Crowdfunding To Buy A Business
As a small business owner, you might be looking for ideas of where to get the capital to take your business venture or startup idea to the next level. After you have made a business plan, invested your own savings, and worked your business as a side hustle for a few months, it is time to raise some real funds.
crowdfunding to buy a business
Heading to the bank for a traditional business loan is not your only option anymore. Crowdfunding platforms where people can invest in your project, idea, or business are all over the internet these days. But what, exactly, is a crowdfunding platform? How do you leverage crowdfunding for business? And, if you do decide crowdfunding platforms are the right move to raise funds for your small business, which websites should you explore?
Kickstarter is arguably the most popular and well-known crowdfunding site on the internet. The company has helped millions of artists, musicians, filmmakers, designers, small businesses, and other creators raise over $6.7 billion to fund more than 225,000 projects successfully. It is an all-or-nothing situation with funding as you have to meet the goal you set within the allotted time or everyone gets their money back.
Fundable is a successful crowdfunding site specifically designed for startups and small businesses (to date, the platform has helped users raise over $568 million in pledged funds). To get started, create a profile on Fundable and then choose a program. Consumer-facing companies can raise up to $50,000 with their rewards program that allows entrepreneurs to sell their products (that includes taking pre-orders and selling merchandise).
LendingClub has stricter requirements than other crowdfunding sites; for example, in order to apply for a business loan, your business needs to be based in the U.S., have been in business for 12 months or more, have annual sales of $50,000 or more, and the loan applicant must own at least 20% of the business.
Unlike other platforms, EquityNet offers flat-fee crowdfunding; instead of taking a cut of your raised funds, EquityNet charges a monthly membership fee (while the platform offers a free option, paid options range from $299 per month to $2,990 per month).
Crowdfunding is when businesses, organizations or individuals fund a business without traditional means with small donations from many people. By receiving the necessary boost to cash flow, these ventures can get off the ground or launch new projects. Most of these campaigns happen via internet platforms, have set time frames for when money can be raised and disclose specific monetary goals.
There are four kinds of crowdfunding campaigns you can use for your business. With donation-based funding, contributors give money without receiving anything in return. In equity funding, backers get shares of the business. For debt-based funding, donors are repaid with interest. With reward-based funding, contributors receive tokens, products or services in return for their donations.
LendingClub is a debt-based crowdfunding site because it is a P2P lending platform. It offers up to $40,000 in personal loans and up to $500,000 in small business financing. Each loan term is three or five years. To qualify, your company needs to have been in operation for at least a year, the applicant must own at least 20% of the business, and it must have an annual sales revenue of $50,000.
If you ignore the rules and jump into your crowdfunding campaign, the likelihood of success plummets. You need to adequately research the different crowdfunding sites so you understand which platform works best for your business.
Crowdfunding involves collecting money from a group of donors in an effort to raise capital. Crowdfunding sources can include those who have an interest in your business: friends, family members, investment groups and personal investors. The goal is to attract a large group to your investment to raise the capital you need for your business venture. Crowdfunding typically occurs online through dedicated platforms.
Donation crowdfunding does not require the recipient to pay back the funds. This type is typically more geared to charities and nonprofits. Friends and family members are likely to not expect a return of their funds. Debt-based donations comprise money pledged by backers that is a loan, which you must repay with interest. With rewards-based crowdfunding, tangible items, like free products, are given to individuals who give money to help you start your business. You could structure your rewards based on the size of the donation. For equity crowdfunding, participants receive a financial reward for their investment by owning shares of your company.
Crowdfunding is a way for small businesses or startups to raise money in exchange for equity, rewards, debt, or nothing at all. Business crowdfunding can provide you with fast access to cash, but it requires a strong promotional strategy, transparency, and possibly giving up some equity in the business.
