SANDY — A decade ago entrepreneurs faced major challenges trying to turn their ideas into businesses without a conventional bank loan or borrowing money from a well-heeled friend or relative.
Today, however, the financing landscape has changed, with startups turning to the next revolution in business bankrolling — crowdfunding.
“Crowdfunding has become the dominant way of financing small businesses to start their enterprises now,” said Richard Swart, a researcher and scholar-in-residence in the Institute for Business and Social Impact at the University of California, Berkeley. “It’s the natural evolution of social media meets innovation.”
Speaking Thursday to an audience of more than 500 entrepreneurs, he said the use of social media platforms has transformed the way small businesses can get the money necessary to become successful ventures.
“(Crowdfunding has) become an incredibly effective tool for people who have a product idea, technology or game – something tangible,” Swart said. “For tangible products, it’s becoming the required way, almost, of proving there is demand, and then you can go get more financing later.”
Swart was among the speakers at the first crowdfunding conference at the Salt Lake Community College Larry H. Miller Campus in Sandy.
Crowdfunding is a way to raise money for new projects and businesses by soliciting contributions through social media. Financial contributions are typically made by online investors, sponsors, or friends and associates who believe in a product.
The event, organized by the Utah Small Business Development Center Network, featured experts in the field as well as various panel discussions aimed at instructing conference attendees on the specifics of creating a successful crowdfunding campaign.
According to industry website crowdsourcing.org, there are four major types of crowdfunding platforms — equity-based, lending-based, reward-based and donation-based. Popular sites include Kickstarter, RocketHub, Indiegogo and GoFundMe.
Analysts estimate that more than $34 billion in funding will be raised through crowdfunding in 2015, up from $1.5 billion four years ago. This type of funding has financed projects ranging from new product development and films to athletes and social projects — ventures that would have been difficult or impossible to fund otherwise, said Jim Herrin, director of the Salt Lake Small Business Development Center.
“Entrepreneurs in Utah have an especially difficult time accessing funds to grow their companies to a sustainable operating level. Most do not have a network of wealthy investors, nor are angel and venture funding groups a viable option,” he said. “Although not a panacea for early stage funding, crowdfunding has certainly helped many more startups and small businesses be successful.”
Case in point is Soul Poles, a Park City-based maker of handmade, eco-friendly bamboo ski and trekking poles that formed in 2010, but last year was able to launch its product following a successful Kickstarter campaign.
“We set our goal at $17,000 and raised $30,000 over the 30 days (fundraising period),” said Matt Hundhammer, social media and content strategist for Soul Poles. Achieving 177 percent of the original goal allowed the company to introduce its new product without having to take out any loans or use other financing, he said.
Without crowdfunding, there is little chance that the company would not be able to be in the position it is in without having to give up control of the business to an outside investor, he said. The product will go into full production in the fall.
“What crowdfunding has down for the democratization of capital is incredible,” Hundhammer said. “This is the opportunity that exists right now for people to raise money to make their dreams a reality.”
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