By Debbie Gregory.

The COVID-19 pandemic has continued to financially impact small businesses negatively.  Consider a crowdsourcing campaign might help your business to stay afloat and prosper.

Nearly every small business across America has been impacted by the coronavirus pandemic.   Some have had to their operations or shut down completely. The financial impact of state lockdowns and social distancing has been a very challenging burden for many business owners, especially those who can no longer afford to pay their employees and bills.  Even with government stimulus packages such as PPP loans in the CARES ACT, many local businesses simply cannot wait for state or federal aid to come happen and remain in business.   Some have turned to their loyal clients and wider communities to help them meet their immediate needs in these uncertain times. Service businesses that cannot operate remotely, have launched coronavirus crowdfunding campaigns to help them support employees who have been temporarily laid off or had their hours cut due to COVID-19.  This has been very popular in the restaurant business.

If your business is considering a crowdfunding campaign to mitigate COVID-related financial losses, below is what you need to know and a few popular platforms to consider.

Where to Launch a Coronavirus Crowdfunding Campaign:  As with a regular crowdfunding campaign, it is important to do your research and find a platform that best suits your business needs and goals. Below are a few popular crowdfunding sites to check out:

• GoFundMe:  This Crowdfunding site was founded in 2010, GoFundMe is a popular crowdfunding platform used to raise money for emergencies and charitable causes. GoFundMe can be used by both individuals and businesses, but the most successful campaigns tend to center around service-based causes. Unlike other popular crowdfunding platforms, your campaign does not have to meet a deadline or goal requirement, meaning you keep everything you raise minus a 2.9% processing fee and 30 cents for every donation.
• Kickstarter. Kickstarter is a rewards-based crowdfunding platform designed to “help bring creative projects to life.” To launch a campaign, you set a fundraising goal, deadline, and different pledge levels for backers to choose from. Each pledge level provides something in return, such as a small gift, early access to a product, a personal experience and so on. Kickstarter is an all-or-nothing platform. A campaign that does not reach the fundraising goal within the timeline will go unfunded. For successful campaigns, Kickstarter charges 5% of the total funds raised, plus payment processing fees that range between 3% and 5%.
• Indiegogo. Like Kickstarter, Indiegogo campaigns are usually centered around creative works, charities or start-up businesses. Unlike Kickstarter, a campaign can be fixed or flexible. A fixed campaign is all or nothing, whereas a flexible campaign allows you to keep all the funds whether you meet your goal or not. If you do not meet your goal on a fixed campaign, you will not be charged any fees. For flexible funds, you will be charged a 5% fee plus a 3% processing fee, plus 30 cents per transaction.
• Kiva. Unlike other crowdfunding platforms, Kiva is a non-profit organization that connects entrepreneurs who need a loan with people who want to loan money. Kiva is ideal for individuals who are considered “unbankable” by traditional financial institutions because they have no collateral, no credit history or are otherwise seen as a “risky” investment.

What Can I Use My Crowdfunding Proceeds for?

According to the crowdsourcing site, GoFundMe, businesses that have used its platform to cover coronavirus losses have used the money they have raised for any or all the following:

• Health insurance for employees
• Monthly rent or mortgage payments
• Health insurance for employees
• Paid sick time for employees impacted by COVID-19
• Crisis pay for employees who are not sick but are out of work.
• Employees who need time off to care for their children.
• Other operational expenses you are struggling to pay.
• Matching discounts for their donation spread out over time.
• Discounted gift cards for when business is back to normal.
• Priority booking for service-based businesses.
• Free upgrade or add-on service.
• Buy one now get two during the first week back in business.

Unique ways to reward your customers for their support

While not every crowdfunding platform requires you to offer a “reward” in exchange for a donation, some platforms like Kickstarter and Indiegogo do. Even if your chosen platform does not, it may be a nice gesture to offer your patrons a “thank you” for their support, even if it’s just a coupon for a future purchase.

