Money from the many: Crowdfunding options for food businesses

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With the arrival of crowdfunding, many bureaucratic hurdles for raising funds have been removed. For too long, raising capital in small businesses meant either being at the mercy of bank underwriter or a lengthy process with affluent angel investors, involving lawyers and a lot of paperwork.

Now, entrepreneurs can use many different crowdfunding options. What flavors are out there? Which one is best for what purpose? In article, we look at online platform that publicize the fundraising offer, facilitate the transactions, and in many cases facilitate the re-payments to the investors.

Crowdfunding Securities Peer-to-peer loans No-Interest Loans In-Kind, Pre-Sale Donations
Description Equity investment or loan promising an additional return Loans funded by individuals Small loans without interest Capital from pre-payments for store credits Contribution with acknowledgement and giveaway
Examples CircleUp
Crowdfunder
AgFunder
Direct Public Offering (DPO)
Lending Club
Prosper
Kiva Zip Credibles Indiegogo
Kickstarter
Barnraiser
Typical listings Startups Mostly individuals Small businesses Local food businesses Creative projects, startups
Who can invest? Accredited investors only
DPO: everybody in registered state
Everybody Everybody Everybody(who eats the products) Everybody
How does the business pay back? Dividends, or cash when liquidity event happens (acquisition, IPO) Principals + interest, through service Cash. Principal only, over 1-3 years. Products, often with extra store credits for larger funding amounts. No pay back, but incentives (e.g. T-Shirt), or launched products (tech)
Focus/share funds for food and ag businesses CircleUp: 40%
Crowdfunder: 0%
AgFunder: 100%
Unknown Kiva Zip: 26% Credibles: 100% Kickstarter: 4%
Barnraiser: 100%
Campaign duration 2-3 months
Campaign have preview status before launch
2 weeks Kiva Zip: 6-8 weeks
Rarely repeats
Ongoing(After capital raise, use as loyalty program) Up to 2 months
No repeats
Typical amounts raised for food businesses $50,000 – $500,000DPO: $100K-$500K $5,000 – $35,000 $2,500 – $10,000+ $5,000 – $50,000 $4,000 – $40,000
Fees CircleUp: $500 + Investment Banking Commission
AgFunder: 5%
DPO: $15,000-$25,000
10%-20+%, depending on size and FICO score Currently waived by PayPal 5% 9%-10%Indiegogo: up to 18%
Comments Driven by valuations.
Post JOBS act, this option is still in its infancy.
Identity of borrower is disguised and unknown to lenders. Kiva Zip Lenders need to be supported by a “trustee” Credibles will be cross-redeemable between local businesses Kickstarter and Barnraiser is all-or-nothing, no partial fundings

Status: updated January 2016

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Crowdfunding Synopsis