PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Crowdfunding Still Unknown by Most Entrepreneurs

By at 18 October, 2013, 3:52 pm

By Karen Kerrigan-

With all the media coverage and excitement that crowdfunding has generated over the past few years, you may think that small business owners and entrepreneurs are highly aware of this innovative strategy to raise capital.  But a new SBE Council survey finds this is not the case. According to a recent “Entrepreneurs & the Economy Survey” by TechnoMetrica (September 23-26, 2013), only 11 percent of small business owners say they are familiar with crowdfunding as a way to raise capital for their businesses.

Even with extensive media coverage about crowdfunding, and educational initiatives such as SBE Council's recent contest, only 11% of entrepreneurs are aware of crowdfunding as a way to raise capital.

Even with extensive media coverage about crowdfunding, and educational initiatives such as SBE Council’s recent contest, only 11% of entrepreneurs are aware of crowdfunding as a way to raise capital, according to our recent “Entrepreneurs & the Economy Survey.”

Still, thousands of startups and small businesses have turned to crowdfunding platforms like Kickstarter, Indiegogo, Rocket Hub, Crowdfunder and Fundable to raise money for their idea or expansion.  More than 48,000 companies have raised over $775 million on Kickstarter alone.  These campaigns have largely been rewards or gift-based, meaning there is no equity swap for the financial support or contribution provided.  However, with the full implementation of the Jumpstart Our Businesses Startup Act (JOBS Act) set to take place soon, equity and debt-based financing will become legal and the industry will kick into high gear.

Perhaps that’s exactly what is needed to propel crowdfinancing into the mainstream to make it a bona fide option for small business owners.  That is, finalizing the rules will turn the industry spigot on full power, whose viability will depend on small businesses using their platforms to access capital.  Based on SBE Council’s survey, the platforms have a fair amount of work ahead to build a robust pipeline of customers. A mere 13 percent of the business owners who are familiar with crowdfunding say they are likely to use this method to raise capital.

Beyond building awareness, entrepreneurs and small business owners need to learn the “how to’s” of crowdfunding.  Only 19 percent of the business owners who have an awareness of crowdfunding have actually visited a crowdfunding site to learn more about it.  A successful crowdfunding campaign requires the smart deployment of video and social media, along with communication and outreach skills to help build a campaign’s momentum. In order to take part in equity or debt-based financing, there will be a host of obligations required by the JOBS Act that issuers must comply with.  Many of the crowdfunding platforms will provide entrepreneurs with the tools and advice to run successful, compliant campaigns.  Crowdfunding-centered educational and media support are emerging as niche services within this growing space.  Still, entrepreneurs need to be knowledgeable and aware of what it takes to complete a successful crowdfunding effort.  Besides being “crowd-ready,” the entrepreneur or business owner is ultimately responsible for the execution of the fundraising process.

Securities and Exchange Commission Chair Mary Jo White indicated that the crowdfunding rules (Title III) of the JOBS Act could be proposed prior to Thanksgiving.  A Bloomberg news story hints that the rules may come out as early as next week.  Small business owners and entrepreneurs planning for growth need to become more aware of the opportunities that exist, and will soon come to be, with crowd financing.  If you want to grow, you must have access to capital.  Through crowd financing, entrepreneurs will have access to a nationwide marketplace of investors and funders – which was previously not available.  Small business owners must be prepared and educated to take advantage of this opportunity.  Right now is a great time to get ready.

Visit SBE Council’s crowdfunding resource page by clicking here.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council

 

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