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Crowdfunding to Start or Expand Your Business

Crowdfunding to Start or Expand Your Business
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BY MYRA FAYE TURNER

One of the main reasons entrepreneurs have difficulty starting a new business or expanding an existing one is lack of funds. Banks are often reluctant to finance new ventures or give loans to small businesses. Business owners often turn to family or friends for help, max out credit cards or dip into their savings when strapped for cash.

There are better options, though, including crowdfunding. What exactly is crowdfunding? Crowdfunding is a fundraising method of soliciting donations from a large group of people. The money can come from friends, family members, but most of the backers are strangers who believe in your business or idea. There are many platforms available. Let’s look at three more popular sites.

Kickstarter

Kickstarter is a popular crowdfunding site with a mission of helping bring projects to fruition. If you’re a creative type — artist, musician, designer, developer, filmmaker, etc.— this is probably the site for you. Since they launched in 2009, Kickstarter reports 13 billion backers have pledged $3 billion to fund over 122,000 projects.

Projects are divided into just over a dozen categories including crafts, food, and fashion. Kickstarter operates on an “all-or-nothing” model. When you create your project, you decide the amount you want to raise and the number of days in your campaign. If you fall flat of your goal, you won’t get the funds.

You may want to aim low to make sure you receive funding. One project, for instance, was seeking over $37,000 in funding for their fudge food truck. With 24 days to go, the campaign had only received $1300.

While browsing projects I found a lot of creative types seeking funding for one-time specific events (festivals, arts shows, installations, etc.). I also found several long-term entrepreneurial projects. For example, I found many food truck operators looking for funding. You probably know food trucks are big business, but getting started and maintaining a truck is costly. One business was looking for assistance in purchasing a piece of equipment for a truck he already owned. Another was just getting started and was trying to save up for a truck. One hopeful was looking to buy a hotdog cart, and another needed money to open an ice cream shop. Other projects included a toddler monitor, organic baby food, unisex swimwear, a microfiber laundry ball, and personalized, custom fit sandals.

Here’s a closer look at a few campaigns:

  • An idea for a gluten free bakery: The goal was just over $12,000. With 3 days left in the campaign, over $9,600 had been pledged.
  • A campaign to manufacture eggplant bacon (already selling at their café): Their goal of $15,000 had received over $12,000 with 9 more days to go.
  • Handmade women’s shoes: With a goal of $10,000, $8,000 had been raised with 11 days to go.

If you’re successful, Kickstarter deducts 5% of the final amount you receive in pledges, plus you’ll have to pay 3% + $.20 processing fee for credit card payments. Backers usually receive a reward for their pledge. For example, a former bookseller left her job to start her own bookstore in the D.C. area. Her project’s goal was $9,000. Backers pledging $75 or more, would receive a tote bag and a novel.

GoFundMe

In a lot of ways, GoFundMe has gotten a bad reputation. This is because of some of the knuckleheaded (and possibly scammy) campaigns on the site. However, if you’re looking for capital for your business venture, you may want to give the platform a try.

Here’s how GoFundMe works. Many of the platform’s campaigns are geared toward specific events: unexpected medical emergencies, school fundraising, funerals, educational expenses, etc. But you can also use it to get your business off the ground or stay in business. Unlike Kickstarter, you keep whatever donations you receive. In fact, you can withdraw funds whenever you wish; you don’t have to wait until the end of your campaign. Expect to pay about 8% fee for each donation, broken down as follows: 5% GoFundMe platform fee plus 2.9% + $.30 cent processing fee.

You don’t have to set a monetary goal or time limit. Your campaign will remain live until you close it out. GoFundMe campaigns are mainly supported by people you know, according to the site. However, I have seen GoFundMe campaigns on social media, so it’s possible that if your venture speaks to strangers, they may support you. That’s sort of the beauty of how it works. When your friends and loved ones support you, they spread the word to others.

The site suggests that you connect your Facebook account as the best way of sharing your campaign. But you can share using any of the social media platforms, your website, etc.

What types of business ventures did I find on GoFundMe?

  • A California media personality looking to raise $125,000 to launch his own radio station. He had raised over $47,000 in the first seven months of his campaign.
  • A California neighborhood restaurant seeking $50,000 to keep their business open. They raised over $51,000 in one month.
  • A potential food truck vendor seeking $10,000 to get his business on the road. In a month, he raised almost $6,000.

I also found a potential mobile shoeshine business, several food trucks, and a cupcake venture. There was even an adorable pair of kids with a lemonade stand.

Donors usually receive perks for their moola. For example, the restaurant mentioned above was offering backers who donated $250 or more 15% off dining (for 5 or more people) for life. Various levels of donations also received gift certificates.

Indiegogo

According to their website, Indiegogo is a “launchpad for entrepreneurial ideas.” If you have an idea but you need funding to bring it to market, Indiegogo’s platform may be able to help you locate funders.

Like other platforms, when you sign up to create a campaign you get to tell your story through writing a compelling introduction that will draw backers to you. You can also create a video.

If you don’t reach your funding goals will you be able to keep the money you earn? Fortunately, you will, but only if you choose the “flexible funding” option. If you have a goal of raising $50,000 for your venture and nothing short of this amount will work, then you can choose the “fixed funding” option. But if you fall short, you will not receive any of the pledged funds. Once you launch your campaign you can’t change your funding option.

Like other sites, you also pay a fee. Indiegogo charges a 5% platform fee and 3% + $.30 third-party credit card fee. Also, like other sites, you can offer incentives to contributors. Most of the perks I saw on the site relate to the project. For instance, if you’re making homemade jam, backers would receive jar(s) of the product.

Here’s a sampling of projects I found while browsing the site:

  • A “jambulance”— a live music venue in a customized ambulance. The project sought $5,000 in flexible funding and had received over $3,700 as of this writing (with one day left in the campaign). Perks include a tee-shirt (for small donors) and a concert at a location of your choice (for larger donations).
  • A community café serving coffee, tea, and food from locals. The campaign was seeking $24,000 in flexible funding and had raised almost $7,000, with 21 days left in the campaign. Perks included coffee mugs, tee shirts, and for $10,000, donors can have a drink named after them.
  • One campaign was seeking $5,000 in flexible funding for a homemade salsa business. With 11 days left in the campaign, backers had donated over $2,000 to the business. Perks? A jar (or more) of the product, of course!
  • Other projects included everything from food trucks to jewelry and eco-friendly clothing.

As you can see, crowdfunding is an option for most business ventures. Why not give it a try? You risk nothing but you might gain a new business or expand a current one.

 

 

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