July 25, 2017
Nobody ever said starting a small business was easy. Even entrepreneurs with the best ideas are forced to contend with issues like marketing and management in order to get their business off the ground. The most glaring concern facing new business owner is acquiring capital. Traditional sources of debt based capital, like banks and loan companies, realize that the substantial failure rates of new businesses creates a massive amount of risk. For this reason, new business owners are often forced to take loans out at alarmingly high interest rates, putting even more pressure on their fledgling businesses. Equity based financing are the next best option, Equity financing can come from a variety of sources, including private investors, venture capital firms, and mergers and acquisition from companies rich in cash. While equity financing is more common for growing an existing business as opposed to starting a new business, it can be useful as an option that avoids increasing debt for a business that has gained interest among investors. With that said, most venture capital firms and angel investors are not interested in small businesses. Fortunately, the internet has provided a solution in crowdfunding websites.
Many people are familiar with crowdfunding sites like go-fund me, where millennials can beg for money for air fare to Cochella and other worthy causes. What people don’t know is that crowdfuding websites that are business specific, such as AngelList or Crowdfunder. These sites connect investors who can offer as little as a dollar in exchange for equity in the small business to entrepreneurs. The best part: thanks to Federal JOBS Act, the SEC regulations that irked small businesses who wanted to raise equity capital have been loosened. The SEC’s website can be accessed for further information on small business crowdfunding.
Crowdfunding websites give entrepreneurs the opportunity to solicit small investments from a large group of investors, giving them access to a larger pool of investors than traditional financing and at the same time giving new businesses access to equity financing before the business has been proven to investors be successful, thus giving the entrepreneur adequate resources to prove him or herself. Additionally, crowdfunding offers flexibility in its financing options, even to rewards based options where entrepreneurs can solicit contributions for as much as a thank you. If you are looking to open a small business, equity based crowdfunding could be your best option.