loans site TrustLeaf released their first guide on “How to Borrow Money from Friends and Family.” For any small business owner who’s done this kind of loan before, the value of doing it right cannot be understated.
Unlike crowdfunding, where entrepreneurs ask for donations from strangers (sometimes with a gift in return) TrustLeaf helps small business owners raise money through their existing social and family network. “Crowdfunding is great if you have a sleek prototype or a chic new fashion line, but doesn’t make as much sense for say, an auto repair shop.” says Anson Liang, TrustLeaf’s founder.
38% of all US small businesses start out with friends and family loans; on average, borrowing $25,000. Compare that with popular crowdfunding site Indiegogo, which only brings in about $1,000 on average per campaign. Kickstarter performs better, but the vast majority of campaigns raise less than $10,000, which in turn is less than half of friends and family loans on average.
Starting a business as a student is an exciting and eventful experience where you will have to face many hurdles in order to become successful. Throughout the process of starting my own business, I went through several challenges that many students who own businesses face and learned a lot of lessons that I want to share today.
Worrying about your finances is perfectly normal for students and one where having a full savings account, wealthy parents, or another source of capital would certainly come in handy. Starting out on your own can still be done with a small capital, no matter what your financial situation looks like. Continue reading
Recently, the Jumpstart Our Business Startups Act (JOBS Act) passed amid much hoopla about how this legislation would be the stimulus that jumpstarts the economy and enables people like you and me to invest in all of these startups without becoming accredited investors, as was previously required by the Securities and Exchange Commission.
Now if you’re a small business owner, the floodgates will open, and you’ll be able to raise tons of money to accelerate your business, right? Probably not. While the SEC is still in its evaluation stage and the actual regulations have not been written, some things are already clear from the text of the JOBS Act bill itself. First, you will only be able to raise a total of $1 million in the course of 12 months, and individual investors will only be able to contribute the greater of $2,000 or 5% of net income if they make less than $100,000 per year or have a net worth of less than $100,000, and they will only be able to contribute the greater of 10% of the net income or net worth of the investor if the investor makes or is worth more than $100,000 and not to exceed $100,000 (see Section 302(a) of the text of the bill for details). So, raising $1,000,000 will require either at least 10 high income/net worth investors or at least 500 lower net worth investors, and probably many more than that.