Here are a few unique ideas for thanking your customers for their generosity:

• Matching discounts for their donations spread over time
• Discounted gift cards for when your business is back to normal
• Priority booking for service-based businesses
• Free upgrade or add-on service
• Buy one now and get two during the first week back in business

By Debbie Gregory.

Many VAMBOA members have been inquiring about Crowdfunding.  VAMBOA, the Veterans and Military Business Owners Association has decided to do a series of articles on Crowdfunding on our blog for our members and audience.

VAMBOA works very hard to provide valuable information and this is our goal.  We hope that you will enjoy these articles.  If any members have had direct experiences with Crowdfunding, please contact us and share your experiences.  You can do this by emailing info@vamboa.org.

You might have a great new business idea, but raising money for it can be difficult, and that can slow the momentum of your venture. The main obstacle may be the amount of money you need. Large sums of capital may be intimidating to investors, especially when it comes to an untested, early-stage company.

Crowdfunding is when businesses, organizations, or individuals fund a project or venture with small donations from many people. By receiving the necessary boost to cash flow, these ventures can get off the ground or launch new projects, products, and divisions.  Please do not take Crowdfunding for granted because it has raised billions of dollars for many businesses and organizations.

Thanks to the Internet, an alternative for entrepreneurs seeking investment money has emerged and is thriving. Crowdfunding allows businesses to pitch their ideas to a potentially vast audience via websites designed to connect them with investors.  An additional major advantage is that crowdfunding helps to secure investment dollars without relying on one source. Instead, businesses may aggregate smaller amounts from a few or many different individuals and small groups.

For these so-called retail investors, the payoff is the chance to learn about investment opportunities that were formerly limited to bigger banks, private equity groups and venture capitalists. They can get involved with as little as a few dollars and possibly be part of the next Apple or Facebook.   The opportunities with crowdfunding are unlimited.   It is important to understand it and do it right.   We hope to provide you a vast amount of information in this series of articles on Crowdfunding.

Small business crowdfunding has quickly become a viable trend over the last few years.  It has been made popular by many startup stories of success especially in the high technology sector.   A California based manufacturer in virtual reality headsets raised $2.4 million on the crowdfunding site, Kickstarter.  This company was later acquired by Facebook for $2 billion dollars.

According to Massolutions, a research firm, there are now more than 600 crowdfunding sites worldwide.   The World Bank estimates that crowdfunding will generate close to $100 billion in investments worldwide this year

Crowdfunding offers special incentives in exchange for donations. These perks can include and not be limited to anything from a mention of your name in credits on a film to a chance to obtain a free product or to hear personally from an author. By offering these perks, you can also avoid lending fees, interest payments and giving away company equity in exchange for the loan.  You may want to check out these types of details with your accountant or CPA.

The transparency of crowdfunding can be attractive to potential investors.  Companies are making their financial information, strategies, and goals readily accessible on crowdfunding platforms.  This helps potential contributors feel comfortable being a part of business crowdfunding.

Preparation will increase the likelihood of success. For entrepreneurs who want to use crowdfunding for their small business, building momentum before they post their ideas on a site is important. That means creating a good pitch for their business that will engage investors as well as inform them.

It is important that prior to presenting your venture on a crowdfunding site, make sure there is a demand for your product or service.  Next, determine the best way to market it. Clearly communicated evidence of potential demand is more likely to draw interest from investors. Some initial marketing outreach can create the sort of buzz that investors prefer to see as they analyze different crowdfunding pitches.

Start by building a lead capture page that is a standalone page providing basic information about your small business prior to the launch of a crowdfunding campaign. Some successful launches include enticing offers, such as a contest, to get users to input their email addresses.

Other good advice is not to get too greedy when you set up your funding goal.  Even if $500,000 will make your launch easier, aim for a smaller amount that you can reach early on and that will still help you.

This is important, because reaching financing milestones is another way to help attract other investors and to create momentum around your venture. Once your business starts thriving, you may garner the attention of a wider audience that may enable you to raise money in subsequent rounds of funding and, ultimately, increase sales.

Happy Crowdfunding to you and stay tune for the next article in this series on the VAMBOA blog.