The Promise of Product
Reward crowdfunding, community supported agriculture (CSA), and pre-sales offer entrepreneurs an opportunity to raise capital without giving away ownership (or more ownership!) of their companies. With each of these tools, goods or services are provided in exchange for capital instead of a financial return. Because these are not actual investments, securities laws do not apply and as a result, campaigns are easier to prepare for and anyone can invest. But make no mistake, these options do not equate to “easy money”! While the media has reported inspiring success stories (including Baubax which recently set out to raise $20,000 on Kickstarter and wound up with $9 million!), reward crowdfunding, CSAs, and pre-sales all require entrepreneurs to dedicate significant time and energy toward generating interest in their offerings. Products may sell in advance, but they don’t sell on their own!
Community supported agriculture (CSA) is a way for farmers and others in the agricultural sector to raise capital in advance of the harvest season. Individuals and families may become members of a CSA by paying a fee in exchange for a portion of the future crop. There are typically different levels of membership that entitle members to different quantities of produce, generally delivered on a weekly basis in season. This model allows farmers to raise working capital without giving away the farm, and also to create personal connections with customers and a direct channel for distribution.
Reward crowdfunding allows businesses to offer various “rewards” to correspond with different levels of capital committed. The scale of dollars to rewards is entirely up to entrepreneurs to create. At the low end of the scale, rewards might include a mention on social media or on the company’s website; the actual product might be offered for a larger sum; and the product with a personal experience (meet the maker!) might be included at the highest levels. These campaigns may be run on a 3rd party site, such as Kickstarter or IndieGoGo, or on the business’s website. While businesses might attract capital from great distances, for small businesses, rallying the local community is key.
Pre-sales tend to be most popular among food and restaurant proprietors. Similar to wine clubs, which ask members to pay for wine in advance of receiving a shipment (and often in advance of the wine being ready for consumption), restaurant entrepreneurs are beginning to ask community members – future patrons – to help fund their businesses in advance of opening. This may be done offline through direct outreach and community events, or online using sites like Credibles. In exchange for these early commitments, restaurants typically offer a food voucher equal to the dollar amount committed (or more!), and might even create a way to honor these patrons in the restaurant once it opens (for example, designate bar seats with the names of early supporters).
This might be for you if…
- You want to retain ownership and control of your company
- You need early stage capital to fund initial operations and production