New Funding Options for Entrepreneurs


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How to use different types of crowdfunding based on the enterprise cash flow, funding goals, timing and development stage.

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New Funding Options for Entrepreneurs

  1. 1. What Type of Crowdfunding Fund Your Business to Use to AMOUNT EQUITY >$50,000 DEBT (P2B) or EQUITY $50,000-$500,000 <$50,000 REWARDS OR DEBT (P2P, P2B) TIME debt Month: 1 | equity rewards 2 | 3 | 4 <1 month | | 5 6 | 7 | 8 | 9 3-5 months STAGE Startup | 10 | 11 | 12 | 5-10 months Growth debt (P2B) rewards debt (P2P) equity equity (?) rewards Yes No debt (P2B) or equity debt (P2P) or rewards or equity Quick access to cash You keep your company’s ownership Pros & Cons: Lending: Must have a good credit score (P2P) or positive cash flow (P2B) Monthly cash outflow Costs: 0 (Kiva Zip) up to 15% for P2B and 7% to 35% for P2P You can raise significantly more funds You will not have monthly cash outflow (as in debt model) EQUITY 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 Costs – depend on the amount to be raised. Portal fees – 7.5%– You keep your company’s ownership Significant upfront costs and – annual SEC filing expenses 10% plus legal and accounting expenses, annual filing costs. Very time consuming and it takes months to get the funds You can raise significantly more than your initial goal You can use the In the case of fixed campaign for customer funding there is a Huge competition engagement, marketing possibility that you for backers’ and PR, pre-sales, will not get any attention on beta-testing, money popular crowdsourcing, finding crowdfunding potential partners, portals distributors and Not all types of investors businesses/products You don’t need to file are a good match for extensive documentation the rewards type (as in equity crowdfunding) Costs – plus perk or to have high credit score fulfillment and marketing expenses (as in P2P lending) or a profitable business (as in P2B lending) REWARDS 7%-14% YOUR BEST OPTION 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.