Crowd Funding for Business Development Organizations

Economic Development Organization looking for new ways to expand existing businesses have only a few options traditionally as many traditional strategies are held back by a lack of capital. It's a lack of capital is what prevents many businesses from expanding and entrepreneurs from starting up. Those who have reached out to entrepreneurs or even existing small and mid-sized businesses will likely have heard that they would love to expand, love to start a business but they don't have the money to do so. This situation is worse with business lending down and not likely to improve soon. 

With new technology has come new methods of helping businesses to raise capital which include Crowd Funding, Peer to Peer Lending and with luck some new Micro-Equity options.

Crowd Funding

A means of financing a project or business in which the businesses reaches out to the public for money, offering goods or services in return for a financial advance. For those who haven't I would recommend looking at Kickstarter.com and Indiegogo.com.

Peer to Peer Lending

Allows a company to seek small loans from many ordinary people. To learn more about this go to kiva.org and prosper.com

Crowd Funded Equity

Just legalized in the United States this program allows small businesses to sell shares of their business via crowd funding. You can learn more about this at http://www.practicalecommerce.com/articles/3472-Equity-Crowdfunding-Is-Now-Legal-in-U-S- and http://www.delawareonline.com/article/20120424/BUSINESS10/120423036/Investor-risk-rises-crowdfunding-gets-easier?odyssey=tab%7Ctopnews%7Ctext%7CBusiness

Economic Development Program

The challenge to crowd and peer funding for businesses are that;

1-It's always difficult for businesses to get the word out about their program

2-It's difficult for people to find programs in their neighborhood which they can help to fund.

3-It's difficult for those providing money to know who to trust, this is especially true now that equity is an option in crowd funding. 

As the economic development organization for a region you can aggregate and endorse projects and businesses you trust in one place; linking out to external sites like Kickstarter and Kiva while also running your own crowd funding projects when necessary. In addition to this you can also start a small venture capital organization which would allow you to meet with gather together and easily communicate with those interested in funding small local businesses. 

You must keep in mind that such crowd funding can carry big risks and take steps to protect investors and eliminate your liability for posting companies you like.

Forming the Venture Capital Group

Selecting Projects

Great care must be given by the economic development organization when selecting projects in order to try to select those which are most likely to succeed. The organization should review the business owner and officers histories, business plans, and at times should require that they agree to receive additional support if their company gets into trouble.

Managing the Site

The Economic Development Organization needs to develop a website where they can list each of the crowd funding projects within a community in order to direct those interested in such projects to a single location.

Promoting the Venture Capital Site and Organization

Remember ROI (Return on Investment) is more important then the number of people reached.

No organization has the money to reach everyone they could potentially reach and then convince them to donate to a project. So the first rule of marketing is that spending money on the medium with the potential to reach the most people is worse than meaningless it’s a waste of time and money which could have been better spent elsewhere. What’s important is spending money where its possible to make the most profit per donation.

This is why in most cases the Economic Development Organization should do most of their promotions online, because even though only 70% of the population is online, they are usually wealthier, donate twice as much to charities, and it costs 1/4^th as much money to reach people online as it does to reach them offline.

Three Pillars of Promotion

The three primary methods by which you should promote your Venture Capital Organization should most likely be Public Relations - especially online public relations but also through more traditional media relations wherever possible. Search Engine Optimization (SEO) the method by which the likelihood that people will find a site while simply browsing the web is increased. And through Social media.

Continuing to Get the Word Out

In order to insure success your organization also needs to continue to reach out to those interested continue to remain interested and get information about new businesses looking for funding. In order to do this you should;

1-Create a Facebook, Google Plus and Twitter Page for the Venture Capital Organization and direct them to follow one of these. 

2-Send out Email newsletters to members and interested parties. 

3-Hold special events for those who are members of the venture capital group in order to allow businesses to pitch them directly and to show appreciation for their efforts.

There are many other aspects of this program which go beyond the extent of this article but I will continue to post on how to perform economic and business development through crowd and peer funding programs as time goes on.