Smart Business: Strapped for cash? Why not crowdfund?
We all know the story. You’ve got a great project, but even though you work hard and you know you’re producing a work of quality (or your friends/customers/family know you’re creating a work of quality for you self-depreciating creative types) your cash is running out. Without cash, you can’t advertise, source supplies or produce. Everything grinds to a halt.
So what are your options? You know the usual ones, bank loans and investors, but what about crowdsourcing your cash?
Crowdfunding is a process which mostly suits small businesses, which need help getting off the ground and getting their products out there. Essentially it creates a flow of capital between the individual to the company. Some of them are designed more for creative products, but many are for small businesses.
The biggest of all is, of course, Kickstarter. (Image from alltop.com. Click on the infographic to go to the site.)
Kickstarter has pledged about $200 million towards projects. However, despite the companies that advertise on it, Kickstarter is mainly project based. For a company which produces only one main product – such as the ultra innovative Makey-Makey – this is perfect. For a different breed of company, more than just one boost for a project might be necessary.
this is where the new breed of crowdfunding venture capitalists come in. Where Kickstarter is the go-to place for the creative crowd to stretch their wings, start-ups who need cash are increasingly turning to other sites, such as GrowVC, Seedrs, Crowdcube and Bloom VC. Which one is right for your company?
GrowVC is a company which uses the network of entrepreneurs a crowdfunder creates to connect companies with investors and partners. Part social media, users can “follow” other users, see what else they follow and what timezone they’re in, alongside other details. Startups are given the ability to grow seed capital whilst gaining affiliates, advisers and customers from the other users.
Best for: start ups who want connections as well as cash.
BloomVC asks for “promises” from its users, though these are the same as donations. It works on the usual crowdfunding principles – come up with an amount of money, write a post about how you’ll use it. Add some rewards for certain amounts of money promised, and spread the word over social networks.
Best for: small, craft based companies.
Seedrs is very business orientated. Entrepreneurs here raise startup capital whilst investors become shareholders in the business itself. Where Kickstarter and Bloom ask for donations in return for services, Seedrs takes the money given by investor and buys shares in the start-up. The administrative work is taken over by the Seedrs team. All proposals are examined to ensure they’re not misleading potential investors. Shares in the company are held and managed by Seedrs on behalf of investors. All profit is passed on to the entrepreneurs and their investors.
Best for: small businesses looking for shareholders.
Crowdcube is one of the largest sources of crowdfunding for businesses. You may even recognise some of the brands asking for money. It works similarly to Seedrs; users don’t donate, rather they invest into the desired company. Users set a target and those funding it buy into the company, becoming part of its future success. Crowdcube describes these investors as “armchair Dragons” and really, aren’t they?
Best for: small businesses who already have some following.
Kickstarter is the king of crowdsourcing. The way it works is nothing unfamiliar if you’ve read the above summations. A small business or venture puts a pitch up on the website, along with a selection of rewards for funders. A company which gains all of its funding can then produce its product, sending rewards to its backers as it does. However, something which might make Kickstarter a little more attractive than its competitors is the fact that backers do not buy shares or any form of ownership into the project. All they buy is the product.
Best for: artistic and creative companies.
The pros of crowdfunding is that it’s an accelerated version of supply and demand. A customer wants your product, and they want it enough to pay for you to make it for them and others. You don’t have to be a large company to take advantage of it and you only need several small loans rather than one large one from an angel investor. It can also be used to boost brand recognition, both amongst customers and in the marketplace.
Would you ever consider crowdfunding? Tell us in the comments, or get in touch by tweeting us at @huddlebuy!