CROWDFUNDING

March 20, 2016


If you have an idea you feel will be profitable over the long haul, you will no doubt be very interested in commercializing that idea and turning it into an on-going company or even a not-for-profit company.  At any rate, you will need financing.  Have you tried getting a bank loan for an idea lately?  Ever tried getting an SBA loan?  If so, you know the odds of success are very limited, even for a project or product that is seemingly “bullet-proof”.  You may have credit that is pristine but the odds are still not in your favor.  Money is remarkably tight because banks and other lending institutions have no idea as to where our economy is going or what might be the next “big thing”. Our government, you know the one supposedly on our side, has burdened this country with so many regulations and taxes we are literally stagnating to the point of no real return.   For this reason, banks are remarkably risk-averse at this time in our country’s history.    You better know somebody to get the money and it very well may take forever at that.   This just might be where crowdfunding has a huge advantage.

DEFINITIION:

I think the very best thing we can do is start off with a definition of crowdfunding.  Just what is it?  Then we will discuss how it works:

Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, today often performed via internet-mediated registries, but the concept can also be executed through mail-order subscriptions, benefit events, and other methods.

According to a new survey of one thousand people, only twenty-nine percent (29%) of Americans have heard of this funding method, in which individuals donate cash in exchange for a portion of a company’s ownership. The research was conducted by a third party on behalf of equity crowdfunding company NextGen Crowdfunding.com.  This was after the Securities and Exchange Commission voted to approve Title III equity crowdfunding rules on October 30, 2015.  According to Entrepreneur Magazine:

“The Securities and Exchange Commission voted 3-1 to adopt the next generation rules for equity crowdfunding this morning for entrepreneurs and small-business owners. Equity crowdfunding is the exchange of a piece of a company for cash. Before today’s ruling, entrepreneurs could only sell pieces of their companies to accredited investors, or those individuals who meet sufficient levels of assets and income. With the passing of this new set of rules, entrepreneurs can sell pieces of their companies to anyone who has the interest and cash to do so.”

The JOBS Act, signed into law in April of 2012, made equity crowdfunding for unsophisticated investors legal, but it has taken the SEC more than three and a half years to wrangle a set of rules for how equity crowdfunding should be implemented.  This is how our government works.  I wonder how many members of Congress had to be guaranteed campaign money by special interest groups to get this passed?  At any rate, I do think the possibilities are great and can have beneficial significance.

SUCCESS:

OK, what does it take to be successful?  Let’s look.

  1. Solve a real problem.  You must create a product or process that people want to buy. It must be marketable.  You have to have something of a viable nature to sell.
  2. Do your homework. The success of any crowdfunding effort is inextricably linked to the amount of hard work you put into testing and refining your idea long before launching the campaign. You MUST look at any competition you may have.  Determine what sector of our country might purchase your product.  What is the “staying power” of your product?
  3. Bring money to the table-– Crowdfunding shouldn’t be your first source of money.  You, as the inventor, must have skin in the game.  You have to initially contribute.
  4. Get a smart funding goal—You MUST make a distinction between how much money you would love to have and how much money you need.  Develop a one year, three year and five year business plan as well as a first year cash flow spreadsheet.  If you don’t know how to do this—LEARN. Learn before you make your first presentation asking for financing.
  5. Make an effective presentation relative to your idea—People are drawn to a vision, a dream, a hope.  They are looking for eventual success. If you cannot articulate this vision you are SUNK.
  6. It’s not always about the money—Listen to those individuals who have ideas as well as interest in becoming part owners and contributors to your idea(s). Feedback can drive product design.  The product you start out with may evolve into an eventual offering far better than you first envisioned. This is critical.
  7. Make the campaign your passion--Managing an active crowdfunding campaign is an intense process. “It’s not only full-time for one person, it’s full-time for everyone in the company,” says Gyalokay. Sager agrees. “When we ran our campaign, the entire team was 100% focused on crowdfunding,” he recalls. “We sent out multiple surveys to our backers. I personally answered 3,000 emails in the first week.” Although it can be a nearly overwhelming experience, the campaign offers a valuable opportunity to engage with your backers. “We believe that if we can have a dialogue with the market, we can be successful,” says Fish. “We decided to host a separate forum for our backers, to continue the conversation beyond the crowdfunding campaigns.”

THE BEST CROWDFUNDING SITES:

The best crowd-funding Internet sites are:

  • Chuffed.org
  • Fundly
  • Crowdrise
  • Indiegogo
  • GoFundme
  • Kickstarter
  • Buzzbnk
  • JustGiving/Yimby
  • Pozible
  • Startsomegood
  • NextGen Crowdfunding

Here again, do your homework.  Look at all crowdfunding web sites and determine which one or ones, if any, meet your needs.  Each web site lists the fees, if any required and how they manage your request, so study each as you would prior to taking a university final exam. You may save yourself a great deal of heartache later on.    You also may develop other ideas also and if so, factor those into your business plan.

I am constantly amazed at the resourcefulness of the American people.  Crowdfunding would have never come to fruition if lending institutions were willing to look at people with ideas.  It’s always been tough but in today’s economy, it’s doubly tough.  Maybe this method of raising money is good for you.

DO YOUR HOMEWORK.  WATCH OUT FOR SCAMS.  They are out there.

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