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Crowdfunding

Page history last edited by Marc Freedman 8 years ago

Featured in DallasBlue Entrepreneurs newsletter

 

Short link http://bit.ly/cfunding

 


 

Crowdsourced funding was popularized in 2006 when Sellaband launched to help bands raise money from their fans to produce CDs. 

 

Don't have a rich uncle? Not ready for angels?  Try crowdsourced funding for marketing your company or project to Internet users, friends & family, and your social network, and aggregating small investments.  The payback varies by offerer and site.  Sometimes it's just karma, often for social or creative efforts.  Sometimes it's recognition.  Sometimes it's a share of revenues or a loan for commercial endeavors.  Soon it will be for direct stock in a company.

 

  • Fees below are just those charged by the service and just those detected at the time of this article.  They may not be current and do no include PayPal (about 3%), money exchange, or other fees that could include setup, listing, or monthly service. 
  • Site policies vary with regard to when money is received (immediately, after a campaign target is reached, etc.)
  • Each site may have other restrictions, such as types of activities that can raise money, minimum or maximum for a single investment or the total raise, the maximum duration for fundraising, etc.

 

 

Equity

 

US

The U.S. SEC regulates the offering of corporate securities. If you're using a crowdfunding site, it's best to use it for donations or benefits that aren't stock.  In May 2012 the U.S. Congress passed the Jobs Act, which enabled U.S. companies to market and sell up to $1 million in stock to non-accredited investors.  The SEC however still has not finalized regulations for crowdfunding sites.  However companies can raise money on their own.  Speak to your attorney to learn more.

 

 

Accredited investors only

These angel investment sites are for accredited investors only (a minimum of $1 million is assets or $200K annual earnings.)

 

International

These non-US sites are generally not suitable for US companies raising money.

 

Debt

Crowdsourced or Micro Loan sites are midway between equity and donation services.  They provide the promise of a payback but with the high risk that a company might fail and without the upside of stock.  The track record of such sites has generally been good with low default rates.  Debt sites are more commonly used in the following situations:

  • Smaller amounts. Micro loans are often treated as investments in individuals as opposed to companies that require much more money.
  • Multiple fundings that track the venture's revenues, such as for accounts receivables or managed growth. The entrepreneur gets a small loan and establishes an excellent payment history, which builds credibility and makes it easier  to secure higher amounts.
  • Positive cash flow.   Debts works for ventures that are small businesses, with account receivables, or that expect revenues relatively soon, and so can make loan payments.  It's not well-suited for fast growth tech startups that may take several month to develop a product and focus more on building IP, technology, or eyeballs as opposed to revenues.

 

Sites:

 

Sales

These sites take a cut of sales, owning not your equity, but a share of your product revenues. 

  • LendingClouds. 6% fee to company + 5% to investors.  Uses an investment club approach for investors to invest indirectly in sales or other current or future assets.

 

Product/Token/Donation

Older crowdfunding sites don't (yet) give buyers equity.  Startups can offer anything else, such as product (essentially payment in advance), recognition, special access, or nothing (pure donation).

 

Kickstarter

5% fees, floor, must have US bank account.  Kickstarter is the king of crowdfunding BUT it's for projects only, not companies.  "Kickstarter is for projects that can be completed, not things that require maintenance to exist. This means no e-commerce sites, web businesses, or social networking sites."  If you're raising money for a business, try one of the other sites here. 

 

Kickstarter users pledged $99 million to projects in 2011, 10% of all US seed investment estimated by PricewaterhouseCoopers at $920 million. The company has distributed over $150 million since its launch in 2009. 54% of projects failed to reach their funding target.

 

 

Business-friendly

There are dozens of crowdfunding sites.  These in particular are generally friendly to business fundraising.

  • 40Billion. 5%  + $10/mo fee.  Also can be used for loans or commercial paper.  
  • FundaGeek.  5% fee.
  • GoFundMe.  5% fee. Not oriented to campaign, just direct cash fundraising with social media sharing.
  • IndieGogo -  4% fee if you reach your funding goal, 9% if you don't.
  • Invested.in. 3% fee.
  • peerbackers. 5%. Campaign 15-60 days.  
  • RocketHub.   4% + 4% credit card.

 

Social

 

Creative/Music

 

Other

  • WePay. 3.5%.  Includes credit card fees.  More of a payment processor than a full crowdfunding site.  But it does have social media features to engage your contacts on Facebook, Twitter, and Google.

 

Personal

The following sites are oriented to individual or group project.  They generally are not suitable for business fundraising.

  • CrowdTilt. 2.5%. Investors pay PayPal fee. 10 day max campaign.
  • FriendFund. Germany-based. 30 day max campaign.

 

 

Other

 

White label

 

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