Q: Is Crowdfunding a good fit for my business?
I often get asked, “ Is crowdfunding a good fit for my business?” The answer is 100% of the time “Absolutely”. Why is pretty simple and straightforward and we’ll outline the why investment crowdfunding is suited for your business below.
Funding Your Business - Knowing Your Options
Bank Loans. Traditional means of funding your business include bank loans and other forms of financial instruments that your bank offers. However, for many businesses banks are not your friends. While it’s true you can get a loan or business line of credit when you’re cash flow positive and don’t need them, securing a business loan or line of credit when you need it (e.g.: pre-revenue) is nearly impossible. If you can get a bank loan then why use crowdfunding? You’re right. Good luck meeting the bank’s underwriting requirements. Even if you can qualify for a bank loan, crowdfunding may offer a few other unique benefits that we’ll outline below.
Friends & Family. The death valley of startup and business financing (raising the first $250k) is typically crossed with the assistance of Friends & Family rounds. Friends & Family is for the record a type of micro-crowdfunding. The “crowd” though is limited to personal/family connections and doesn’t make any public offerings. However, most Friends & Family rounds are limited to $10k - $150k. There are some folks whose wealthy auntie is happy to write them a check for $1M - $10M. If you have one of those accredited relatives, congrats! You still may want to consider crowdfunding because a single accredited investor isn’t going to purchase enough of your goods, products or services to make up for the revenue of a “crowd” of customers. Too, someone needs to pay your accredited investor family member “angel” back. That isn’t you. Customers pay your investors back. So, again, you may want to consider Investment Crowdfunding because then you can offer two financial products to your potential customers:
- Your goods, products and services
- The opportunity to invest in the business they already love enough to be a client of.
Accredited Investors & Retail Investors
Investment crowdfunding should be considered by every business looking for capital because as a Founder you need to be aware of all your options. When it comes to crowdfunding, you are either going to pursue funding from:
- Accredited Investors
- Retail Investors
- Or both
At the end of the day, to get funding for your business, you’ll use some flavor of investment crowdfunding. It may be debt flavored, equity or 506(b) or RegCF. What flavor of crowdfunding you choose to use depends on how much funding you’re trying to raise. Looking to raise $1M? Then its RegCF crowdfunding. Looking to raise $2M - $50M? RegA/A+. Looking to raise $51M or more? RegD.
It doesn’t matter how much money you’re looking to raise, if you can’t get a bank loan or traditional financing, you need to be aware that investment crowdfunding exists so you can evaluate which flavor of crowdfunding to pursue. Too, when seeking investment you have to be able to substantiate your value prop and ROI. Some flavors of crowdfunding require more disclosures and for you to be better organized. Other flavors of crowdfunding do not. Which one should you use? I dunno. That is based on your unique business case and if your customers have more money than investors. Note - Your customers always have more money than investors. After all, its customers who pay back and generate revenue for investors.
Now that you know JOBS Act Investment Crowdfunding exists, what flavor of crowdfunding should your business consider? For that you need an crowdfunding SME. Visit the Crowdfunding Professional Association at www.cfpa.org, checkout the Crowdfunding Ecosystem and book time with any of the dozen plus crowdfunding SMEs there.
Good luck! May the odds forever be in your favor. And remember. The best capital in the world is revenue. Keep this in mind and checkout my article on the Triangle Financing Method and how it may help you increase your revenue and achieve your capital formation goals using investment crowdfunding.
About Samson Williams
Samson is a classically trained anthropologist, finance and public health expert who advises Fortune 100 companies, Executives and startups in Dubai, Washington, DC and Dublin, Ireland. Samson learned his craft as Emergency Manager at Fannie Mae 2008 - 2016 and has since gone on to be a leading advisor to banks and financial institutions in the Dubai / Middle East North Africa region. Samson’s focus is helping firms understand the latest human trends in fintech, digital transformation, the Space Economy and Low Earth Orbit entrepreneurship so that they can make profitable decisions for their bottom lines. As part of this passion for the next steps in Human evolution and cultural development, Samson joined the Space Channel as head of Anthropology and co-host of The Space Economy Show in March 2020. In this phase of his career he is focused on making Space exploration possible for everyone. Space by the way is tokenized and crowdfunded in case you were wondering. You can follow Samson on Twitter/Instagram @HustleFundBaby or reach out to him on LinkedIn to follow the latest insights in his academic and market research.