Thursday, July 23, 2020

How to Use Crowdfunding in 2020

With the attention placed on financing small (especially Black) businesses during the current crisis, and with the problems identified in government-run business financing programs like the PPP, (see * below) we are presenting updated information on crowdfunding. We draw on what we have learned since we issued, in 2012, our book on the subject. (This was, as far as we know, the first one published.)

Crowdfunding works by allowing an entrepreneur with an idea for a company or product to post the details of the idea or product on a web site such as Kickstarter or Indiegogo. The crowdfunding provisions of the JOBS Act allow start-up and other companies to sell up to $1 million in equity, or ownership shares, in their business.

Our company has been facilitating this type of business financing since July 1998, and. most recently, in June of 2020. We still believe this is a viable option for minority firms, as we stated in 2012.
How to be successful at crowdfunding

Crowdfunding is about the crowd. To be successful at it, you need to bring or build one. Here's how you do that.
  1. Use multiple channels in a disciplined way to grow your network. Facebook, YouTube, Twitter, Pinterest, Instagram, MailChimp are all tools you must use. This effort should start 3 months BEFORE you launch your crowdfunding campaign, even if you already have accounts on these platforms.
  2. Generate relevant information on each and every platform that you can use to showcase your project when you launch. (Remember, you have not launched yet.) You are creating a database of contacts by posting relevant information and commentary. Use a tool like Zoho CRM to capture first name, last name, email and phone. 
  3. Just collecting the information is not enough. You must engage with the people you have identified by providing something of value to them in the area of your shared passion. Hopefully, these individuals will become fans, ready, willing and able to spread the word about your project when you launch. If you want to raise a million dollars, your list should include at least 50,000 people. Your fan base should be at least 5,000. It took Dawn that long to develop this list. 
  4. Once you have this list, you should be able to launch your campaign. The campaign should run for at least 3 months, but if you have really done the work outlined, you may be able to see success in as few as 30 days. 
Here is a graph showing the difference in crowdfunding campaigns that take three months in advance to prepare versus those that don't. The no prep campaign runs for twice as long and raises half as much.

Our final advice is to beware of platforms and consultants who tell you they can shortcut this process. We know one guy who charges $20,000 minimum to have you do the work we just outlined. In the years since we published our book, we uncovered crowdfunding platforms who specifically will not list projects run by Black people on the theory that their chances of success have proven to be lower. (Of course, if a platform won't let you on, you chance of success with that platform is zero...)

*We have run into supposedly minority focused PPP lenders, like Lendio, who are determined not to make loans to Black people.

With the right preparation, we think this funding option is an increasingly viable option for small, Black and women run firms.

If all of this is new to you, consider taking our class, How to Crowdfund. or getting our book on the subject. The JOBS Act: Crowdfunding Guide to Small Businesses and Startups on Amazon:

Tuesday, July 7, 2020

Black communities need more help from the Federal Reserve Board

An estimated $7 billion in corporate pledges have been made to facilitate efforts that support racial justice, and help activities that seek immediate solutions to the crisis affecting Black people.
We are very familiar with these types of promises, having launched the first website focusing on financial support for minority communities in 1995 and a new website to monitor such corporate pledges.
Yet it appears that only $188 million of that $7 billion is money someone can reasonably expect to get their hands on. Further, in certain sections of the Black community, there is concern about the effectiveness of the traditional organizations identified as recipients of the pledges. And there appears to be less concern with newer, trending organizations.
Our recent survey of customers banking at black-owned banks suggests most consumers who do not use Black banks are concerned about their financial stability, and have not been able to leverage financial resources from these institutions.
Programs that rely on secondary institutions to provide capital to already underutilized Black-owned banks add another stumbling block to the effort to get capital where it is needed.
Certainly, more money will help. But there may be more effective methods such as creating a digital wallet and currency to get money directly to affected communities without the need for money-sapping intermediaries; or creating a large credit program at the Federal Reserve. The latter approach holds the most promise.
Recall that the Federal Reserve Board created a secondary market corporate credit facility to purchase a more diversified portfolio of corporate bonds that include supporting large employers. Regrettably, very few Black-owned firms are eligible for this program, having been locked out of the corporate-debt market largely due to discrimination, both involuntary and self-imposed.
The Fed also created the Main Street Lending Program meant to encourage cash flows to small and midsize businesses by purchasing up to $600 billion in loans. But already, the number of black-owned small businesses plummeted by 41% between February and April when the coronavirus pandemic started in the U.S., according to a working paper published by the National Bureau of Economic Research.
The financial loss to the Black-owned businesses is estimated at $23 billion due to the pandemic. Therefore, the Fed should allocate $23 billion of the $600 billion in its Main Street program to Black-owned firms, using a wide array of financial instruments and techniques.
Lastly, Black people need a truly collaborative and cooperative effort — in and by the Black community — a community often trained to be petty and cutthroat to each other given the paucity of resources at its disposal. After Creative Investment Research, in the public spirit, disseminated an estimate of corporate pledges to the Black Lives Matter cause (at $1.6 billion), several foundations made donations totaling $1.7 billion.
Now is the time to let go of bad habits for the survival of the Black community. In so doing, we can also show the world the way out of the crisis.
First published at: The American Banker Newspaper: Black communities need more help from Fed