In the not-so-distant past, if an individual wanted to raise money to start or grow a business, it required either loans from a financial institution, personal wealth or backing from family and friends. It was a very inefficient way to raise capital. It also limited budding entrepreneurs to a small circle of personal contacts.
Technology has changed how small businesses raise capital. It has opened doors for talented entrepreneurs who otherwise wouldn't have had access to funding and created a level playing field for people of all backgrounds.
"The main advantage is that you can expand your reach beyond your direct network and geographical region,” said Joel Keylor, co-founder and CEO of Tresle, a platform that connects established private companies with verified buyers and capital.
"It also makes it far quicker. You can leverage a bigger audience. Fees, if applicable, are upfront and clear."
Use technology to generate leads
Ben Larson of Gateway, an investor and startup mentor, recommended leveraging Angel List, Crunchbase, LinkedIn and any other network or database you can to understand what types of investments investors are making, whether they're competitive or complimentary, and to learn the typical check amount and their investment thesis. And, most importantly, you should use these sites to see how you are connected, either directly or through channels, to find out who will make good contacts and who could introduce you to good contacts. [Read related article: Crowdfunding for Startups: 10 Kickstarter Alternatives]
"We encourage the startups that we work with to treat fundraising like they would a sales pipeline,” said Larson. "A successful raise requires lead sourcing, refining sales communications and materials, and optimizing each stage. As with every sales funnel, it all begins with leads. They should be well targeted, copious, and come with a warm introduction when possible."
When you make those initial contacts, the first step is to organize an efficient fundraising process in a CRM or sales software like Pipedrive, Larson suggested. This will force you to understand each step of your sales process, how long it takes you to move from one stage to the next, and it gives you a visual representation of the health of your pipeline.
Crowdfunding your business
Entrepreneurs and small business owners have turned to crowdfunding for more than a decade, raising billions of dollars for business investments since 2009.
"Instead of shopping a business plan to several different banks and financial institutions, crowdfunding platforms let an entrepreneur showcase his or her idea and provide investors of all sizes an opportunity to participate in growing the business," wrote Sheila Olson in an article for Investopedia.
Popular platforms for business-related crowdsourcing include Kickstarter and Indiegogo. Some platforms will let you keep all of the monies raised even if you don't make your goal; others will not allow you to collect any money if goals aren't reached.
In some cases, you will be asked to provide an incentive upfront – donors receive a prototype of the product or get a percentage of the profits. Even with the risks and the profit-sharing, many turn to crowdfunding sites because they reach people on a global level, thanks to social media and other internet marketing avenues.
Cryptocurrency and blockchain
Startups and entrepreneurs are more frequently turning to blockchain technologies for an initial coin offering (ICO) and as a way to raise money without having to give away equity to donors.
"Blockchain software provides a ledger for recording and verifying transactions and other information among multiple parties without expensive intermediaries like brokers or exchanges," Tomio Geron wrote in the Wall Street Journal.
Cryptocurrency is a form of blockchain technology, which is really just a trusted ledger of transactions, explained Micah Tapman, managing director of Canopy, a cannabis industry investment fund. Previously this was the purview of third parties, banks and governments. Now any company can create this trusted ledger and use coins internally.
"The benefit to a company is that these coins (also referred to as tokens) are mathematically verified using the blockchain technology so you're not reliant on the memory/record keeping of the company to the same degree you would be with an old-fashioned credit account," Tapman said. "So, given that scenario, a company-created cryptocurrency is valuable if the company has a way for you to spend the money. Otherwise, the coin has no inherent use."
Technology hasn't solved all of the problems of raising capital for new business ventures or product ideas. You still have to find good, honest people to support you, and you still have to do plenty of legwork to make yourself stand out in an ocean of other new startups and ideas.
Yet, said Keylor, it turns out that technology can be a great way to make new relationships and find the right backers who can help you grow your business.