Friday, April 26, 2013

Crowdfunding is In the Future of Small Business Financing


New legislation has been introduced in North Carolina which enables a new way to finance small business called investment crowdfunding. The bill is known as the North Carolina Jump-Start Our Business Start-ups (NC JOBS) Act.

Recently North Carolina’s Council for Entrepreneurial Development (CED) sponsored a seminar called “Tips and Tricks for a Successful Crowdfunding Campaign” at American Underground in Durham. The event was packed with entrepreneurs, marketers, and investors 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. A recent report on Yahoo Finance showed that just last year, over $2.7B was raised through crowdfunding.

The 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 noted national expert on crowdfunding.

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. Candace breaks down crowdfunding 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 represented by sites like SoMoLend. The equity investment crowdfunding type is not yet legal at the national level, because everyone is waiting on the regulations from the SEC regarding the federal JOBS Act. There are a number of platforms that are ready and able to implement equity crowdfunding, and many resources can be found on the industry site crowdsourcing.org. Unfortunately, the federal version has become very complex, has been delayed, and may be almost impossible to implement as intended. So Kansas and Georgia have already created their own investment crowdfunding exemptions for in-state business and small investors, and that process is also underway in North Carolina and other states.

Candace emphasized that any crowdfunding campaign is just that: a time limited campaign that requires planning, schedules, promotion, creativity, and most importantly, full time execution while the campaign is live on your crowdfunding platform of choice. She reviewed best practices for successful campaigns, such as targeting a specific passionate and narrow 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. And have a good video! She also outlined the biggest mistakes made by unsuccessful campaigns, such as setting unrealistic expectations for fundraising and schedules, and not doing the daily marketing needed to support the crowdfunding campaign.

We see crowdfunding as the future of funding for all kinds of business startups, not just technology business, but small business of many types, including for-profit and non-profit businesses. Most small business startups need loans from friends and family, and in the old days, banks. But the banks have cut way back on lending, especially to new businesses. Angels and VCs tend to only invest in the big ideas that can be quickly scaled into 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. It also allows small investors the opportunity to participate in the economic growth of their own communities, something they had not been enabled to do before.

If you need financing for a new North Carolina business, a new product, a new service, a creative project, or a non-profit, take a look at crowdfunding, and support the NC JOBS Act of 2013.

Support the North Carolina JOBS Act:
If you have any questions or comments, please email the JOBS NC Crowdfunding Team at jobsnc@nc.rr.com or contact Representative Murry’s office at murryla@ncleg.net.

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