Crowdfunding seemingly continues to be a more flexible fund raising option than VCs – and it’s NOT only reserved for the rich
Why is it that big businesses get all the credit and tax breaks, while small businesses are doing the most? In the US, small businesses account for 99.7% of all employers and from 2000 to 2017, they were responsible for more than 65% of new job creation. The best part? When one dollar is spent at a small business, 67% of it stays in the local community. The economy is bolstered tremendously by this cycle. So it’s no wonder why more entrepreneurs are turning to crowdfunding and local investors.
More geared toward entrepreneurs
Entering the lion’s den of venture capital funding usually requires giving up a chunk of ownership equity, board seats and most certainly a portion of control. This isn’t a deal all founders are willing to cut, which makes crowdfunding a much more appealing route to funding. With crowdfunding, entrepreneurs aren’t beholden to the type of strict investor terms typically imposed by VC firms. By being able to source money from a greater pool of people, effectively reducing risk significantly for any single investor and minimizing concentrated influence, entrepreneurs have far fewer constraints than if funded by VCs.
Simplicity is best
An entrepreneur preps for months, sometimes years, to pitch an angel investor or venture capital firm. They take courses, refine their slide decks and contort their vision to fit into a narrow opening that only admits a select few in the VC world. On the other hand, crowdfunding campaigns that tend to witness the most success are often the simplest and clearest business models that don’t aspire to ‘unicorn status,’ like restaurants and breweries. Plus, they tend to have a community of local people who are excited to support their favorite spot and own a piece of equity in it. How often will a VC be a patron of your business or services?
Focus extends beyond finances
Crowdfunding is about more than just money. It’s about trust, social contribution and building a sustainable ecosystem for growing wealth and supporting the entrepreneurial spirit – for better or worse. People tend to do business with people they know from their communities and crowdfunding greases these wheels. For many entrepreneurs, crowdfunding is better suited because their primary aim is to make a strong social impact, not just get rich. These startups attract investors, in much larger numbers to boot, who are from similar places, share similar values and are eager to support their mutual goals. VCs don’t usually have this flexibility most often because the ability to draw upon compassion can never (*must never*) outweigh the need for profit and shareholder ROI.
Lastly, VC funding is heavily concentrated in the hub cities clustered along both coasts. Failure to live in those areas means that securing venture capital funds tends to be highly unlikely. Crowdfunding is typically a global opportunity; it doesn’t matter where you live, securing capital from ‘the crowd’ is omnipresent, and with much greater odds for most.