Crowdfunding has helped over a million small businesses raise over 10 billion dollars and is transforming the way businesses find the capital needed to grow and scale. The world of crowdfunding is ever changing, so we put together a beginner’s guide to orient entrepreneurs and small business owners that think crowdfunding might be the right route for their business.
What is crowdfunding?
Crowdfunding is a method of raising capital through the collective efforts of friends, family, customers, and individual investors. Rightfully considered a more modern approach to business finance and unlike traditional players such as banks, venture capital firms, and angel investors, crowdfunding expands your reach by providing you with a single platform to build and promote your business, product, and resources. With this, it’s much easier to get your offering in front of the appropriate parties.
How does crowdfunding work?
Common types of crowdfunding are through websites such as Kickstarter and Indiegogo. On these particular sites, donations are sought in return for some sort of reward. It is also possible to conduct an equity crowdfunding campaign. Equity crowdfunding can be in the form of loans where business owners receive money from investors for a fixed interest rate a percentage of revenue, or equity - where businesses sell shares or ownership stakes in the company.
What are the pros and cons of equity crowdfunding?
- Provides access to capital as an alternative to traditional funding
- Leverages social and professional networks to find investors via the internet
- Offers turnkey access to crowdfunding communities (depending on the platform you use)
- Encourages valuable feedback from potential investors on your business venture
- Requires time and resources to build your crowdfunding campaign
- Incurs some professional services fees (variable, depending on the platform you use)
- Usually follows an ”all or nothing” approach.
- Rigid in terms of changes in offerings and timelines
What will I need to get started?
The process of getting started can seem intensive but how long it takes to issue your offering really depends on how prepared you are. At a minimum you will need access to an equity crowdfunding platform and a strong investor pitch. Below, is a list of other things to consider before you launch a crowdfunding campaign:
- Information on your market size, competitors, and risks
- Financial model with projections
- Information on how you plan to spend the money raised
- Marketing video and PR materials
- Data-driven valuation
- Appropriate legal documents
- Promotion strategy
Starting a crowdfunding campaign can seem challenging but the opportunity it affords can also be extremely valuable. Organization, preparation, and understanding the regulations are key but there are resources available to help you navigate North Carolina’s new equity crowdfunding laws.