I recently had the chance to send some questions along to Stephen Temes, co-founder of EarlyShares.com. I found his top reasons why entrepreneurs may want to consider crowdfunding when it comes to raising capital. His four key reasons are as follows:
Alternative Access to Capital
“Given the economic situation the United States faces, small business owners looking to raise the necessary capital to expand their businesses continuously find roadblocks. Banks have become less flexible, thus making it very hard to take out loans. Family, the next most reliable source of capital, has reduced it budget and Venture Capital application success rate is below 1%. Crowdfunding, not only gives you access to thousands of investors at a time, but also allows the entrepreneur to keep significant control over its business. This will be a benefit long after the traditional credit markets improve.”
Product Validation
“As a business owner you can ask 100 people on the street whether they would buy your product or use your service, chances are many of them will be willing to respond “Yes, sure!” But how many of them would actually give you their money?”
Online Exposure and Pre-Launch Marketing
“A Crowdfunding platform doesn’t just connect you with investors – it also provides your company with online access to an active base of potential customers, mentors, and users looking for new products. Crowd investors not only provide your business with revenue post-raise – they generate powerful word-of-mouth marketing before it is even operational.”
Community Following
“People in your community know about your business – some are clients; others drive by every day. Launching a Crowdfunding campaign and allowing them to become investors creates engaged, loyal customers and vocal advocates of your company right in your neighborhood. Ultimately, if done right a Crowdfunding campaign can help you grow your clientele and brand.”
More from the interview…
Crowdfund Insider: EarlyShares is aiming to help companies crowdfund for equity when the JOBS Act takes effect. What types of companies should consider equity raises?
Temes: Whether you’re an established business or an entrepreneur promoting a new idea, EarlyShares can help you put your best foot forward.
There are two types of businesses you’ll find via Crowdfuning on EarlyShares:
Small Businesses: These are established companies with an existing track record. You’ll be able to review their past performance, read how they’ll use the funds, and make an informed decision about whether their businesses is a good investment for you. We have already seen many uploads from this group across all industries and locations.
Early-Stage Companies: Crowdfunding will give rise to a host of new ideas, allowing visionaries and inventors to try new business ideas. Obviously, not all of these companies will succeed, and investors should carefully consider the risks. On EarlyShares, you’ll gain full access to their ideas, and decide for yourself if the idea and potential return warrants the risk. Entrepreneurs will benefit from support for their idea whether product or service based.
See more news and info about EarlyShares in our Crowdfunding Company Directory
CFI: How can companies leverage the feedback they receive from the crowd during their raise? What trends have you seen?
Temes: The ability to directly communicate with your potential target market and customers is incomparable and extremely advantageous to small businesses. To access a pool of avid potential customers, companies usually spend thousands of dollars to approach. Crowdfunding now allows you to receive comments, suggestions and a critique of your product or service, perhaps even before you launch it, giving the business the opportunity to enhance or modify for those suggestions.
We have seen it most effectively in Crowdsourcing, when innovators come together to pull in suggestions from the crowd.
CFI: What should companies do to set themselves up for success prior to going live with an offering?
First, we encourage all of our members to take advantage of EarlyShares University, our new educational section. It is very important that both investors and entrepreneurs/business owners educate themselves before deciding to launch a Crowdfunding campaign.
Second, EarlyShares highly recommends that business owners prepare in advance to launch a campaign; this is the key to the success of many campaigns. Preparing in advance involves:
- Creating a professional video to pitch your business. This is key since most investors browse through many different businesses before deciding to commit to one. A great video will allure more investors faster.
- Promoting your campaign through your business’ own social media platforms. Word-of-mouth is a key component of a successful Crowdfunding Campaign, given that you need a multitude of investors to complete your raise.
- Having the entire financial documentation about your business ready to share with the world. In order to post your campaign on EarlyShares, businesses need to pass a vetting process that involves submitting financial documentation and other information.