Tag Archives: indiegogo

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Crowdfunding law gives Arizona startups a boost

A bill was introduced at the Arizona State Legislature during the 2015 session and signed by Gov. Doug Ducey that allows entrepreneurs to raise equity for their company from the general public.

The passage of HB2591 allows people to invest and potentially hold stock in companies that raise money through crowdfunding websites such as Kickstarter and Indiegogo.

“It’s basically the idea that companies shouldn’t be limited to having just rich people be their investors, and individuals shouldn’t be restricted from investing small amounts of money in companies that they know and love,” said Jonathan Frutkin, a Scottsdale attorney and author of “Equity Crowdfunding: Transforming Customers into Loyal Owners.”

Crowdfunding has become a popular method used by up-start businesses to raise money for product launches or other business ventures. It works by allowing anyone to funnel money into thousands of projects you can find online.

However, concerns over fraud loom over the different crowdfunding websites. Although many remain hesitant to give money to companies electronically, concerns over fraud and embezzlement may be unfounded, Frutkin said.

“When an organization may ask ‘hey, you want to raise money online?’ Give me a copy of your articles of organization, your lease, intellectual properties.’ When you ask those question the fraudsters say, ‘there’s a lot easier ways to steal money that this,’ ” Frutkin explained.

HB2591 was originally introduced to the legislature by Rep. Jeff Weninger, R-Phoenix. The Arizona Small Businesses Association helped write it.

Besides Arizona, 17 other states have passed crowdfunding bills. Frutkin said he expects at least 25 states total to have passed similar bills to HB2591 by the end of 2015.

Only Arizona residents would be allowed to invest in Arizona companies, according to the bill. Investors can donate up to $10,000, while companies can raise up to $2.5 million through crowdfunding campaigns.

Arik Tasa-Bennett, a finance major at Arizona State University, has run his own phone-resale business for several years. Tasa-Bennett said he hopes to become a successful entrepreneur, and sees the potential for future businesses to grow through crowdfunding.

“I think this system could be more efficient than traditional ways of financing a product,” Tasa-Bennett said. “With this idea, where the public can see the product and get an opportunity to invest in it, the advantage is that it brings the product closer to the end-user. That’s the whole goal of marketing. You want to know your consumer as well as possible.”

Said Frutkin: “The ability for the small investors, regular people, to invest $100, $200 in a company they love, a night club or restaurant they go to, that really doesn’t exist now. That’s what the Arizona crowdfunding bill will allow. It will allow Arizona people to invest in Arizona businesses.”

Creative Financing: Options for Funding Business

Creative Financing: Innovative Options For Funding Business

Whether you are just formulating a business plan for launch or you already have a company that is in need of a cash infusion, bank loans are often unattainable if you don’t meet the proper requirements. Fortunately, there are a variety of creative ways to fund the growth.

If your banker turns you down, instead of becoming discouraged, consider one of these 10 alternative financing options:

Barter

Before there was currency, there was only bartering. The U.S. Department of Commerce estimates that 25 percent of the world’s trade is still done this way. Bartering can save money, move unused inventory and find new customers. Think about how you can trade or exchange your products or services. Bartering directly with another business can be done through a barter exchange like IMS Barter.

Business incubators

If your business is new and technology-based, then it may be a good candidate for seed money or a mentorship program that will help connect to capital. Organizations like Excelerate Labs and TechStars have a great track record of success. While there is a lot of competition to become part of an incubator, it is good to focus on a handful of organizations which match up best with your goals.

Business plan competitions or other contests

When all else fails, try to win the money! There are a number of regional and national competitions giving away substantial amounts of money. These include the MIT $100K Entrepreneurship Challenge, the GE Ecomagination Challenge and the Amazon Web Services Start-Up Challenge. This is one of the toughest ways to raise money, but if you have a very competent team, a great idea and a stand-out presentation, go for it.

Crowdfunding

A sister method to peer-to-peer, you can now get people to invest in your cause in exchange for something other than money. This is a different source of funding because the money is not repaid. The incentives for donors range from receiving your first products to having a product named after them. Popular sites that facilitate crowdfunding include IndieGoGo.com and Kickstarter.com. Crowdfunding is very emotional and involves gathering cash from many people. The success in raising cash is based on the appeal of your idea, but if you don’t raise your goal amount, in some instances, you don’t receive any money from the people that pledged to invest.

Government grants

There is money to be found in government grants, but these programs require research at local, state and federal levels. Agencies such as USDA, the Department of Commerce, and the Treasury Department offer some attractive programs, but they are very specific and technical in nature, and each comes with reporting strings attached.

Factoring

Receiving an immediate cash advance against invoices or accounts receivable from asset-based lenders called factors can be an optimal solution for securing cash needed to grow. The factor advances most of the invoice amount, usually 70-90 percent, after reviewing the credit-worthiness of the billed customer. When the bill is paid, the factor remits the balance, minus a transaction or factoring fee. Factoring can be a good source of capital for high growth or start-up companies, but not a method of financing for a company that is shrinking or losing money.

Microfinancing

While this is relatively new in the United States, small loans up to $10,000 are gaining popularity. The loans are based on your experience, passion, market opportunity and sales. Organizations offering microfinancing include Accion USA, Grameen Bank and Kiva. If you have an appealing idea and only need a small about of money, it can be a good alternative.

Peer-to-peer lending (P2P)

It is now possible to go online and get funding from people you do not know on sites such as Prosper.com and LendingClub.com. P2P loan amounts will depend on credit score, the economy, the length of the loan and the business’ story. The downside here is P2P loans are not easy to secure, and the interest rates can be very high.

Retirement accounts

Before borrowing money from an IRA or 401(k), first find out if you can get a 60-day interest-free loan from your retirement account. The benefit here is there are no fees, if the loan is paid back in the 60-day time frame. Remember, this is your retirement money, so using it is risky and potentially devastating to your livelihood — if the business fails.

Supplier or wholesaler financing

Supplier or wholesaler financing secures money needed through a business’ supply chain. This method works best with a smaller, local supplier that really wants business and is willing to work with you. Factors can be a big help in this area, as they can offer vendor assurance letters which can help garner additional credit from a vendor.

The key is to think beyond the traditional and to research various avenues to determine what may work for you. Although these options may not all be long-term financing solutions, they can definitely help bring in the cash you need for growth, until you qualify for a traditional bank loan or can appeal to investors.

For more information about financing, visit fswfunding.com.