The Jumpstart Our Business Startups Act (JOBS Act) of 2012 is a law intended to encourage funding of small US businesses by easing various securities regulations. At its core, the legislation changes how private businesses such as startups raise capital from individuals. Traditionally, private businesses could only seek investment from accredited investors — basically, affluent people — who passed certain wealth eligibility tests. Under the new law, all Americans, regardless of their wealth, will be allowed greater freedom to invest in startups. The idea is that with greater access to financing, startups will flourish and create new jobs as they grow.
The result has been the emergence of a financing option known as “Crowdfunding.” If you have not heard of crowdfunding, this is a web-enabled way for smaller companies to get funding vs. traditional angel or venture funding.
Crowdfunding is derived from crowdsourcing, where individuals achieve goals by receiving small contributions from other people. In one sense, crowdfunding is a long-standing American tradition. In 1884, the American Committee for the Statue of Liberty ran out of funds for the statue’s pedestal. Newspaper publisher Joseph Pulitzer urged people to donate money toward the pedestal in his newspapers and he was able to raise over $100,000 in six months. More than 125,000 people contributed to this cause with most donating one dollar or less.
Kickstarter.com is one of several crowdfunding platforms that gathers money from the public in a “gifting” model. Project creators choose a minimum funding goal and a deadline. Kickstarter collects a 5 percent fee from a project’s funding total if a project is successfully funded. There are no fees if a project is not successfully funded.
As of July 2013, Kickstarter had launched 107,645 projects and these projects had achieved a success rate of nearly 44 percent. Since its inception, the total number of dollars pledged on Kickstarter has been $717 million. While Kickstarter projects have been most successful in creative projects such as software development, movies, and artistic projects, but they have also provided funds to food and agriculture.
Indiegogo.com is another popular crowdfunding platform for food and agricultural entrepreneurs. Just like Kickstarter, users publicize the projects themselves through social media and website platforms. The site levies a 4 percent fee for successful campaigns. For campaigns that fail to raise their target amount, users have the option of either refunding all money to their contributors at no charge or keeping all money raised but with a 9 percent fee.
Kickstarter and Indiegogo have the best track records and have been around long enough to build traction and a good reputation, there are many reputable platforms out there. Take the time to do some on-line research for those whose mission statement includes the type of project you’re trying to fund. Regardless of which platform you choose, to increase your chances of receiving the funding you should:
- Set a reasonable funding goal. Backers want to have a good sense that the project will be completed as promised.
- Tell a good story in words and video.
- Be yourself.
- Chose a short duration for your campaign. Your platform will make recommendations.
- Offer good perks or rewards to your backers.
- Recruit a few donors before the campaign starts to have some support when the campaign opens to help encourage more giving. Have a large donor come in somewhere mid-campaign to give the effort a boost.
- Reach out to your local community and contacts first.
- Use updates to show that both your project and campaign are succeeding.
- Promote, promote, promote!