Yakima County Development Association - What Is Crowdfunding? Will it Work for You?

Jean Brown

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Jean Brown

Jean publishes a blog called the Enterprise Corner.  It features articles on entrepreneurship, local industry trends, manufacturing news and periodic ‘toolbox’ articles showcasing assistance, incentives and other resources for local businesses.

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What Is Crowdfunding?  Will it Work for You?

What Is Crowdfunding? Will it Work for You?

October 12, 2012

Traditionally, most entrepreneurs have had to scrape together their own capital or get bootstrap financing  from a close-knit network of friends and family to get a business venture off the ground.  A new day is dawning though as social media and the internet combine to create new funding options and opportunities.  Crowdfunding coallesces online communities to support a wide variety of activities, including disaster relief, support for artists, and political campaigns.  It is also increasingly used to fund startup businesses. 

Crowdfunding is fundamentally changing the way businesses are formed and funded.  Investor portals like Kickstarter and Indiegogovastly extend the friends and family network which is the primary source of capital for most small businesses.  A much wider variety of ventures can be funded through these portals.  Artists and musicians can now vie for funding on the same footing as serial entrepreneurs.   

alt textSmall amounts of capital can be also be raised via crowdfunding, greatly increasing access to capital options for startups and microenterprises.   The options to fund a business (or cause) through crowdfunding are wide open and investment portals are growing rapidly.  Kickstarter, for example, helped raise over $27 billion for 3910 projects in 2010.  Last year the portal brokered 27,086 projects raising over $99 billion. As crowdfunding investor portals take off there are certainly new options available for local entrepreneurs that need funding to start or grow their businesses.  At the same time though, entrepreneurs must still do their homework.  In order to put a project on an investment portal the following information is needed as part of any issuer’s disclosure requirements:

    • the issuer’s directors, officers, and each person holding more than 20% of its shares;
    • the issuer’s business plan;
    • financial information, depending on the size of the offering:
        • offerings under $100,000 – income tax returns and financial statements certified by the issuer’s principal executive officer;
        • offerings over $100,000 but under $500,000 – financial statements reviewed by an independent public accountant; and
        • offerings over $500,000 – audited financial statements;
    • use of proceeds and target offering amount; and
    • information about the offered securities and the issuer’s other securities, including disclosure about the rights of crowdfunding investors relative to the issuer’s other investors.

As you can see completing a business plan, providing financial information, and identifying key officers and owners is still basic to funding any venture and crowdfunding is no exception. An entrepreneur should consider crowdfunding carefully for several reasons.  Total amounts of funds raised are limited so entrepreneurs needing larger amounts (greater than $1 million) need to be especially careful about using crowdfunding to launch their enterprise.  Investor portals also put details of a venture out for anyone to see which may be counterproductive for entrepreneurs with trade secrets or sensitive information.  And finally, crowdfunding will likely increase recordkeeping and regulations for participating small businesses. If crowdfunding looks promising for your venture take the following advice to heart:

    • First, Figure Out Your Budget.  Before starting any crowd source campaign you should have a project budget and find out what and why you need additional resources. You need to have a working budget or financial projections so you can tell people how much and where the fundraised money is going to go.
    • Speak to Emotions. Don’t just say, “Hey, I have this great idea and I need your financing.” If this is a project you’ve been working on for years, or is something you’re incredibly passionate about, make sure you include that information on your campaign page. Really put your hopes and dreams in the description. With that said, don’t spare any details either. Be as descriptive as possible when describing your project so potential donors can really feel attached.
    • Promise The Donor Something in Return. While some people are okay with donating to your fund for the good karma, many will expect at least a little something in return. Be sure you have some great, tangible ways you can thank your donors, whether it be a “special thanks” credit on the website, a gift, a thank you card, or a special edition of the product.  Be creative, it will pay off!
    • Keep Them Updated. Don’t just create your campaign page and leave it alone throughout the course of your project.  Keep donors interested by releasing photos and posting updates leading up to the launch of your business, product, or project.

It is difficult to find an angel investor in Yakima County.  It is also nearly impossible to get a bank loan as a startup.  As a result crowdfunding could offer local entrepreneurs wholly new opportunities to secure funding for interesting projects.  While new opportunities abound through crowd funding we think the entrepreneurs who are well organized and focused will still be the ones who get funded at the end of the day. If you are interested in Crowd funding, check out these links: Getting Started Tips for Investors Crowdfunding website reviews  


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