For entrepreneurs and small businesses, taking an idea from concept to reality can be an incredibly exciting, albeit stressful, adventure. You developed a prototype, crafted your business plan and your project is starting to come to life. You're on the verge of the next big thing. There's only one major problem: How do you pay for it?
By nature, entrepreneurs have great ideas and a burning desire to see them through. But many future CEOs aren't independently wealthy (yet), don't have access to credit facilities (or have exhausted them already) and lack a rich uncle from the family tree willing to write a large check. But that shouldn't stop anyone! There are plenty of other options. In fact, the recent implementation of the JOBS act has created more opportunities for companies to raise capital than ever before.
One of those opportunities is crowdfunding, and it could be the catalyst that takes your business to the next level. With proper planning and execution, crowdfunding can be a powerful tool to help raise the funds you need to get going. Before you begin though, here are five things to consider before launching a crowdfunding campaign:
1. Find the Right Fit
Many people hear the word "crowdfunding" and immediately think of Kickstarter. While it is an incredible platform, Kickstarter is by no means the only game in town. There are other options offering different services that may be a better fit for your company. For example, platforms like Flashfunders and CircleUp allow a company to sell equity to a network of Accredited Investors.
Similar to the traditional investment banking industry, crowdfunding platforms are becoming specialized. Ask yourself the following questions before you pick a crowdfunding site to work with:
· Do I want to sell equity?
· What industry am I in?
· How much money do I want to raise and in what increments?
These answers will help form your criteria for picking a funding partner that aligns with your goals. This is a highly important part of the process that is often undervalued. Find the right fit and your chance of success will increase dramatically.
2. Ask for the Right Amount of Money
Most crowdfunding sites return an investor's money if a company does not reach its investment goal. All of your hard work could be for nothing if you fall just one dollar short of your $100,000 target. On the flip side, most platforms will allow a company to exceed their goal and collect additional funds above and beyond what they were asking for.
Find out how much money you need to get the company off the ground and set that as your minimum. All too often companies will set a goal that allocates funds to things that aren't really necessary to start the business. Trim the fat before setting your minimum. There's no penalty for going over your goal but it can be a harsh reality if you set the bar too high and can't reach it. Don't take that risk.
3. Future Customers Are Good Investors
Friends and family are always a good place to find your first seed money. But where do you go after that? I have always looked at every customer as a potential investor. Your customers are already paying for your product so they presumably like what you're doing. They are already familiar with your brand or service. You don't need to cast a huge net over social media to find your money; you need to target the right places. Your current or future customers are the best place to start.
There is no doubt that social media plays a vital role in any crowdfunding campaign. That said, there is still no substitute for shaking hands and creating real relationships. It's easier to invest in someone you know and trust than someone you met on the internet. Go to networking events, mixers, chamber of commerce meetings and anywhere else you can meet new people to tell about your company. As your network expands, so will your potential investor base.
5. Look for Exemptions in Your State
You don't have to use an online platform to reap the benefits of crowdfunding. My company, Fireman's Brew, has raised over $2 million under California Corporations Code 25102(n). This exemption allows companies to advertise a private stock offering and sell up to $5 million of securities to California residents that have a lower net worth than the typical Federal Accredited Investor qualifications. We utilized social media, advertised in firefighter magazines and handed out flyers at every promotional event we could to reach new investors while avoiding transaction fees to a crowdfunding platform. Other states have similar options that are worth looking into before making your decision.