Local Businesses Plot Expansion Via Crowdfunding
Even before the passage of the JOBS Act in early April, SMBs across the country were increasingly turning toward crowdfunding websites such as Indiegogo to facilitate expansion. Now, with the law on the books and pressure on the SEC to finalize regulations around it in the next seven months, some foresee crowdfunding, not venture capital, grants or loans, as the next innovative way to stimulate local business and job creation.
“We’re looking to be a new way to fund ideas,” Indiegogo CEO and co-founder Slava Rubin told Street Fight ahead of the announcement that the site had raised $15 million in series A funding this week.
Emmy’s Organics, an Ithaca, N.Y.-based wholesaler that makes macaroons and other organic, gluten-free, vegan snacks, created an Indiegogo campaign in December 2010 to fund new biodegradable, eco-friendly packaging. Within a month, their campaign exceeded its $15,000 target goal.
“We knew already that our product tasted good,” Samantha Abrams, co-owner and co-founder of Emmy’s, told Street Fight. “We knew that people were very loyal to what we were making, and anyone who had bought any of our products were return customers again. We just knew that if we made our packaging more attractive, that was just going to really increase our sales and loyalty.”
Abrams and co-owner Ian Gaffney conceived the idea because the Makepeace Brothers, a band that includes Ian’s brother, Conor Gaffney, had raised more than $5,000 through Indiegogo to finalize a second studio album. The owners had already taken out a business loan to purchase macaroon-making machinery and were hesitant to increase their debt.
Since the launch of Emmy’s new packaging, sales have increased almost 100 percent, according to Abrams, and the company has been able to hire four employees and sell its products in more than 40 states.
“We were right,” Abrams said. “We needed it.”
A common thread across most Indiegogo campaigns, Rubin said, is that they initially draw local support, mainly from friends and family, before garnering enough recognition to attract national and international funders.
“People like to see that there’s a social group there, and it’s getting off the ground,” Rubin said. “So there’s definitely a lot of support that’s happening locally.”
The support also started local for walk in love., which used Indiegogo to raise more than $30,000 in 43 days from 280 funders. Co-owners T.J. and Brooke Mousetis used the money to open a flagship department store in an area shopping mall.
The clothing store has since assembled a staff of 10 employees, T.J. Mousetis told Street Fight, and has also donated more than $11,000, or approximately five percent of sales, to various non-profits.
“Without the crowdfunding, our business would still be mostly online with a holiday kiosk from time to time,” Mousetis said. “So the crowdfunding made it possible to grow in ways that would have taken years otherwise.”
With the JOBS Act now law, a surge in crowdfunding will only increase, as the legislation amends the federal Securities Act to allow budding companies to use Internet and social media platforms to sell up to $1 million of securities to an unlimited number of investors within any 12-month period.
Indiegogo, whose lobbying push for the JOBS Act began with its own crowdfunding campaign two and a half years ago, currently hosts more than 5,000 campaigns with funders and fund seekers in more than 200 countries.
As the nation’s economy continues to attempt to recover from being on the brink of financial collapse in 2008, the focus is, as the name implies, on jobs.
“Small businesses are the fuel of driving the American economy and getting more jobs,” Rubin said. “We know that most of the net new jobs in America in the last 30 years have come from companies that are five years or younger and being able to unlock a little bit more of that capital to go into these small businesses should be able to create more jobs.”
Patrick Duprey is an intern at Street Fight.