Why You Should Consider Crowdfunding for Your Startup

If traditional bank loans and venture capital aren’t up your alley when it comes to financing your small business, consider crowdfunding. If you’re looking to raise money to open another location, expand your product line, or grow your business, you can use crowdfunding to do so. What does that entail? Creating a project on a crowdfunding site like KickStarter and inviting your network to participate.

Why It Rocks

There’s no formal investment pitch with crowdfunding. No getting your hopes high that an investor will fund you, only to be let down. Investors are regular folks who believe in your business and want to support it.

Here’s a great example. Remember "Reading Rainbow," that show many of us grew up with? The brand recently held a Kickstarter campaign to raise money to bring it back to life and raised an incredible $5.4 million (their goal was $1 million!).

But it’s not just big brands running crowdfunding campaigns. There are startups like Canviz and craft brands like Midwestern Knits that are getting in on the action. And so can you.

Why Crowdfund?

The benefits of crowdfunding are many:

• It can be easier to get funding than other avenues.
• You don’t need a broker.
• You don’t have to repay a loan.
• You can build a fan base through crowdfunding sites that turn into customers.

What About Regulations?

The SEC is at a bit of a stalemate on how to regulate crowdfunded financial transactions, but we’ve seen some states like Alabama creating their own regulations and rules to encourage entrepreneurs and small businesses to take advantage of it.

The "Equity Crowdfunding Improvement Act of 2014" legislation currently being considered would increase the amount a business could raise with crowdfunding from $1 million to $5 million, and increase the amount entrepreneurs could raise without providing audited financial statements from $500,000 to $3 million. Hopefully it will be passed soon so more entrepreneurs can benefit.

How to Succeed

Raising money through crowdfunding isn’t as simple as slapping together a campaign and getting people to give you money. You need a carefully laid out marketing plan that will expand your reach and help more people find out about your campaign. (Social’s great here). You’ll also need a killer video that people will want to share, which will also help you expand your network. You’ll want to offer some sweet swag to your backers so they get excited about upping their investment. And you’ll need to provide backers with a steady stream of communications so they feel in the loop.

This is an industry I predict we’ll see a lot of changes in within the coming months, hopefully for the best. In the meantime, dig into crowdfunding and see if it’s a good fit for your brand.