Below is an article by The New Journal & Guide entitled “Part One: Crowdfunding For Small Businesses”.
Part One: Crowdfunding For Small Businesses
By: Rosaland Tyler, The New Journal & Guide
Dec 3, 2014
Black-owned businesses headed by women grew nearly 258 percent from 1997 to 2013, but this trending group still faces hurdles that crowdfunding, a relatively new type of loan, is helping to solve.
Operating like a dating website, the crowdfunding industry was worth about $5.1 billion in 2013. This means the industry is skyrocketing because like an internet matchmaker makes introductions and bows out, crowdfunders introduce borrowers to a pool of lenders.
The New Journal and Guide talked to two crowdfunders, EquityNet and Lendio. Like many crowdfunders, both companies operate differently from banks because they do not just look at credit scores. Instead, they consider algorithms which can eliminate bias as women of color launch businesses at six times the national average.
“Crowdfunding is a way for a small business to be thrust into the limelight in front of a lot of investors,” said Adam Vanderbush, the chief marketing officer at EquityNet, a crowdfunding platform for startups and mature businesses. The Fayetteville, Arkansas-based company, which has raised equity capital from accredited investors since 2005, generates revenue by selling subscriptions.
“So this is a big deal,” Vanderbush said. “Now we are seeing on our own platform a crazy disparity in those seeking funding. Having this larger pool of investors is really a big deal.”
“A lot of the growth had to do with the U.S. Jobs Act, which is a series of rules that will allow the pool of capital to be more available to anyone trying to raise money for their business,” Vanderbush said. “I think in the future President Obama will be remembered greatly for it.”
“It is a good deal because we don’t take a cut from any deal,” Vanderbush said.
“Other companies take 5-10 percent of the monies raised. Companies come out way ahead by using us instead of other companies. We have seen an explosion of platforms.”
“The No. 1 reason for business failure is they ran out money before they became profitable,” Vanderbush explained. “What is so cool about this new initiative is it gets people in front of investors they would not have found before.”
Vanderbush said the key to success is to stress a company’s potential for growth. “We have a listing of various companies showing metrics, risks, rates, so investors can screen businesses.”
“What sets us apart from other investors is we don’t give investment advice but have a scoring system that could weed out maybe less sophisticated companies so it is a safer bet for our investors,” Vanderbush continued.
“We use algorithms,” he said. “That means there is no bias in our system. This is a big deal for underserved companies and helps to level the playing field.”
While Vanderbush said EquityNet’s acceptance rate is high, he would not disclose the rate. But Vanderbush said it exceeds the familiar 3 percent success rate that comes from borrowing from friends or relative. “There is a high success rate with crowdfunding, at least on our site,” he said. “We track all of this information.”