Startup ventures have sprung up all over the country in the last decade, especially in California’s Silicon Valley. To name only a few that have grown into billion dollar industries, consider: Facebook, Instagram, Airbnb, Square, Docstoc, Zappos.com, and Gofundme. Many of these startups were founded by young adults, even teenagers, who suddenly found themselves in the same income bracket as heavyweights like Donald Trump and Bill Gates.
So how did they do it? Many actually started with small business grants (similar to a loan except that it doesn’t need to be paid back.) However, the eligibility requirements have become increasingly difficult to meet, as are those for government loans. Below are restrictions for both:
- Small Business Grants: Most entities that issue small business grants attach stringent conditions for how the money is used. If you do not comply with those conditions, you may have to pay the money back, destroying the possibility of your business succeeding. Examples of these conditions are using the money only for:
- Research and development
- Advertising and promotion of the grantor’s interests
- Charity and non-profit related works
- Various other aims as specified by the grantor
- Government Grants: Government grants are even more difficult to receive and the limits on how you can use the money are very limited in scope. Most require that you only spent on promoting tourism or a similar specific interest.
Crowdfunding is defined as “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.” A relatively new concept, it has been the new trend in getting startups up and running. Literally everyday new sites are forming and providing alternative funding for startups.
The 2012 federal JOBS Act exempts crowdfunding from the strict registration requirements of the Securities and Exchange Act of 1933 of the Securities Exchange Commission, meaning even if people lack accreditation they can still invest in your business. Although, the commission does reserve the right to shape policy according to their administrative rule-making process.
A few of the Act’s provisions:
- A crowdfunder can invest up to one million dollars per year, which is close to no regulations at all (at least as the federal government is concerned.)
- Permit inexperienced investors with minimal funds to invest in highly risky startups.
- More options to choose from when it comes to supporting small-scale business lacking traditional support of high-profile venture capital firms.
Some crowdfunding sites include:
- Indiegogo– Accepts all projects without review. A 4% success fee will be applied and 9% if you fail to reach your goal
- RocketHub– Specializes in arts, science, education, business and social good ventures
- Peerbackers – Top crowdfunder in the industry. Focuses on entrepreneurs and innovators involving creative, civic, and entrepreneurial projects both in the U.S. and internationally and recently expanded to include young entrepreneurs ages 13 to 17.
- Kickstarter – Focuses on design, the arts (film, publishing, music), gaming, and technology. Also available for businesses’ in the U.S. and internationally.
- SoMoLend. – Focuses on friends-and-family loans, accredited investor loans and bank loans to business borrowers that already have customers and profits. Also must be in business for at least a year.
- Endurance Lending Network – Web-based and connects small businesses searching for a maximum of $500,000 debt capital with nontraditional lending sources.
- CircleUp – An equity website with a focus on high-growth consumer products and retail companies.
- Angel List – Also known as the Match.com for early-stage startups. Must have already raised $100,000 in seed funding and be incorporated in Delaware.
Technology is changing every day and the internet has become a hub for creative and innovative ideas, helping those without access to traditional venture-based funding, build a successful business. However, the rules for complying with applicable laws and regulations remains complicated. LegalMatch.com connects entrepreneurs with experienced business attorneys who will assist you in filling out funding application and successfully launching your new venture. Also check out LegalMatch’s LinkedIn page for new trends in the law.