Crowdfunding Your Startup

Summary: Crowdfunding offers a new and exciting way for entrepreneurs to obtain startup financing. Check out the top crowdfunding sites to learn how to get your share.

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If you've been looking for funding to start your business, this is a very good time to be alive.

While banks are not lending and venture capital is hard to find, there's a new way to raise money for your business that you may not know about. And it is quickly transforming small and mid-size businesses.

Social funding (also called "crowdsource" funding or just crowdfunding) is taking on a life of its own and redefining how small businesses raise money for startup and growth. Crowdfunding websites enable individual investors to learn about and invest in companies, usually for a small "reward" in return -- and they are popping up like dandelions in springtime.

Much has been written about KickStarter.com (such as this great piece, Kickstarter Offers Creative 'Donor' Financing Option, by AllBusiness writer Carol Tice), so let's take a quick look at my other favorites:

• 40Billion appeals directly to the startup entrepreneur who is seeking capital from friends and family. If you're an only child, don't worry: 40Billion has managed to connect with both Facebook and LinkedIn to make you part of the larger social "family." The site promotes loans and gifts. There is also a score given to each applicant. Pay attention to this score, as investors will certainly be watching.
• PeerBackers offers "anyone with an idea, project, business, or invention" a way to tap crowdfunding. The site coordinates donations or gifts from funders and the "rewards" offered by entrepreneurs (ranging from product samples and company updates to invites to product release parties) in a format similar to KickStarter. This is an exceptionally easy site to navigate.
• ProFounder is working within the federal fundraising laws to do something really unusual: let you offer a percentage of your future profits to your investors. Although this is not actually "stock" in your company, there are legal limits -- and some forms -- required by state and federal law. ProFounder helps you stay within the law, invite funders to participate, and distribute the profits quarterly.
• IndieGoGo is a global funding market with projects and investors in 163 countries. Although it tends to emphasize projects that have a social benefit, there is plenty of room for for-profit enterprises. If you have a tax deduction available for investors, this platform will help you promote that, too.
• InvestedIn has everything from a beauty queen in need of pageant fees to a social network looking for marketing dollars. Like most crowdfunding sites, this is a gift/reward site.

Also of note:

• WebEquity manages to get around the legalities of offering stock by pairing entrepreneurs with "sweat equity" workers. Most requests on this site are for Web or app developers, but the concept could apply to any skill set. Need a chief executive officer? How about a great salesperson? WebEquity can match your need with someone willing to work for stock. Others in this space include Go Big Network and Foundrs. 
• Cofundit is a European effort. (But remember, money and good ideas know no borders!) By putting a formal evaluation step into the process, Cofundit takes a major step toward quality assurance. This is an important step for investors, and it helps explain why the companies seeking money on Cofundit are looking for $200,000 to $500,000 or more. Other European sites include WiSeed, which you can review if your French is better than mine.

Whichever site you choose, think of crowdfunding like social networking. If you are on Facebook, it doesn't mean you can't also be on LinkedIn. For a serious fundraising campaign, join several of these sites to reach the maximum number of funders.

But -- also like social networking -- remember to hit up your friends. You've got to build a crowd for crowdfunding, and getting your friends involved is a good start.

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David Worrell is a life-long serial entrepreneur who also coaches business owners on strategy and finance issues.

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Business Takeaways:

1. Crowdfunding offers startup entrepreneurs a new online source of startup capital.
2. Many crowdfunding sites, such as KickStarter, PeerBackers, and InvestedIn, require small business owners to provide a reward to investors, such as a product sample, exclusive company updates, or an invitation to a product release party.
3. Business owners need not put all of their eggs in one crowdfunding basket: Joining several sites can help you reach more potential funders.

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