Crowdfunding opens doors for entrepreneurs and communities to fund project in new ways
Crowdfunding can be used to raise much needed capital for small businesses and public projects. This article provides some basics for understanding how this new method can be used by small businesses and communities looking to fund public projects.
Crowdfunding is the new buzz word and there is good reason for it. Since crowdfunding was introduced as a means to raise capital to start or grow a business, or fund a project, over $5.1 Billion has been raised since 2013, which is the most recent available data.
Crowdfunding is the process of pooling money from many different sources to make an idea happen. Essentially you make a pitch to the public, using one of the many websites that support this method of raising funds, and ask the public to help fund your idea or business.
Crowdfunding was introduced in 2008 and gained momentum in 2012 after President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. This new law opened the door for companies and communities of all sizes to access a cost-effective way to raise capital.
The JOBS Act permitted the use of crowdfunding to raise capital in essentially two different ways. The first allows entrepreneurs or communities to ask the public to fund their ideas or expand their business by making a one-time donation. This allowed for the Michigan Invests Locally Exemption (MILE) Act that gives Michigan entrepreneurs a new way to raise capital.
This legislation allows small businesses to raise capital by reaching out to residents and asking them to legally invest in their companies. This opens the door to everyday citizens to be able to invest their money in the local economy and to have control over who will benefit from their investment.
This segment of the population wants to invest their money with businesses that align with their moral compass. Social justice is as important to them as is the investment itself. This new law benefits the business owner who has new avenues to seek investors, while also benefiting the investor that is interested in supporting local businesses with mission statements that extend beyond the profit only model.
As this can be a complicated process, there are companies like Sidewalk Ventures that offer guidance thought this tricky and newly charted route to raising money. Rather than turning to a bank or a very small number of funders making large investments, they work with the business owner to raise money from community-based investors—local supporters, customers, admirers and advocates who may not have untold riches, but do have the ability to make relatively modest investments in the business for real financial return.
Another way to use crowdfunding is to raise money for community based public projects. In June of 2014, the Michigan Economic Development Corporation developed a new grant program that requires crowdfunding as a component of the grant process. This new program matches dollar for dollar funds raised using crowdfunding for projects like parks, infrastructure improvements, public art, and other similar projects with a match of up to $100,000. Aptly called crowdgranting, this is an opportunity for local projects in and near downtowns to be funded.
Since the first year of the MEDC’s “Public Spaces, Community Places” grant program over 42 projects have been completed raising $1.52 million dollars. These are projects may not have otherwise been funded without this option.
One example is the Urban Institute for Contemporary Arts in downtown Grand Rapids that raised $10,315 that was matched with $10,000 from the state, for its Exit Space project, an ongoing public art program with installations throughout the city.
“The thing that I liked about the [Public Spaces] program is that it was very specific to placemaking,” said Kristen Taylor, UICA’s development director. “It hit the UICA mission, a large part of which is to [foster] a creative community. It was a way to involve the entire community on a project that would directly benefit the entire community.”
These are just two examples of the many uses for crowdfunding. Currently, there are over a thousand platforms that offer crowdfunding services, so it is imperative that you plan well in order to be successful with your project.
Do your research by talking to others that have used this process to learn what to do and what not to do. Some sites offer step by step advice and hand holding, while others provide the tools, but with a less personal touch. Figure out what you need, plan accordingly, and do your research.
One way to accelerate your path to learning crowdfunding is to attend the Connecting Entrepreneurial Communities conference in Sturgis, MI on Oct. 21 and 22. The owner of Sidewalk Ventures, Jeff Aronoff, will be sharing examples of successful campaigns along with me, Michigan State University Extension Community Development educator.
The cost to attend is $85 and includes two keynote speakers, 20 different breakout sessions, two lunches and a networking dinner event. This year’s keynote speakers are Gene Harrison, President of VCI, Inc. and Paul Smith, President of Great Lakes Chocolate & Coffee Co.
For complete information and a full listing of breakout sessions for the Connecting Entrepreneurial Communities Conference in Sturgis, please click here.