Perspectives from ISB

Since the financial crisis, family businesses remain wary of taking on too much debt. Simultaneously the credit crunch in the last decade has pushed family businesses towards non-banking channels to raise capital. A 2014 KPMG International survey showed that 58% of family businesses are currently seeking external financing to fund their investment plans.

Crowdfunding, as opposed to mini-bonds or crowdlending, comes in two main flavours: so-called rewards crowdfunding, where backers are pre-sold products or services so that entrepreneurs can raise enough capital to start to launch their business concept; or equity crowdfunding, where backers receive private shares in exchange for pledges.

In the US, where mini-bonds are yet to gain a foothold, crowdfunding has been a popular source of capital-raising for many startup entrepreneurial ventures as well as small family businesses. So far the record for the highest crowdfunding campaign has been $88.3 million raised by a video game developer, Chris Roberts, with over 972,000 backers. The Veronica Mars movie based on the popular TV show met its funding goal in 10 hours and ultimately raised $5.7 million, while a campaign to launch a card game featuring exploding kittens garnered $8.8 million in backing.

However, according to Forbes, the average successful crowdfunding campaign is only around $5,000. Hence while crowdfunding might not be a suitable capital-raising tool for large family businesses, smaller firms or entrepreneurial ventures could well benefit from a crowdfunding strategy.

Source: CampdenFB

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