Share This Info:  

Is Crowd Funding A Viable Way To Raise Money To Buy A Small Business?

Comments & Replies: 2     Views: 7351     Posted By: Peter Siegel MBA  Peter Siegel MBA: Business Purchase Financing Expert

We're hearing more and more about "crowd funding" through sites like gofundme and kickstarter as a possible way to raise the cash needed to buy a small business. This method of collecting funds has proven successful in other kinds of situations. Could this strategy work when buying a small business?

Topics: Business Purchase Financing, Buying A Business, Deal Structures     Tags: buying a business, financing



We're hearing more and more about "crowd funding" through sites like gofundme and kickstarter as a possible way to raise the cash needed to buy a small business. This method of collecting funds has proven successful in other kinds of situations. Examples are people who are needy, seeking financial help from strangers on the internet in order to pay for life saving medical procedures or to cover rent payments and avoid becoming homeless. And there are entrepreneurs launching new businesses or perfecting new products who appeal to people who might like their ideas and be willing to provide some of the cash needed to convert a good plan into an operating business.

And, of course, we receive online solicitations every day from people running for public office-some not even those who will represent us in local, state or national government. And a number of causes have taken to the internet to get financial help saving the endangered watermoose mouse, the Burmese rose-and-carnation hybrid (the "rosenation"), and to save our planet from errant meteorites.

But what about raising money to buy a liquor store, accounting practice, machine shop or other kind of enterprise already operating? I've been watching this area of financing closely because of my special interest in this topic. I've had the opportunity to arrange business purchase financing for buyers for more than 15 years. I'm as curious as many people are, about whether some form of crowd funding can become a viable means of business purchase financing?

In my opinion, the crowd funding strategy for small business purchase money is the hardest "sell" of the many causes for which "donees" have their hands out through their computers.

Most of the fund raising pleas come with some compelling reason that might evoke an emotional reaction from prospective donors. Helping to "save" someone or something, or being partially responsible for creation of an exciting new business or product, are requests that might touch our hearts, or our sense of adventure.

By comparison, there is little emotional gratification helping someone you don't know who wants to acquire a business.

I've heard about crowd funding requests, for this purpose, that offer an incentive related to an interest in the company to be purchased. I don't think that has worked very well. Even people who know each other and want to acquire a business together, can have difficulty determining each participant's share of ownership. Imagine the challenge of convincing strangers to put their money into something they haven't seen or studied, from a person they don't know, with the reward of a financial interest, based on a calculation using figures that can't readily be verified.

And a business lawyer tells me that if an entrepreneur is raising money from strangers to buy a business in exchange for an interest in that business, the activity might be interpreted as a public sale of stock. And that requires the person seeking the money to do so in strict adherence to complex requirements found in Federal Securities Law.

An interesting variation on this approach is for the fund raiser to offer non-financial benefits to cash contributors. So, for example, a restaurant purchaser might ask for money from people in the community with the understanding that donors will be assigned the "best seats in the house" when they come for dinner. Or the buyer of a retail store might recognize donor customers with considerable discounts at the cash register.

I've heard this idea discussed but have not seen it happening in practice. If any of my colleagues in the industry are aware of a successful fund raising effort along these lines, please let readers know about it in the comments section below.

But so far, I think the response to the question about whether crowd funding by a small business purchaser is proving to be viable as a way to get cash to complete a deal is: not yet. But with new social networking technologies and more clever incentives ideas, we may see examples of crowd funding used successfully to raise business purchase funds in the future.


With regards to a liquor license a "crowd funding" technique may cause problems because an ABC investigator wants to know exactly where all the money came from and who gave it to person who is being investigated. An ABC investigator wants to verify that no money to the buy the business comes from illegal activity, etc. I've heard of business in communities participating in "loyalty cards" where they reward customers who frequent their business often. It's been my experience that crowd funding works best with a cool invention or an inventor trying to get something into a prototype mold.


  Helpful Resources To Assist In Selling And Buying California Businesses
Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of successful closings. Office: 909-255-8353, Cell: 509-951-7230.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Janet Carrera: Escrow & Bulk Sale Service - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Top 100 List: This Week's Top Motivated Business Buyers & Their Requests!

If you're trying to sell a business - check out this week's top 100 business buyers - one of these buyers may be looking to buy your type and location of business! This list is updated weekly - make sure you check it frequently! Are you searching to buy - get on this list and reach seller direct!

How Many Listings Is Too Many For One Broker To Handle? Is It 5? 10? 20?

Peter Siegel, MBA in this Vlog/Podcast discusses how many listings is too many for one business broker to handle at one time. Is it 5 is it 20? I recently had a coaching call with one of my BizBen broker clients who asked that question this week. There are many factors that go into the answer.

4 Reasons Why Business Brokers Do Not Cooperate With Other Brokers & Agents

Despite challenges in the business for sale marketplace, some of the business brokers who make a living by facilitating a deal between buyer and seller are known to stand in the way of a completed transaction because of some outdated ideas. Too bad they put greed ahead of the needs of their clients.

Is There Such A Thing As Paying Too Little When Buying A Small Business?

We all understand the idea of paying too much for a small business. But is there such a thing as not paying enough? That seems like an odd notion, but I'm familiar with situations in which a buyer acquired a small business for a figure substantially under what probably was market value.

Selling A Business Without Getting Sued: 5 Tips For Business Sellers/Brokers

How do I sell my business without getting sued, isn't a subject just for discussions with lawyers. A seller can take some precautions to reduce potential legal problems. Peter Siegel, MBA Founder Of BizBen and BizBen's ProSell Program discusses this topic for business owners/sellers and brokers.

Find Out Why 80% Of California Business Buyers Never Find And Buy A Business

First the dreaded statistic: 80% of all California business buyers looking to buy a small to mid-sized business in California never end up doing so! Peter Siegel, MBA BizBen Founder And Director at 925-785-3118 covers successful tactics all business buyers of small businesses should utilize.

Who Really Represents The Business Buyer In A Deal? Does Dual Agency Work?

Who really represents the buyer? The selling broker or agent through dual agency? Many brokers and agents weigh in on this Discussion on BizBen. Bottom line is all business buyers need to know who really represents them and has their best interest at heart when seeking and negotiating on deals.

If You Plan To Offer Seller Financing: 3 Things Owner Sellers Need to Know

When selling your business, offering seller financing is a great way to help your business standout from others on the market and it is also a good strategy to consider that can help you close a sale. Peter Siegel, MBA (BizBen ProSel Program & Financing Expert) explains. Reach him at 925-785-3118.


Escrow Services Diane Boudreau-Tschetter
Michael Brewer, ABC License Consultant
Redwood Escrow Bulk Sale Services
Willard Michlin Due Diligence Services
Facebook
Twitter
Linkedin
Vlogs and Podcasts
California Educational Events Buying And Selling Businesses
Business For Sale California Stats
Instant Email Alerts On BizBen
BizBen ProBuy Program
BizBen Blogs And Articles


BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2020, All Rights Reserved



Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Buy A Business Or Start From Scratch? 5 Key Differences For Business Buy...
Read More News
I am Buying A Business: Should I Buy The Property As Well? A Good Decisi...
Read More News