As we all know, banks match people who have money with people who want money. Banks provide all types of personal and commercial loans to individuals and businesses that meet their lending qualifications.
Private equity firms, venture capitalists and angel investors are a source of funding for established businesses seeking capital to grow.
But what about individuals who want to start a business from scratch? Generally, they need to use their own funds or find money through family and friends. That can be a tough hill to climb for most start-ups.
Now budding entrepreneurs have a new potential source of start-up capital: Crowdfunding. Originally, crowdfunding platforms were designed to help people raise donations for a specific public good. It was an easy way for folks to reach out to family and friends through social media. Donors were assured that the funds raised would go directly to the charitable organization.
Over time, crowdfunding evolved to enable people with money to invest directly with people who need money by using a new intermediary, namely, a crowdfunding platform. The platforms are low cost compared to bricks and mortar banks, and one in particular is “no cost.”
They provide an efficient way for entrepreneurs to reach out to their own network of family and friends for funding help. Most platforms also maintain their own network of investors who stand willing to invest in promising projects.
Crowdfunding has helped numerous businesses get off the ground. One individual raised $65,000 in advances for a new dog toy he had designed, patented and planned to sell.
In the Savannah area alone, there are currently hundreds of projects soliciting funds on crowdfunding platforms.
Funding can come in the form of deposits for the purchase of a product or service, a royalty arrangement, a loan, or an equity investment. This past May, the Securities and Exchange Commission issued regulations that enable private investors to make equity investments through crowdfunding platforms. Previously, only the very wealthy were permitted to invest. Now anyone can invest, within limits of course.
But it is not easy. There are literally hundreds of crowdfunding platforms currently available. Some are outright frauds.
How does an entrepreneur select an honest platform that best meets their specific requirements? There are tools available to help in this regard. One is basically a “Yelp” for crowdfunding platforms.
But even after selecting the best platform, the entrepreneur needs to craft a compelling pitch for their product or service. There are thousands of projects out there at any one point in time.
The competition for “eyeballs” is fierce, so a well-crafted YouTube video can be a great help.
J. Christopher Williams is a certified SCORE Mentor. To schedule an appointment to speak with a Savannah SCORE Mentor, call 912-652-4335.