Crowdfunding is the Future of Small Business Financing

I attended the very interesting CED sponsored seminar called “Tips and Tricks for a Successful Crowdfunding Campaign” at American Underground. The event was packed with entrepreneurs, marketers, and investors like me who wanted to know more about the subject, and from the enthusiasm in the room it was pretty obvious that this is an idea whose time has come. Our speaker was Candace Klein, the CEO and Founder of SoMoLend, a crowdfunding lending platform, and Bad Girl Ventures which helps women owned startups through education and micro lending. Candace is also an attorney, and was closely involved with the writing and passage of the JOBS Act which enables investment crowdfunding, and she is currently advising the SEC on the regulations needed to implement it.

Candace has managed dozens of successful crowdfunding campaigns and has learned lots of best practices along the way, which she was kind enough to share with us. You can download her presentation here, which will be well worth your time if you are considering crowdfunding. Candace breaks it down into four types: donation, rewards, debt, and equity. 

The first two types are very familiar because of the success of platforms like Kickstarter and Indiegogo, the debt type is newer as represented by sites like SoMoLend, and the equity crowdfunding type is not yet legal at the national level, because everyone is waiting on the regulations from the SEC regarding the JOBS Act. Nevertheless, a few states have already passed their own investment crowdfunding laws, and that process is also underway in North Carolina. You can find out more about crowdfunding and the various crowdfunding platforms at crowdsourcing.org.

Candace emphasized that any crowdfunding campaign is just that: a time-limited campaign that requires planning, scheduling, promotion, creativity, and most importantly, full-time execution while the campaign is live. 

According to Klein, the best practices for successful campaigns include: targeting a specific audience, raising 25% of your goal from your best supporters before the campaign launches to build momentum, and making the story about you and your team as much or more than the product or program. Klein also emphasized the importance of having a good video. 

Later, Klein outlined the biggest mistakes made by unsuccessful campaigns, which include setting unrealistic expectations for fundraising and schedules, and not doing the daily marketing work needed to support the crowdfunding campaign.

As an angel investor, I see this as the future of funding for all kinds of business startups and new products and services, and I will be encouraging all the startups I talk with to consider this option. Most small business startups need loans from friends and family, or banks, but banks have cut way back on lending, and especially to new businesses. Angels and VCs tend to only invest in the big ideas that can be quickly scaled into very large companies. 

Crowdfunding allows entrepreneurs of all types to easily and safely expand the number of supporters they can line up to fund their business by donation, rewards, debt, or equity, while at the same time giving them early validation on the demand for their business product or service idea. 

This kind of validation (what we in the startup community refer to as traction) is key to growing the business and getting more financing further down the road when and if it is needed. It has been fascinating to watch the creative ways that people have come up with to use crowdfunding so far, and the enthusiasm with which all kinds of small investors make good faith donations and investments in people and organizations they believe in. This new funding method will also help create many new jobs in new and existing businesses as we move forward.

If you need financing for a new business, a new product, a new service, a creative project, or a non-profit, I strongly suggest that you take a look at crowdfunding.

This is a guest blog post from CED Member and Angel Investor Mark Easley, written after CED's "Tips & Tricks for a Successful Crowfunding Campaign" with Candace Klein. For those of you interested in the investment crowdfunding legislative initiative in North Carolina, please send Mark your contact info, and get added to the email list for updates.