10 Things Black People Need To Know About Crowdfunding

Financial power for local minority-owned businesses

By now most people have hear of crowdfunding, the method of raising capital through the collective effort of friends, family, customers, and investors. Individuals come together to support, via small donations or investments, a person, project or product typically online via social media like Facebook and Twitter, rewards-based crowdfunding sites Kickstarter, RocketHub and IndieGoGo, or equity crowdfunding platforms like AngelList , EquityNet, and CircleUp.

Crowdfunding is a viable alternative to the traditional route used to raise capital to start a business or launch a new product, which would require you to pack up your business plan, market research, and prototypes, and then shop your idea around to a limited pool of individuals. These funding sources included banks, angel investors, and venture capital firms.

However, studies show that African Americans are less likely to receive angel investment. In fact, less than 1% of angel investments go to black-owned businesses. In the first half of 2013, only 8.5% of startups pitching to angels were minority-owned. Only 15% of those minority-owned businesses successfully got funded.

Minority-owned firms also are less likely than non-minority-owned firms to receive loans, recent data shows. And the founders are less likely to apply for loans due to fears of rejection. They’re also more likely to be denied credit, receive lower loan amounts and pay higher interest rates than their non-minority counterparts, notes social investing adviser William Michael Cunningham. Often sought after for his expertise on capital access, Cunningham is the CEO of Creative Investment Research and the author of The JOBS Act: Crowdfunding for Small Businesses and Startups. Along with his team of two, Henry Burger and Howard Williams, he also runs National Crowdfunding Services, an L.L.C., with holdings that includes the Washington, D.C. crowdfunding resource Challenge.

According to Cunningham, here are 10 things Black entrepreneurs need to know about crowdfunding:

1. In 2011, individuals, businesses and nonprofits raised $1.5 billion using crowdfunding. In 2012, that number grew to $2.7 billion. By 2013 crowdfunding was used to raise $5.1 billion.

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