Turning to Crowdsourcing As a Viable Source of Start-Up Money
The concept is pretty simple: Set a funding goal and a timeframe, and search for investors to contribute online via Kickstarter or other available options.
Starting a business and need money the bank won’t give and your friends don’t have? Consider crowdfunding.
If you’re going to get funding from a lot of strangers, then you’ll technically be crowdfunding, although the definition usually refers to getting that funding online. The practice—often through the website Kickstarter—was once little more than a system for soliciting donations to charities, disaster relief, and academic research. Now, entrepreneurs have begun to use it, and much to their advantage, the rules have recently changed to allow loans and investment.
"Crowdfunding allows people to pool their money to make larger investments,” says Zak Cassady-Dorion, co-owner of Pure Mountain Olive Oil in Tarrytown, who helped write the Jumpstart Our Business Startups (JOBS) Act, which was signed by President Obama this past April and legalized crowdfunded loans and investment in addition to donations. “How it works is, if someone wants to start a documentary or make a CD or start a business, they create an online pitch and go onto one of the online crowdfunding sites, and people can invest money in small amounts.” On Kickstarter, after profiling your idea, you create a minimum funding goal and set a 60-days-or-less time limit.
One local entrepreneur who has already received previously unavailable crowdfunding is Margie Nugent, owner of Making Faces Parties in Mount Kisco, which brings arts-themed children’s parties to clients’ homes. She wanted to buy a new $600 stencil machine so she could produce original body art—face painting, glitter tattoos, henna tattoos—for children’s parties and companies. So she put up a proposal on the website of Kiva Zip, the new US branch of a not-for-profit that distributes microloans for business development.
“The application was very simple,” Nugent says. “In the past, I’ve gone through bank loans. They’re very long and very intimidating. And you don’t want to blow up your credit cards at twenty-one percent interest.” In the past, people like Nugent, who says she had only $20 in 1997 when she moved to Mount Kisco, may not have been able to secure bank financing easily—despite their significant growth in year-over-year profits—because of dark spots on their credit history.
Joy Rosenzweig, associate director of the Women’s Enterprise Development Center Inc. (WEDC) in White Plains, a not-for-profit that provides entrepreneurial training and support services to women in the area, says, “About ninety percent of people who start businesses get funding from friends, family, their own savings, but sometimes they need more than they can get. For the economy, [crowdfunding] is important. Most jobs are created by small business.” (WEDC, the first Kiva Zip trustee in the state, recommended Nugent for her loan because of her work with the organization.)
Nugent agrees. Once she repays her loan to investors, she notes, they can choose to fund another venture. “That money becomes available for someone else who might need a loan,” she says. “I’m a pay-it-forward kind of person. If I’m doing a good job, I’m helping other people, too.”