WASHINGTON, Dec. 6, 2018 /PRNewswire/ -- Small businesses are increasingly relying on crowdfunding, according to new survey data from SCORE, the nation's largest network of volunteer, expert business mentors. In 2018, U.S. businesses raised $1.04 billion, a significant increase from the $915 million raised in 2017. SCORE's latest infographic, sponsored by Nav, details recent trends and projections in crowdfunding for small businesses.
The term crowdfunding refers to the practice of raising small amounts of money from multiple people, and has become more popular with businesses and individuals every year since its inception.
Crowdfunding options popular with small businesses include:
- Reward-based: Backers receive an early version of the product or other rewards, with examples including Kickstarter and Indiegogo. There is no maximum amount to this fundraising method, and it typically costs 8%-10% in fees.
- Equity: Individuals invest in return for company share. The maximum funding amount is $1.07 million, and it typically costs 3%-6% in fees, plus $10K-$100K in professional fees.
- Debt: Backers provide loans in exchange for interest. The maximum funding amount is $500K, and it typically costs 5%-27% in fees.
In the US, crowdfunding raises more money for small businesses every year – with continued growth predicted:
- 2016: $800 million
- 2017: $915 million
- 2018: $1.04 billion
- 2019: $1.17 billion
- 2020: $1.3 billion
Campaign success rates, and dollar amounts raised, vary by category:
- Design: 36% are successful
- Fashion: 25.8%
- Food: 24.8%
- Technology: 19.9%
Top tips for crowdfunding success for small businesses include:
- Preparation: Research similar campaigns and choose the best platform and funding goal.
- Pitching: Share your unique story and create engaging photos and video.
- Promotion: Use your networks of family, friends, community and social media followers, and update your backers frequently.
After a successful crowdfunding campaign, continued benefits include:
- Strengthened customer base
- Increased publicity
- Higher likelihood of external financing
- Stronger potential for business partnerships
Download this infographic for more information on crowdfunding trends in the small business community.