By Juliette Enfield,
Penn State Extension Educator, Warren Co.
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| The success of any business depends on the crowd that supports it. |
Crowdfunding captures the essence of the entrepreneurial
spirit-that anything is possible. The size and scope of the projects on
crowdfunding sites are awe inspiring. In 2012, the JOBS –Jumpstart Our Business
Startups Act was passed by Congress and signed into law by the Obama
Administration. This Act eliminated
certain restrictions on how new startup businesses could be funded. Since 2012,
crowdfunding has become a term that many people are familiar with, but may not
have direct experience with. Have you ever considered crowdfunding for your
business? Perhaps you are uncomfortable with the high interest rates that may
be incurred with a loan, or maybe your credit isn’t the best and you are unable
to access a loan in the first place. Crowdfunding can work in a few different
ways. Investors can support a new business by buying a share in the business
(equity crowdfunding), making donations (donation crowdfunding), or lending
money (debt crowdfunding). According to Forbes.com,
there are over 500 crowdfunding platforms online, so even if you understand the
basic fundamentals of how crowdfunding works, you will need to do some research
to find a site that will work well for you. Some sites have stronger
reputations than others, and some have easier access to customer service. Also,
many crowdfunding sites specialize in a certain type of project or industry.
For example, Quirky specializes in funding inventions
of new everyday tools, Crowdrise specializes
in charitable projects, and GiveForward
specializes in funding medical expenses for people will illness. Another
difference among crowdfunding sites is how and when payments are received for a
project. For example, Kickstarter only
accepts payments from investors if the project has been funded, and Indiegogo accepts payments from investors
regardless of whether or not a certain goal has been reached. Crowdfunding
sites charge a fee ranging from 7-12% of the total project cost, so this may
also influence your decision of which platform to use.
Crowdfunding for Farm
and Food Businesses
Birchrun Hills Farm,
a dairy farm and cheese business in Chester County, PA successfully funded a
project to build a new cheese cave on Kickstarter.
Kickstarter is a popular donation based crowdfunding website. Kickstarter projects
include film, music, art, design, technology, and food. I spoke with Sue
Miller, Birchrun Hills Farm business owner, about her experience with
Kickstarter. She chose Kickstarter because of the recognition of the site, she
liked the all or nothing philosophy of the site, and the fees were reasonable.
She also knew of other farm businesses that had success with the site,
including North Mountain
Pastures in Newport, PA, a meat CSA farm with a charcuterie business. Sue
ran a 30 day campaign in December 2014. For different donation levels, Sue
offered a variety of different prizes ranging from a hat with the farm logo on
it to private cheese and beverage pairing parties. She said the most popular
prize she offered was the chance to name a newborn calf on the farm. Sue
estimated that less than 5% of the people that were reached about the campaign
actually donated. Therefore, the campaign period is an intense marketing time,
and having a marketing strategy and a budget in place is essential. Sue said she
was delighted to see how the community supported her project, and now that the
campaign is over and she is building her new cheese cave, crowdfunding has helped
her expand her business network in the region and across the nation. For those
thinking about embarking on a crowdfunding endeavor, Sue recommend that they work for a year or so
prior to the campaign period to expand their social media network, since this
is the primary way crowdfunding campaigns are advertised. She also said that
next time she might consider hiring someone to run the campaign for her, so
that she would not have to run the farm and the campaign at the same time. You
can still view Sue’s
campaign on Kickstarter.
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| What would you like to do next with your business? |
Another crowdfunding site that agricultural businesses
should know about is Kiva Zip. Kiva Zip is a
debt based crowdfunding site that offers 0% interest loans to funded projects. Kiva
was first created to help finance microloans to farmers and small businesses in
developing countries, but it has recently grown in popularity in the US with
small and beginning farmers. Kiva loans are especially well adapted to new farm
and food businesses because the loans are small, from $5,000 to $10,000, and
are therefore less risky. Once the money is lent, the business has 3 years to
repay the loan. The Kiva fundraising process has three tiers. First, the agricultural
businesses must be endorsed by a Trustee, a business or an individual
(non-family member) that will vouch for the character of a borrower. Then, once
the Trustee is in place, a network of friends and family (ranging from 10-30
contacts) must be the primary lenders to the project. This occurs during the
first 15 days that the campaign is launched. And finally, after this primary
network has lent to the project, the project is opened for anyone to lend. Kiva
projects are live for 45 days. Emily Keebler, Kiva City Pittsburgh Lead, says
that the first 15 days of fundraising is the most intense fundraising period. Emily
says that many businesses that have a successful lending experience with Kiva Zip
then become Trustees themselves for another business, and these small amounts
of money continue to support small businesses over and over again. Healcrest Urban Farms, a farm that
grows herbs and small fruits in Pittsburgh, PA successfully received a loan on
Kiva Zip to pay for the use of a shared kitchen and purchase of an ice cream
cart to start their popsicle business, TeaPops. Good Work Farms, LLC, a vegetable
farm in Emmaus, PA received a loan on Kiva Zip to purchase draft horses for
plowing and lowering energy costs on their farm. BEEBOY Honey, a beekeeper in Pittsburgh
received a loan to purchase more hives and a truck for honey deliveries. Kiva Zip
may be an option for your food business if you decide that offering rewards for
donations may be too much of a challenge and you would rather spend your time and
energy repaying a small loan.
Be sure to do your research before choosing your
crowdfunding platform. Spend time looking at the projects that are out there. Create
a budget, marketing plan, and a clear, concise message about what you are
trying to accomplish. Have you had any experience with crowdfunding? Share your
comments and suggestions with us!
Sources for this
blog:
Caldbeck, Ryan. Crowdfunding Trends: Which Crowdfunding
Sites Will Survive. Forbes.com. June 23, 2013. <http://www.forbes.com/sites/ryancaldbeck/2013/06/23/crowdfunding-trends-which-crowdfunding-sites-will-survive>
Accessed July 8, 2015.
North Carolina State University Cooperative Extension.
Funding Opportunities. June 2014. <http://communitydevelopment.ces.ncsu.edu/funding-opportunities> Accessed July 8, 2015.
Pollack, Bridget. The Ins and Outs of Alternative Financing.
U.S. Small Business Administration Blog. June 4, 2015. <https://www.sba.gov/blogs/ins-and-outs-alternative-financing>Accessed
July 8, 2015.
