In the old days, people raised money for their start up ventures in traditional ways. They put in their own money and sweat equity. They borrowed against home equity, insurance policies, and credit cards. If they were lucky, they also got money from friends, family, even “angel” investors. They collected gifts, loans, forgivable loans (“pay me back if you can”), or even equity in an informal sense. Sometimes banks helped out, but usually only with personal property or personal assets as collateral. A very few received support from venture capitalists.
Flash forward to today, and while all of those sources are still commonly used, new possibilities have opened up. New funding strategies have emerged via the Internet such as crowdsourcing or crowd funding.
The basic idea is that instead of just asking your friends and family to seed your business, you ask The World. No longer are you limited to whom you know, or defined by the whims of conventional financing sources. Moreover, by getting the word out online, you can start that all-important word-of-mouth marketing campaign before you open your doors.
While hardly widespread, this approach is emerging as an option for some entrepreneurs.
Two noteworthy examples are Kiva, which allows people to make loans to small businesses in the US and abroad, and Indiegogo, which has raised millions of dollars in 150 countries for worthy causes. Awaken Café is a start up business launched with this kind of help.
But do your research before going too far with this. While asking for donations is generally fine, soliciting investments from the general public without proper registration with the appropriate regulatory authorities can get you into deep, deep legal trouble. I’m not a lawyer, but I’ve been told that virtually any solicitation that includes offering a share of the profits is considered a regulated security. Beware!
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For more resources, see our Library topic Business Planning.