An Option for Funding Your Small Business: Crowdfunding
For MSPs, small business owners and entrepreneurs, December is usually gut-check time. No doubt, many MSPmentor readers are deciding right now whether they want to (A) continue building their businesses in 2012 or (B) perhaps pursue an exit strategy. For those who are still in business development mode, quite a few readers are seeking ways to raise money for new business initiatives. For those folks there's an emerging option called Crowdfunding. Here's how it works.
Of course, entrepreneurs can go the traditional route — opening a line of credit or attempting to secure a small business loan from a bank or credit union. Or perhaps you'll simply line up some "friends and family" funding or an angel investor. Each option has its pros and cons.
- Bank Loans: Interest rates are extremely low but getting a loan remains difficult during these tough economic times.
- Friends and Family: It's great to have a rich uncle with deep pockets, but do you really want to mix personal relationships with your business operations and strategy?
- Angel Investors and Venture Capital: I respect MSPs, but generally speaking I think very few of them have long-term business plans and growth prospects that would attract this type of money.
Meanwhile, you can also explore crowdfunding websites — which allow you to get funding from multiple people. Potential options include Peerbackers.com, IndieGogo.com, Kickstarter.com and RocketHub.com, notes The Wall Street Journal.
Now here's the interesting part: Crowdfunding websites don't offer loans. In fact, the money doesn't have to be paid back. Instead, the typical engagements can involve barters. For instance, perhaps you'll ask 100 people to each give you $100 — giving you $10,000 to launch and market a new cloud service. In return, you promise to offer $120 worth of free cloud services to each person who funds your project — giving the "investors" a theoretical 20 percent return on their investment.
Still, there are some challenges to the crowdfunding trend, The Wall Street Journal noted. For starters, you need to give site participants compelling reasons to give you money. Also, the crowdfunding site will typically charge you a percentage of the contributions.
I've always preferred to risk my own money on my own ventures. But perhaps I need to change my ways and open my mind to alternative funding options. Crowdfunding has my attention… and I'll be watching to see if it captures the imagination of MSPs that are seeking funds for new projects and emerging business initiatives.