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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2. Right now, crowdfunding is an unregulated market. According to ex-loan officers, major commercial banks targeted the black communities for unfair, high interest loans. The same thing could very well happen in crowdfunding (in about five years).
3. For African Americans, crowdfunding has the potential to even out the black and white wealth gap (estimated at $236,500 in 2009). How? By allowing black businesses to launch projects, products and services that have every chance of becoming more valuable over time. According to the Urban Institute, whites have about three and a half times more wealth than blacks in their 30s, but seven times more wealth in their 60s. One reason this gap exists is the increase in the value of businesses started by younger persons in their 30¹s.
4. If money circulates five times in its place of origin, it generates a small economic boom. Money does not circulate in the Black community. Black businesses receive less than 2% of the $1 Trillion dollars that African Americans spend every year in the US. Crowdfunding has the ability to change that and tap into that black buying power.
5. Crowdfunding has the potential to even out the black and white unemployment gap (6.7% vs. 13.4% in 2013). It will do this by creating employment opportunities generated by black businesses that are able to get their products and projects crowdfunded.
6. Crowdfunding is not easy. The average crowdfunding campaign raises $1,126. The average campaigner has 426 Facebook friends. Many never reach their target goal.
7. There are two types of rewards-based crowdfunding campaigns: All or None (you get no money if you do not reach your goal) and Take What you Can Get (keep all money raised).
8.The key to asking for money from the masses is to tell a really good, compelling story. There are success stories of entrepreneurs raising thousands, even millions of dollars using Crowdfunding.
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9. The Washington DC Crowdfunding Challenge was launched to give the local community another way to support individuals, startups and small businesses. The Challenge will strengthen local enterprise and economic growth.
10. In order for black businesses to have successful crowdfunding campaigns they have to have the support of black communities.
Here four DC-based individuals and firms that have launched crowdfunding campaigns:
Dega Schembri and Lucinda LaRee, owners of CityFitness Gym in Cleveland Park have launched a crowdfunding campaign to “help us stay an independently owned neighborhood gymâ€;  www.igg.me/at/cityfitness . City Fitness is “the longest standing woman owned fitness business in Washington DC.
Wanda Henderson, owner and operator of Wanda’s Salon & Spa, has over 30 years of experience in hair care business in Washington, DC. She is crowdfunding a new hair care product, Shirley¹s Secret, made with peanut oil and sage, www.igg.me/at/wandas.
Melvin Deal, founder of the African Heritage Dancers & Drummers, has a campaign to help self-publish a book describing the history of African Dance in America, www.igg.me/at/africanheritage.
Melake Gebre wants to bring jazz musicians from all over the US to his Uniontown Bar and Grill, www.igg.me/at/uniontown.
Local individuals and business owners can learn more about raising capital to finance projects or products at a DC only Investment Crowdfunding Forum taking place on December 12, 2014. Visit https://www.eventbrite.com/e/dc-only-investment-crowdfunding-forum-tickets14582054317.