Raising Capital Through Crowdfunding

The search for capital has been significant among the business community.  As the recession reared its ugly head in 2007 businesses started to see capital tightening up and were unable to get the standard loans and lines of credit they counted on for help with cash flow, equipment purchases and expansion. Large investors saw a crimp in their disposable cash as they had to shore up existing investments and pay down on bank debt. This left entrepreneurs and small businesses on a boat without a paddle, searching for ways to raise capital in a tight environment.

Crowdfunding is potentially the solution for little guy and the start up.  While large equity firms only want to speak with you if you have the right connection or are valued at over $20 million based on EBIDA, the crowdfunding scene is full of average people.  Those that have some money to play with and want to invest it with small business owners, like themselves, rather than putting all of their money in the hands of the stock market are actively signing up on crowdfunding sites.  Entrepreneurs can sign up, pitch investors, and have access to a new source of capital.

Here are some of the best crowdfunding sites for entrepreneurs and investors:

• Kickstarter. This site was one of the first ones on the scene and has a loyal following. Kickstarter lets you see featured projects in your area so you can connect with local companies or those across the world. Investors can see the amount the company is trying to raise, percentage funded, how many days left in the campaign, and a detailed explanation of how the funds will be spent.  Over $327 million has been raised through their site.
• CircleUp.  This site works with Accredited Investors, those that the SEC deems savvy and able to invest in companies due to their net worth and/or income.  Accredited Investors can sign up for free and view pages created by the CEO or company founders. They can conduct due diligence through the site and securities are offered by WRH+Co.  Many crowdfunding sites are waiting for regulation from the SEC.  CircleUp doesn’t have to since securities are offered through a licensed party. As a bonus, there is no fee for business owners and entrepreneurs unless someone actually puts money in.
• HealthTechHatch. Kickstarter, and many other sites, don’t allow for investments into medically related companies.  HealthTechHatch was developed for the industry and can help entrepreneurs launch their new company.  Some of their current projects include “The Best Asthma App” and “Travel Grants for Patients”.  This site is a good solution for those wanting to enter the health space and wanting to connect with investors familiar with the industry.
• CoFolio. This site connects local companies with local investors.  The benefit of working with people in your own backyard is that they will also have connections that may help your business grow. Whether it is an introduction to a top business attorney or help negotiating a contract, you have more opportunities when working with investors that can provide resources beyond capital.

If you are considering launching a crowdfunding campaign there are things to consider first.

1. Goals. Determine how much you want to raise and why. Investors want to know what you will accomplish with the money.
2. Pitch. A precise and detailed pitch is important for any entrepreneur looking to raise capital.  If you are unsure how to cultivate a strong message, consider working with a professional.
3. Marketing.  Remember to market yourself by creating a strong online image.  You will be connecting with investors online so your social media profiles, website, and blog are the equivalent of an internet face to face meeting.

With no cost to try many of these sites, business owners and entrepreneurs looking for cash should give it a try.  Millions of dollars have been raised through crowdfunding and your company might just be one of them. Look for any regulatory changes to be announced in 2013.  Once the SEC releases their guidelines more crowdfunding sites will open up and additional investors will be able to participate.

Bethany Wood

Bethany Wood is a serial entrepreneur and has started several successful companies in a variety of fields including manufacturing, distribution, consumer goods, financial services, marketing and consulting. She is currently the President of SEI International and has business interest in the US, India and China. As an entrepreneur Bethany is constantly finding opportunities to expand SEI’s holdings and as a business owner she is continually learning new ways to improve business performance. As a writer Bethany contributed to and edited the Back to Basics management book.

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