Fund-raising for business is a challenge right now, but there are a couple of options online that I find not many businesses know about. One is peer lending and the other is online matchmaking for entrepreneurs.
One of the first peer lending sites to launch in the United States was Prosper, but it’s since been joined by Zopa, Lending Club, and others. With bank lending in a slump, more businesses and individuals are turning to peer lending. Prosper recently reported its lending volume jumped 65 percent in a single month, from September 2009 to October 2009. The site has 890,000 registered users and has made $184 million in loans since inception.
When I first reported on Prosper for Entrepreneur magazine back in 2006, I was so intrigued that I took a few hundred dollars and became an investor. From my experience, most of the borrowers on these sites are individuals looking to consolidate credit-card debt, but I’ve seen steady growth in the number of small business owners looking to score a quick loan.
If you know about “hard money,” private investors who make short-term, high-interest loans, you’ll find it easy to understand peer lending, as it’s essentially crowd-sourced hard money. Instead of finding one wealthy individual willing to bankroll your company, you’ll post a proposal online to convince hundreds of individuals to give your plan $50 or $100 apiece.
The site then acts as intermediary, performing administrative duties and pursuing collection actions if necessary. You likely won’t pay a low interest rate, but terms are often five years, better than for traditional hard money.
Another way to go is to use the Web to help locate an investor. Three-year-old RaiseCapital.com takes the matchmaking approach, helping investors and business owners find each other. RaiseCapital.com chief executive Rick Singer says the site has more than 5,400 registered investors. He likens the model to the dating site Match.com: Companies and investors meet and hopefully “marry” offline.
On RaiseCapital.com you can search for investors interested in your particular business sector. Startups pay a $99 fee to appear on the site. Once you’ve made a match, the parties work out their own investment deal; RaiseCapital.com isn’t involved in the details.
It may seem a little impersonal, but if you haven’t had any luck with your own contacts, online matchmaking sites provide another possible way to connect with funders. RaiseCapital.com competitors include Go4Funding and GoBigNetwork.