CROWDFUNDING
By James Pruitt, Senior Staff Writer
Crowdsourcing is a relatively new phenomenon and an alternative to angel investors. Many find crowdsourcing campaigns obnoxious. However, crowdsourcing websites provide an invaluable resource for new businesses.
Additionally, over time, investment crowdsourcing has evolved to cater to the needs of new businesses. When a new business resorts to traditional crowdsourcing sites, a better way to describe these campaigns is presales campaigns. Such campaigns are as old as capitalism.
Angel investors are harder to come by. Angel investors are usually at the later stages of successful business ventures and take satisfaction from boosting new ideas. Such investors generally ask in exchange for a share of the business equity or convertible debt. Oftentimes, a mentorship or patronage relationship comes with the package.
The earliest crowdsourcing campaigns were shameless attempts to score frivolous rewards for brazen internauts seeking consumer goods, vacations, and other vanities. Later, crowdsourcing sites became known for charity fundraising. Now, crowdsourcing sites such as gofundme.com and kickstarter.com have found new life in promoting novel business ventures.
We should all welcome the repurposing of these established websites. Anyone can use these platforms to market their business idea. These sites offer great springboards for presales marketing. Angel investors are harder to come by and offer different risks and benefits.
A distinction should be made between regular crowdfunding and investment crowdfunding. Most crowdfunding provides nothing but the satisfaction of help for another. Investment crowdfunding provides an equity interest in the company. In other words, the funders receive a tiny share of ownership of the company commensurate with their investment. SeedInvest and FundersClub are popular forums for investment crowdfunding.
“Angel investors” are few and far between. Such investors often show an emotional interest in the enterprise beyond the fiscal rewards, yet generally do expect compensation. Online resources do exist for those seeking angel investors. The Angel Capital Association provides a forum for well-meaning senior investors seeking promising candidates. Gust and the Angel Forum also facilitate meetups between entrepreneurs and angel mentors. In general, such relationships are quite hard to come by. Successful relationships with angel investors tend to be serendipitous and start with lucrative personal connections before they bear any kind of fruit.
As for crowdfunding, the idea itself must be a crowd-pleaser. Hence, the idea itself provides a great exercise in marketing in its early stages. Legitimate early-stage crowdfunding generally needs good marketing material. In other words, the business concept should have developed to the point where it can attract interest. A crowdfunding endeavor may also provide an exercise in business development.
In sum, “angel investors” are often a matter of luck. They can provide vast resources but may usurp control. “Crowdfunding campaigns” generally require the preparation of a palatable business idea. As for crowdfunding, an understanding of the different types of crowdfunding can set new business owners on a good track for funding their new enterprise. At the same time, bear in mind that most of the funding for new business ideas comes from independent “bootstrap” money. A balanced, well-researched understanding of all three can provide a realistic assessment of funding potential at the earliest stages.
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