A New Age of Entrepreneurial Fundraising

Small businesses and entrepreneurs hold a special place in my heart. I believe small businesses contribute greatly to our economy in mostly localized ways. Entrepreneurs are those daring individuals who turn their ideas into businesses, often innovating along the way. There’s a great deal of overlap between the two groups, of course.

My idealistic goal for my business education is to find a way to help small tech businesses and entrepreneurs succeed – to achieve and maintain profitability without sacrificing their ideas or what drew them into running a small business in the first place. This means I’m wary of the popular venture funding model where often cannibalistic firms trade large sums of money for sizable equity stakes and influence; where ROI and an exit strategy are more important than nurturing the idea that attracted the financing.

So I’ve always been encouraged and impressed by 37signals, a firm that achieved stable profitability, growth on its own terms, and complete ownership of its operation. The company has since accepted funding from Jeff Bezos of Amazon.com, but not before already establishing itself as a healthy player in the marketplace. 37signals believes in the path it took to success, so they have an entire series of posts on their blog about other firms that built themselves up without venture funding. “Bootstrapped, Profitable, & Proud” shines a light on other firms that have over $1 million in revenue, accepted no venture capital, and are profitable.

Not everybody with an idea has the money to start working on their great idea right now, however, so some source of funding is still required. You only need a computer to start your own software development business (and most Americans have computers now). But not everyone has the equipment lying around to start hand-making high quality photographic prints, for example. That’s where Kickstarter comes in. Kickstarter allows users to create fundraising projects. You set a financial goal to be paid out in an all-or-nothing basis. If you hit or exceed your target, you keep what you raise. If you miss it, even if it’s by a dollar, none of the contributors pays. This method has been used to fund albums, films, and even hosting for Whiskerino. Fundraisers seek money in different tiers and typically offer some reward in exchange for pledges.

With that in mind, I absolutely enjoyed reading Craig Mod’s essay on using Kickstarter to feed his entrepreneurial appetite (via Daring Fireball). Craig emphasizes the use of Kickstarter as seed money for a direction rather than a single project. That is, contributors often believe in the work of a fundraiser, not necessarily limited to one project. So why not use the fundraising power of Kickstarter to get your business off the ground? This is already happening, of course. Kickstarter has projects open for starting a food cart, a community biotech lab, and a college media website. Sure you can raise money to prepare for a photo gallery exhibition, but why not try raising money to launch a photography business?

Kickstarter has only been around for a bit more than a year, so I’ll be interested to observe the limits and heretofore unimagined uses of its fundraising capabilities. Here’s hoping Craig’s Kickstarter tips find a broad audience and his essay/results encourage many would-be entrepreneurs to take the next step in making their ideas into realities.

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