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Crowdfunding 101 : Growing Profitable Businesses

BY Ann Whittaker In Profitability On Nov 25, 2014 With 0 Comments

99% of businesses do NOT get capital funding from venture capitalists or angel investors. That's 99%. So how and where do 99% of businesses get funding to start and grow their profitable businesses? Many businesses, especially in the startup phase, borrow from friends and family or use credit cards. If you're lucky, there's small business loans from banks, but the majority of these "small businesses" have a revenue of at least $3 million. It's tough as a truly small business to find investors...

Here's where crowdfunding comes in--and it's not just Kickstarter. There are crowdfunding platforms that fit just about any businesses's needs and preferences. We'll walk you through the basics, the who, what, where, why, when and how of crowdfunding.  

01. WHAT is Crowdfunding?

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There's many reasons why young companies don't survive their first few years. One of many reasons is the difficulty of securing funding--whether it's through a bank, a VC, or an angel. Crowdfunding has really grown in popularity over that past few years, and even investors are going to online groups to look for top-notch entrepreneurs to support. 

Entrepreneur.com's Joanna Schwartz points out that

Private equity and venture capital firms rarely accept unsolicited applications.

You've got to have a good network to even get your foot in the door. Crowdfunding helps many entrepreneurs find funding that they couldn't get otherwise.

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02. WHO is Involved in Crowdfunding?

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Schwartz also reports that

angel groups are moving the process online by partnering with Internet platforms where investors can review curated opportunities without face-to-face meetings or geographic restrictions.

Turns out that the convenience of the Internet can work for investors as well. They're able to use Internet platforms to quickly weed through entrepreneurs, and find the kinds of businesses they want to invest in. 

03. WHEN Do Businesses Crowdfund?

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Did you think crowdfunding was only for startups? It's a common source of funding for many startups, but established businesses are beginning to use crowdfunding as a source of growth as well. You'd be surprised at what kind of crowdfunding platforms are out there, and the investors who are looking at them and joining.

04. WHERE to Crowdfund:

For businesses:

Crowdfunder: Make a free profile and meet qualified investors. Build a fundraising campaign for a monthly fee.
SoMoLend Borrow money from friends, family and customers. You get money, your lenders get a return on their investment in the form of an interest payment.
AngelList: Connect with investors. For tech companies. Look for team members.
MicroVentures: Gives both accredited and non-accredited investors access to invest in startups. 
CircleUp: Connects investors with consumer brands.

For creative projects:

Kickstarter
Indiegogo

05. HOW to Crowdfund: 12 Tips From Experts

Seth Godin advises that you first ask this question when contemplating a crowdfunding approach to raising capital:

How will the new financial relationship I offer to my biggest supporters enhance their lives?

Sure. A successful crowdfunding campaign will help you get your business growing into the next phase, but how will it really help the people investing in your campaign? Remember, you got into this business to help people (hopefully).

Here's some the most useful tips we came across to make sure your crowdfunding campaign succeeds:

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Looking for more ways to build a profitable business?

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Content Manager at Ignite Spot who climbs mountains on the weekends so she can drink her tea and enjoy the view.

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