One of the fastest growing startup and small business funding methods is crowdfunding. Websites like Kickstarter are fraught with entrepreneurs pitching ideas from gadgets to music careers to food. While some of these sites limit the products that can be pitched, they generally allow for entrepreneurs to get the funding they need to put their innovations to work.
When Grand Rapids-based Rowster New American Coffee decided to expand its high-end roasted coffee operation it turned to Kickstarter for the funding. The off-chute company known as Regular Coffee Company will allow customers to become members that can get high-quality coffee for regular prices as well as have access to special information about the coffee and other special discounts. Regular Coffee beat its fundraising goal of $10,000 by providing donors with anything from a hand-written note — for the $5 level — up to one-year subscriptions to Regular Coffee and other gifts.
This type of funding has its pros and cons. It might allow entrepreneurs to get the funding that might otherwise be unattainable because their business is not to the point or big enough for savvy investors to invest in them or banks don’t find them secure enough to provide funding. Even more importantly, this type of funding gives startups and small businesses validation of their idea. It’s one thing to be able to sell a small group of investors on your idea and it’s another to have 100’s of potential customers willing to invest because they like your idea.
While this form of funding provides entrepreneurs the ability to get funded and gives them validation, it also has its down side too. Some entrepreneurs seek funding too early. Instead of using the funding to really push and launch their idea, they squander the money on development and preparing for the launch. Then when it comes time to open up the product to the market they need more funding. This type of funding can also discourage an entrepreneur if he does not receive the funding. The failure to acquire the funding can be taken as being rejected by the market. That might be the case in some situations, but a poor pitch, poor visibility, requesting too much funding or it not being the right time for funding are all other possible reasons for falling short.
It is anticipated that sometime in 2013 the SEC is going to release the details of how the Jumpstart Our Business Startups (JOBS) Act will work. The JOBS Act will allow entrepreneurs to crowdfund their innovations through selling equity in their company. While this will open up crowdfunding to all startups and small businesses, entrepreneurs will have to be cautious selling equity in their company because they can quickly lose control of their dream.
The best advice is to know all of your options. Crowdfunding is just one of many potential paths for your West Michigan startup or small business to use to achieve success. There are plenty of resources available to you that can help you with finding this information.
Source: “Coffee roaster turns to crowdfunding for next venture” by Nick Manes of MiBiz