Updated: Jan 14, 2019
Published by DallasInnovates.com
There are "real" questions for a small business to ask about capital resources, say Cristin Thomas and Cynthia Nevels. Here are a few to consider, including "Is crowdfunding an option for short-term capital needs?" Read on for resources and tips for success.
One of the biggest challenges for small businesses to plan out their growth is identifying what resources it needs and when.
In order for a small business to grow, it has to have resources. One important resource that is needed to support any small business growth strategy is capital.
In 2016, according to the State of Small Business Across America report from research conducted by Babson College, access to capital was listed as the number two challenge for 1,800 small business owners surveyed across the United States.
However, for most owners, it’s not a question of access to said resources because the resources such as bank loans, lines of credit, and credit cards exist and are available. In fact, in a recent study conducted by the Dallas 10,000 Small Businesses program staff, over 95% of local small business owner respondents say that access to capital is not really a concern for them in 2017.
Is Crowdfunding an Option for Short-term Capital Needs?
A few successful Dallas Goldman Sachs 10,0000 Small Businesses alumni have perfected the processes of identifying their capital need early through the use of internal data, being open to using new capital sources such as crowdfunding to fill short-term financial needs, and investing the capital into the operation to yield positive results.
Tom Browning, co-founder of the Dallas-based award-winning global e-commerce company Foot Cardigan, successfully raised $15,000 via Kickstarter in 2014 and shared, “We needed to raise capital to buy inventory for a new product line and used [crowdfunding] as a promotional campaign.”
Crowdfunding industry leaders believe more small businesses would use crowdfunding as a primary or secondary source for raising capital if they better understood how to access the cash on the information highway or use online crowdfunding.
“Over the past four years, there are industries that have quickly adapted to using crowdfunding such as real estate, technology, and restaurants — yet others have taken longer to consider crowdfunding as a viable option,” said Cynthia Nevels, founder of ThinkCrowdFund.com.
According to Dallas 10,000 Small Businesses‘ recent survey results, 82% of small business owner respondents — to which over 31% are service-based companies — are aware of crowdfunding but an astonishing 88% do not consider it as a first option for raising capital.
That was not the case, however, for Fort Worth-based Modern Lantern. In 2013, Carrie Fitzwater, CEO of Modern Lantern, set a goal to raise $12,000 via crowdfunding. “We chose to run a Kickstarter campaign to help us raise capital for an expensive mold upgrade to our existing cordless lamp line,” shares Fitzwater. Their cordless lighting solution campaign raised $15,431 with 87 backers via a reward crowdfunding campaign on Kickstarter.
Fitzwater shared the secrets to their crowdfunding success — not to set their goal too high and to find a source that could help them cover the initial upfront costs for the injection mold without adding debt to the company’s books.
Is Access to Capital a Myth?
Access is a means of approaching or entering a place. Access to traditional sources of capital is no longer blocked by complicated legal barriers. The federal law prohibits such, but the introduction of new Fintech regulations, like Texas’ HB 1629 which allows private small businesses in Texas to raise up to $1 million dollars in a 12-month period, has made access to millions of potential investors much more appealing and a friendlier place for more small business owners to exchange equity for capital on the information highway.
Texas-based NextSeed.co, an online equity-based crowdfunding platform, reports $4,106,100 invested in small businesses online since the new regulations have passed — further demonstrating that access is a myth and alternative funding options are filling the gaps traditional sources are designed to fill.
So how can small business owners prepare their companies to access the billions of dollars available to them on the free market via crowdfunding? Here are 10 steps to help you prepare yourself to raise capital on the information highway.
10 Steps to Prepare Yourself to Raise Capital via Crowdfunding
Create a strategic growth plan
Create a sales forecast that includes capital acquisition milestones (identify when will you need an infusion)
Use technology to track and measure business data to determine which source of capital will make sense and when
Understand your core business, why you need the funding, and the impact it will have on your bottom line
Create and understand your financial reports and history
Identify which source is best for your short-term and long-term capital needs
Build your credit
Build your brand credibility
Build your social capital, organically or via paid solutions
Find a qualified source to help you raise capital with expertise in lending, microlending, equity investing, and crowdfunding