What do traditional bank loans, venture capital investments, and Kickstarter all have in common? They are all popular methods of raising money for the 21st-century entrepreneur to launch a business. And when starting a new business, which is costly and all-consuming, you may well need all three.
Kickstarter, as you likely already know, is a crowdfunding platform wherein you can ask your community to donate to your cause – your business, your creative endeavor, or your own, personal need, such as medical bills. There are now hundreds of these models of micro-lending, in which you repay your independent investors with merchandise or simply by becoming successful in your local market. But there is another innovative way to raise the capital your company needs:
With equity crowdfunding, you give shares of your business to investors.
With a traditional crowdfunding platform like Kickstarter or Indiegogo, your friends and family, or other interested parties, want to help you. Maybe they believe in what you plan to do. Maybe you promise them a sandwich, or a bumper sticker, or some other piece of merchandise. But they don’t have a vested interest in the future of your company.
With equity crowdfunding, companies sell securities, whether in the form of equity in the company, debt, revenue share, or convertible note. Platforms like Republic, Seed Invest and Net Capital allow you to connect with folks who want some level of involvement and who might prove to be good resources as you delve deeper into the world of operating a small- to medium-sized businesses.
With a panel of interested parties in your pocket, you have a team of brand ambassadors from inception. These are people who want you to succeed and may know a thing or two about how to make that happen. You have a built-in audience, actively working for your success. They may be experts or industry influencers. Having multiple investors increases the potential to raise larger sums of cash, and the funds will be pooled into a single investment, which makes the whole reporting process easier.
When your business has investors, you immediately are beholden to someone else’s vision. Now, no matter what you do to raise money, there are responsibilities and accountabilities inherent in the transaction. A bank charges interest. Stockholders have a stake – and make demands. Even Kickstarter backers want updates and feel entitled to a piece of you. You will have a fiduciary duty to report to shareholders about the health of the company with equity crowdfunding, but unlike more traditional methods, this way doesn’t require collateral or a credit check.
Greenlight Maine supports new and scaling small- to medium-sized businesses in our state, and we love reporting success stories. Past show contestant Chimani, an app developer that generates electricity from ocean tides and river currents, has had success with this means of raising funds. It just might be right for you, too.