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What is “Crowdfunding” and Can it Help My Business?

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Author: Spence Novick (TAP Financial Partners)

Funding for small businesses is often in short supply and difficult to secure. In the time of COVID-19, government loan programs, including PPP (Payroll Protection Programs) or EIDL (Economic Injury Disaster Loans), have become options and been joined by a concept known as “crowdfunding.” While a relative newcomer within the fundraising paradigm, we believe it to be a suitable solution for many small businesses seeking capital.

Put very simply, crowdfunding uses an established platform to raise awareness of your business, product, or idea in a way that cultivates investments or donations from the audience you’ve reached. There are a variety of platforms, some of which specialize in project funding and others that more formal investment funding sites. Others dedicate themselves to specific niches within the crowdfunding space, such as charity-based initiatives or scientific research. Each has its unique selling points, so it’s important to do research and find the platform that’s going to represent the best deal for your business.

Once you’ve decided on the platform that makes the most sense, the application process is the next important step in the process. With nearly all platforms extremely focused on protecting investors, applications are reviewed with a great deal of scrutiny. While you’ll want to present your business in the most favorable light, you also need to deliver a business plan that represents value to the investors you seek to attract.

Still in its infancy, crowdfunding has moved beyond the likes of Kickstarter-type passion projects and become a major source of capital access for businesses. Its growing popularity in the past decade compelled the Securities and Exchange Commission (“SEC”) to overhaul investment laws that existed since 1934 to allow for the passage of the Jumpstart Our Business Startups (“JOBS”) Act. The JOBS Act enabled investors to use the Internet and social media to make investments in entrepreneurs and small and medium-sized companies. Additionally, in 2020, the SEC made some further adjustments to the JOBS Act, allowing businesses to raise up to $5 million annually through Regulation Crowdfunding and up to $75 million annually through Regulation A.

TAP IDEA (Investor Direct Equity Access) has added online resources and firsthand expertise that can help companies determine if crowdfunding is right for them and, if it is, what platforms and product offerings offer the best opportunity for success. Our involvement is a clear signal that we believe crowdfunding is not only an idea whose time has come, but also one we expect to gain momentum as the world accelerates post-pandemic to more online and digital marketplaces.


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