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Crowdfunding Options for Entrepreneurs

Rewards, Debt (P2P and P2B Lending) and Equity Crowdfunding. Fundraising options for entrepreneurs based on cash flow, funding goal, timing, development stage, etc.

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Crowdfunding Options for Entrepreneurs

  1. 1. >$50,000 <$50,000 REWARDS OR DEBT (P2P, P2B) EQUITY DEBT (P2B) or EQUITY $50,000-$500,000 You can raise significantly more funds You will not have monthly cash outflow (as in debt model) You will give up a small % of shares, so will keep the control over the company’s operations and planning The most time consuming out of three types of crowdfunding Significant upfront costs and – annual SEC filing expensesEQUITY Pros & Cons: Lending: REWARDS Costs – depend on the amount to be raised. Portal fees – 7.5%– 10% plus legal and accounting expenses, annual filing costs. Very time consuming and it takes months to get the funds In the case of fixed funding there is a possibility that you will not get any money Huge competition for backers’ attention on popular crowdfunding portals Not all types of businesses/products are a good match for the rewards type You keep your company’s ownership You can raise significantly more than your initial goal You can use the campaign for customer engagement, marketing and PR, pre-sales, beta-testing, crowdsourcing, finding potential partners, distributors and investors You don’t need to file extensive documentation (as in equity crowdfunding) or to have high credit score (as in P2P lending) or a profitable business (as in P2B lending) Costs – 7%-14% plus perk fulfillment and marketing expenses YOUR BEST OPTION Quick access to cash You keep your company’s ownership Costs: 0 (Kiva Zip) up to 15% for P2B and 7% to 35% for P2P Must have a good credit score (P2P) or positive cash flow (P2B) Monthly cash outflow AMOUNT debt (P2B) or equity Yes debt (P2P) or rewards or equity No <1 month equity rewards debt 3-5 months 5-10 months Month: 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | TIME STAGE rewards rewards debt (P2P) debt (P2B) equity (?) equity Startup Growth P2P Lending – for startups in need for immediate cash and means to meet payment obligations P2B Lending – for established businesses with positive cash flow to finance their expansion REWARDS – for businesses operating in B2C market with reasonably inexpensive and innovative but not too complicated products. Must have social appeal; be able to produce the product within several months after the end of a campaign EQUITY – for businesses that can’t (don’t want to) borrow money through P2B marketplace, companies in need to raise higher amounts of money. Must have cash upfront to fund the legal and accounting expenses and can wait for 5 to 10 month to receive the funds. Crowdfunding Fund Your Business What Type of Crowdfunding to Use to Fund Your Business