Business Crowdfunding

Business Crowdfunding Guide

Business crowdfunding actually refers to three different types of funding and investing: Equity crowdfunding, crowdfunding start-ups, and crowdfunding for business ongoing operations and expansion.  In this section we are only referring to the latter, given that we already have sections dedicated to the two other types.  We also distinguish crowdfunding for business from peer-to-peer lending because this category goes beyond just lending a certain amount and expecting payback with a specific interest rate – there is more depth and a closer relationship, and usually some added benefits to this route.  Within the category there are actually three sub-types that we will go over, including he following:

Crowdfunding for Business Expansion

When a business wants to expand into a new geography, roll out a new product or service, or appeal to a new market, capital is usually needed.  In many cases the business can get the crowd to fund this expansion at a better rate 0r on better terms than conventional funding would allow.  In addition, upgrades in equipment, processes, or the workforce itself can be achieved through the crowd, and this can help improve the bottom line, decrease the cost of providing the service or making the product, and/or make a higher quality product or service,

Business crowdfunding for Lean Times

Of course one of the main reasons a company might turn to the crowd is when they need capital for ongoing operations.  This may be especially true for a company that has unpredictable revenue patterns, or has not quite made it to profitability.

Crowdfunding for Business M&A

Crowdfunding for business can often fund a merger or acquisition that will make the company stronger and more competitive.  This type of funding may be preferred by those investors who see that financially the new and larger company will be more solid, even if they do need some cash now to complete the transaction.

While these might be the main types of business crowdfunding there is a lot of financing that is somewhere in between these types, such as funding that covers a business in lean times but also allows them to expand a little in order to capture more market share.  Or funding may both improve operations and allow for expansion at the same time.  Therefore while these are the major uses for crowdfunding for business, there are certainly some gray areas and combinations that allow for flexibility and the greatest impact.

It should also be noted that sometimes business crowdfunding is often combined with other types, such as when a piece of equity is offered even when the main term is a payback with interest – and of course in this case the interest rate may be discounted because of the equity stake.  And there are types that may be somewhat indistinguishable from each other, such as when a start-up is expanding fast and new capital is given to fund that expansion – is that start-up or just regular business crowdfunding?

Business Crowdfunding Pitches

Of course the first and main decision you need to make when looking into business crowdfunding is whether it is in fact the right way to go as opposed to more traditional funding sources.  You should look into both, and even perhaps apply for the more traditional route.  You may find that bank financing is quicker and requires less legwork, and even if it is a little more expensive you may have to weigh the cost benefit of that added expense.  If you are turned down by the bank or find that the restrictions in terms or the amount you can borrow would make it a poor choice then things are easy, but sometimes it may be a little more difficult to choose and you’ll need to take your time and weigh things out a little.

Once you have made the decision to either definitely pursue crowdfunding for business, or at least to apply and see how things go, you’ll need to decide on a route to take.  Choosing the best crowdfunding platform is your first need, and there are generally three steps involved in this task:

Find a good business crowdfunding website

Decide if you want to go the more popular route and find the best crowdfunding website match.  This will point you toward any one of the many excellent sites that give you the tools and resources you need to set up you pitch to the crowd.   You’ll want to narrow your choices by looking at which sites seem to have businesses like yours making their pitches, and which ones are leading to success – in other words they have the investors that might fund your business.  After that it may just come down to a matter of preference as far as the tools and resources each site lends.

White Label Business Crowdfunding

If you are not sure if that more popular way is the way to go, think about white label business crowdfunding.  This is a more independent approach where you create your own website and market it either through direct marketing, search engine optimization, or by hiring a service to get the word out.  Of course this approach allows you the most control over your pitch and the look of your site, and it also allows you the ability to not be directly up against other businesses in listings.  But of course white label business crowdfunding has the challenge of getting investors to find your pitch.

Crowdfunding for Business Metrics

Finally, you need to decide on the metrics you will use to judge the success of your crowdfunding for business pitch.  You will need to be patient, but you also need to know when to change things up a little – when should you try a new crowdfunding website or even switch between an aggregate website and a white label approach.  The most important part of this decision-making is to balance leaving your pitch out there for long enough, and changing things up.

Business Crowdfunding Investing

So what if you are on the other side of the business crowdfunding equation and you are thinking of making an investment in a business or a product or service?  What process should you go through to do all the homework you need to do.  Once again we can sum business crowdfunding for investors up in three steps:

What type of business crowdfunding

You may want to decide which type or types of business crowdfunding you want to invest in.  Do you ant to look for a promising new product or service that is about to launch, or do you want to help a promising company improve its operations and management?  Are you excited by the idea of a certain business moving into a promising geography, or do you like the idea of them taking over a smaller business in order to get stronger?  Each of these choices has challenges and opportunities, and in order to wade through the multitude of pitches you will find you may want to narrow down what you are looking for.

Which crowdfunding for business website

Now you want to find a crowdfunding for business website that you like.  Of course you may want to just go with a white labeel crowdfunding pitch where a company creates its own website, but most investors are drawn to any number of popular crowdfunding for business sites.  Look at the various choices and see which platform you like – which one not only seems to give th information you want about each prospective choice, but also seems to attract the companies you might be interested in investing in.

What is important to you?

Finally decide on some metrics to narrow things down.  There may be a lot of pitches for crowdfunding for business that you like a lot, and you will want to be scientific about which ones you might follow.  The actual metrics you choose will depend a lot on the type of investment you are going to make.

We cover equity crowdfunding websites seperately

Crowdfunding for Business Summary

Companies often need financing for ongoing operations and the crowd may provide better and more flexible terms and a better rate.  It also allows the company to potentially form relationships with funders for future needs.  And with crowdfunding for business a company can attain some level of PR and notice since many people may learn of their pitch.  That said, any business needs to look into all types of funding opportunities however, as business crowdfunding may not be the answer.  Sometimes the stability of a bank loan and the fact that you may be able to borrow higher amounts without having to update things on a regular basis may be attractive.  The information on this page can certainly help you decide whether turning to the crowd should be one possibility, but you should still make sure you know the pros and cons of all possibilities.

For investors crowdfunding for business ongoing needs as opposed to for start-ups or other types of crowdfunding can be an interesting but less risky way to go since the business already has a track record of success.  Joining with other funders to become a true part of an exciting improvement in operations or the launch of a new product of service can provide added interest.  But the bottom line for both companies and investors is that you need to be sure that Business Crowdfunding is a fit.