Crowdfunding your next business venture can be a fast and relatively easy way to raise money. However, you should know which type of crowdfunding is best for your business and what it requires. Here are the most common types of business crowdfunding:
What we like about Crowd Supply: This crowdfunding space dedicates their platform to giving visibility to hardware projects at a time when software-focused companies are at the forefront.
What we like about Chuffed: Chuffed uses crowdfunding to operate its business, and carries that philosophy onto its platform users. Donors can choose to pay platform fees if they have a great experience. Otherwise, the platform lets users keep 100% of the money donated to them.
What we like about Fundable: Fundable recognizes that B2B and B2C businesses operate differently, and therefore source funding differently. The company tailored the path for B2B and B2C ventures to both succeed on the platform.
LendingClub provides personal loans up to $40,000 and business loans up to $300,000. LendingClub is not a bank. They connect borrowers with investors. In exchange for solid returns, investors purchase Notes that correspond to fractions of loans. LendingClub screens borrowers and facilitates all transactions.
For business loans, get all your capital upfront, one-to-five year terms, no monthly payments, and no prepayment penalties. They recommend their loan program for large, one-time expenses. LendingClub also requires your business to be in operation for 12 months or more, have at least 50,000 in annual sales, no recent bankruptcies or tax liens, and for you to have ownership of at least 20% of the business.
FundRazr is a crowdfunding site built for individuals, nonprofits, and businesses. Their platform is built with ease of use as the priority with no complicated tech setups. However, they do offer website and CRM integrations, recurring donations, incentives, and secure payment processing.
GoGetFunding is a global crowdfunding platform that hosts all kinds of fundraising campaigns. While it's particularly popular for individual causes, GoGetFunding does allow fundraisers for startups and businesses. Part of the service even includes timed campaigns, proactive PR, and a personal fundraising coach.
Ulule is the leading crowdfunding platform in Europe and offers international crowdfunding. When you start a project on Ulule, you set a fundraising goal. If you do not reach the goal, the donations are refunded to your backers and you don't have to pay any fees. However, Ulule maximizes success by through its approval process and support to fundraisers by giving advice on displaying the project and using the platform.
CircleUp helps startups in the consumer goods space secure capital through credit and equity crowdfunding. By applying to work with CircleUp, you'll be able to speak to credit advisors to determine the best financing solutions for your business.
EquityNet helps connect entrepreneurs with accredited investors in order to raise business capital. The platform has been around since 2005, and there are more than 25,000 investors in the network. Unlike other crowdfunding sites, EquityNet accepts all legal and ethical companies who apply, and they don't take a commission.
Classy provides conversion-optimized crowdfunding campaigns for nonprofits. With donor engagement features and perks such as sponsor matching, you'll be able to fundraise effectively and show your donors the impact they're making.
Seedrs is another equity crowdfunding platform that connects entrepreneurs with investors, allowing buyers and investors to exchange shares. The platform isn't just for fundraising and connecting to investors, either; it helps entrepreneurs network and acquire customers as well, all from the same platform.
Funding your entrepreneurial dreams can be hard work. Money doesn't always stretch as far as you think it will, and loans to start your business have staunch prerequisites like credit score minimums and required collateral. That's why crowdfunding for business is popular among aspiring and even experienced entrepreneurs. Crowdfunding directs interested investors right to your bank account.
Online platforms like Kickstarter, Indiegogo, and Patreon will host your crowdfunding campaign for a fee, allowing potential investors to discover and contribute. You can market it almost any way you want, and there are fewer strings attached to raising funds than there are to acquiring a loan or attracting investors in other ways.
Each of these presents opportunities and challenges relative to how the funds are acquired. If you're wondering whether you need to pay back crowdfunding, the answer is usually no for funds raised to launch a small business.
While other forms of crowdfunding exist in addition to the three below, they're not ideal for funding a startup or a small business. If you find your business in growth mode later on, however, and need to raise cash, you can finance your debt by crowdfunding for a business acquisition. This method isn't recommended for startups because the debt could render your company inoperable without enough funds. 041b061a72